Reflections Across the Pond: Banking Blues for UK Cannabis industry

Banks, insurance companies and payment providers are refusing to work with cannabis-related companies throughout the UK, hampering the growth of the industry and leaving many in financial limbo.

BusinessCann recently reported that Metro Bank, previously thought to be one of the few UK banks open to working with cannabis businesses, was in the process of closing all accounts related to CBD.

This latest blow to the industry unfortunately represents the tip of the iceberg in terms of the troubles companies face in securing basic services for their businesses to run legally and securely.

According to a number of sources who spoke to BusinessCann, not only are applications often rejected with little explanation or recourse, but businesses often encounter widespread inconsistency during the process, with little rhyme or reason to which applications are successful and which are rejected.

Without a business bank account, not only are companies unable to access financial services, but as a limited company they are unable to operate legally.

Furthermore, without access to even the most basic employers liability insurance, businesses could face fines of up to £2500 for every day they operate without cover.

Banking 

BusinessCann has approached a number of the UK’s leading banks, including Natwest, Barclays, HSBC and Lloyds to determine their policy on working with CBD and cannabis related companies.

After receiving no comment from their media teams, BusinessCann approached the banks’ business accounts team as a start-up CBD company looking to set up an account.

Natwest says that while it ‘does onboard CBD companies’, it does so on a ‘case-by-case basis’ and did not provide any further detail on why an application could be rejected other than if the levels of THC in our products was too high.

HSBC’s team said they were not aware of any policy which would prevent us from opening an account, but said that their team would need to examine our business in more detail.

Barclays also said that they were open to working with CBD companies, and confirmed that it had accepted accounts in the past.

BusinessCann has learned that ancillary cannabis companies have held accounts with both Barclays and HSBC in the past.

Other companies like Revolut and PayPal state outright in their terms and conditions that they will not work with CBD companies, though many companies have been able to open accounts, often only to be closed later on.

While these banks are well within their legal rights to refuse to onboard any company, it is their lack of clarity over which companies are accepted and why, as well as the vague reasons given for closing existing accounts, which is continuing to put cannabis companies at a financial disadvantage.

According to Siân Phillips, Executive Director of The Cannabis Trades Association (CTA), the trade body has been seeing this issue ‘for the past five years’.

She explained that one of the key issues related to much of the legislation put out by the Food Standards Agency (FSA) is that it is often ‘down to interpretation’.

Banks taking a more ‘black and white’ view of which clients they onboard to avoid risk, therefore often choose to avoid the industry entirely, regardless of how legal a company’s operations are.

Insurance

Gaining access to insurance is another major hurdle for cannabis companies throughout the UK.

One source told BusinessCann difficulty accessing insurance went ‘hand in hand’ with the difficulties accessing financial services, while another said it was ‘extremely common across the entire UK’.

Ms Phillips added: “Is not just banking, it is insurance as well. The underwriters can turn around and say ‘now we can’t do this anymore’”.

She explained that while the legalisation of medical cannabis in 2018 ‘softened’ the process of obtaining insurance, this was then made ‘much harder’ by the introduction of Novel Foods legislation the following year.

For many companies already selling CBD this puts their products in a precarious position.

While the FSA demanded that CBD companies and their products must be validated by them before they can sell legally, it allowed those with products on sale before February 13 2020 to continue selling until its ‘Public List’ was published.

“When the FSA came in with Novel Foods, we started seeing the underwriter saying, ‘well, what’s going on?’ Does this mean that we will be able to insure a company if they haven’t got another application in progress or validation or authorization?

“It has made it much harder because they’re now saying we can’t underwrite that, the FSA say it isn’t legal. And then you have to have this argument saying it will go through for validation, and it’s validated that we have authorisation to sell the product.”

No Science or Logic

One solicitor at a law firm specialising in the UK cannabis industry, told BusinessCann that there seemed to be ‘no science or logic’ to which applications are accepted and which are rejected.

They added that this was an issue specific to the cannabis industry, and they continue to hear from clients who’ve either struggled for a ‘long time’ to set up a bank account, or have had their accounts closed with ‘no real explanation’.

“The main issue is that whenever someone says the word cannabis, even if it’s a CBD and wellness company, it sets alarm bells ringing. It shouldn’t, but that’s what happens with these conservative institutions, such as a bank.

“Lets say, as an example, it was a standard cosmetics company. You should be able to, in theory, set up a business bank account and have your employees’ wages going through. And you should be able to get standard insurance for your business. It’s generally not an issue.

“Unfortunately, you just add the word CBD to that, and it starts creating some difficulties.”

Whether an application to open a bank account succeeds or fails can often be down to something as arbitrary as a company’s name.

According to Ms Phillips, companies with references to cannabis in their name frequently have a harder time getting accepted by banks and other financial service providers.

“It’s down to the name as well. It’s a bit unreasonable sometimes that what’s in the name can be the deciding factor.

“I would say if you’re opening a bank account, stay away from any cannabis related names. Everybody shies away from the word cannabis.”

She added that a common tactic was for companies to use one name for their business registered on Companies’ House, under which they open their bank account, and another for their branding.

However, a legal source cautioned that not being candid about your company’s operations from the outset, especially when dealing with companies like Revout and PayPal which explicitly state they do not work with cannabis companies, can result in accounts being terminated abruptly.

Conversely, rather than attempting to conceal a company’s connection to the cannabis industry, Prohibition Partners’ CEO Stephen Murphy said that the more opportunity there is to explain a company’s position in detail, the more likely they are to have their application accepted.

“The accounts that we did open, we worked with senior relationship managers, instead of just going into the branch and setting up an account.

“What we had to do was explain our position. The ones that did work required us to explain our position in advance.”

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