What are common issues regarding cannabis banking law compliance that lead to litigation?

The following issues are among the most common in actions regarding cannabis banking law compliance:

• Lack of Banking Services: Many cannabis companies struggle to secure basic banking services due to the federal illegality of cannabis. This leads to operational challenges, such as managing cash transactions and payroll, which can result in regulatory violations and potential litigation.

• Money Laundering Concerns: Without access to traditional banking, cannabis businesses may resort to alternative financial solutions, raising concerns about potential money laundering activities. Failure to implement robust anti-money laundering (AML) measures can lead to legal action and regulatory penalties.

• Tax Reporting Errors: Cannabis companies must navigate complex tax regulations, including IRS Section 280E, which prohibits deductions for businesses trafficking controlled substances. Failure to accurately report income and expenses can result in audits, fines, and legal disputes.

• Inadequate Record-Keeping: Compliance with banking regulations requires meticulous record-keeping practices. Failure to maintain comprehensive financial records can trigger audits and investigations, leading to litigation over regulatory non-compliance.

• Unclear Regulatory Guidance: The evolving nature of cannabis banking regulations, coupled with inconsistencies between federal and state laws, creates uncertainty for businesses. Without clear guidance, companies may inadvertently violate regulations, leading to legal challenges and enforcement actions.

• Security Risks: Operating primarily in cash poses significant security risks for cannabis businesses, including theft, robbery, and employee safety concerns. Failure to implement adequate security measures can result in legal liability and litigation.