The Source of Funds Problem In Cannabis

If you’re not in the cannabis business, or close to someone who is, the source of funds problem in cannabis isn’t apparent. It’s 2022 and you can open and manage a bank account online 24/7, after-all. 

The truth is that the nascent cannabis industry, which is on track to over take craft beer, is being marginalized by the dissonance between Federal and State law. Cannabis businesses, founders & employees alike are running into hard walls in Federally regulated businesses at the heart of financial services; banks & credit unions, lenders, and brokerages. 

Everyone in cannabis knows the problem alltoowell.  Everyone else has the aha moment, usually when they find out about the consequences of the source of funds problem in cannabis. It’s shocking to think an entire industry can be succeeding having been left on the outside (for now). Read on or watch the video to dive into the origins and symptoms of this problem with us.  

Table of Contents

Origins of the Source of Funds Problem In cannabis

The very heart of the issue is simple. Cannabis (NOT Marijuana) is a schedule one controlled narcotic Federally. This means, according to the DEA, there are no accepted medical uses and a high potential for abuse.

There’s a lot of discussion and reevaluation around how cannabis came to be included on the list besides heroin and meth, but that’s not what we’re here for. I definitely encourage ever reader who is unfamiliar to spend an hour diving in.

Ultimately, because Federal law supersedes the laws of the States, this has huge ripple on effects everywhere the government’s reach extends. 

How does this intersect financial services Regulation?

Banks & Lenders

Banks and credit unions are federally regulated by the OCC and also fall under the purview of the FDIC or NCUA.

As far as regulators tasked with enforcement and oversight, they are bound to follow the law. Even when the leadership of these organizations wants to adopt change, the best they can do is offer guidance for staying above board

Brokerage & RIAs

FINRA and the SEC jointly oversee most of the investment and financial advisory businesses. Think financial advisory firms, trading platforms, investment banks or custodians.  

As with the OCC, FDIC & NCUA they are Federal organizations which are bound to enforce, not write, the law. 


how does the source of funds problem in cannabis affect The Real World?

The problems caused by the source of funds problem in cannabis are often out sight to most Americans, but they are omni present in the States where cannabis has been legalized recreationally, medically or both.  

We’ve broken down the biggest hurdles we’ve seen firsthand below.

Cash Basis Everywhere

If you don’t often look below the headlines or haven’t been to a dispensary this may surprise you. Cannabis is largely transacted using cash – according to Forbes, 70% of the industry operates entirely on cash!

This means businesses have to incur disproportionately high cash handling expenses compared to their peers in other industries. Armored trucks aren’t known for high MPGs. I spoke to a grower in California this week who has to randomize how they pay the power company because of how much cash they are transporting to pay that bill on a regular basis.

There are ~200 cannabis-friendly banks actively growing in the business, and several have a compelling value proposition. As a category cannabis banking is expensive, often incurring 0.50% fees on the way in and on the way out. There are also monthly fees added on top just for having the account. 

This leads to the genuinely unpleasant problem of having literal stacks of money to store securely. There are whole businesses dedicated to meeting this demand, and I’ve spoken to founders who have come up with exotic storage solutions from high-end condos to literally burying their money. 

Restricting investment

Cannabis businesses, founders and employees alike are unable to invest the way everyone else can.

In business, this is expressed in high reinvestment rates (“it’s better than cash”). On the other side, exits are often exchanges of paper not cash.

For founders and employees, this means problems stemming from Know Your client regulations that prevent them from participating in qualified retirement accounts, opening regular brokerage/bank accounts or even getting a mortgage. Even CD’s, or certificates of deposit, are out of reach.

There are a few exceptions – self custodying RIAs for example – but these are still handicapped by an inability to give clients access to public markets. 


Real risks of massive peril

This problem is in the news a LOT and are a devastating side effect of the cannabis source of funds problem. Accumulating generational wealth in cash is perilous and paints a big target for criminals and even the government. 

Here in Michigan, there’s a well known family who’s lawfullly operated business was seized forcing them into bankruptcy and fundamentally changing their quality of life. These stories are terrible, often life-threatening, and all-to-common. This is the United States, it’s crazy that people have to have armed security and protocols for these risks because there is no alternative.


Cannabis money can’t be sent to most banks – the incoming transfer from a cannabis-friendly bank will not go through and cash deposits will be denied. This stems from KYC, or know your client, regulations.  

This is just the tip of the iceberg though. 

Without access to investments or banks, cannabis cash is left out of the realm of financial planning. It’s crazy that in 2022 an entire industry is being denied the ability to grow, access and protect their money. 

Looking beyond financial services, even direct investment is more challenging than other industries. ESGs and conservative LPs prevent institutions from entering the industry. This compresses exit values, holds back maturity and disproportionately raises the burden on this sector. 

So Much More

This post could extend for hundreds of pages to cover all the nuanced problems federal dissonance causes. The closer you look, the more problems you’ll find. Just search for “cannabis banking problems” or “cannabis source of funds problem” and you’ll see how pervasive they are. 

What's the solution?

It’s fantastic to see how far the cannabis industry has come despite these shackles.

Don’t let me fool you either, many leaders in cannabis finance are attacking this status quo and bringing groundbreaking solutions to market. 

I know I’m looking forward to the day that it’s just finance.

In the meantime we’ll keep building Evergreen. We’re bringing the first cannabis friendly life insurance and annuity products to market.

Out in the rest of the world – our attitude is aligned with the cannabis industry at large. Federal legalization needs to happen ASAP, for so many reasons. 


We’re not an admitted carrier yet, and our products have not yet been approved for sale. None of this is financial advice, and we make absolutely no binding commitments, warranties, or promises etc. This is our blog, and where we talk about a lot of things at the intersection of cannabis, entrepreneurship & insurance. We’re in a highly regulated business, so please forgive us. We have to use legalese like this.