Financial institutions

Bank of America Corporation (NYSE:BAC) – Other Barriers for Hemp and Cannabis Startups; Financial institutions now need lawyers

Over the past few months, financial institutions, including banks and e-commerce platforms, have asked their cannabis customers to provide additional evidence from a lawyer attesting to the legitimacy of a cannabis company when making application for bank accounts and lines of credit. Although federal legalization is a seemingly never-ending legal battle, entrepreneurs are still entering the cannabis industry with enthusiasm. According to research published by Bank of America (NYSE: BAC), cannabis sales reached $25 billion in 2021. Although having a lawyer on day one is recommended to establish operating agreements and avoid re-filing later, many brands save costs in the first year by avoiding legal consultation. Banks requiring a “legal opinion letter” have made it impossible for cannabis businesses, even those just starting out, to operate without a lawyer.

What is an open letter from a lawyer?

With respect to opening an account with a financial institution, an attorney opinion letter is a formal letter written by an attorney on behalf of a client to a financial institution or third party that attests that Customer’s business practices comply with state and federal law. Certification includes, but is not limited to, compliance with THC limits, third-party testing, packaging/labeling compliance, and age verification procedures. This process can range from $2,000 to $10,000, depending on the size of the business, which only adds to the costs of the business and pushes the boundaries of starting a cannabis business.

A lawyer may need a few days or weeks to complete the analysis and provide an adequate letter. This requirement adds additional hurdles for cannabis brands that are already battling red tape and changing policies in their flagship state. These letters may also require a business to implement protocols and procedures that may not be required by law to do business with the financial institution or third-party service provider, thereby increasing already high business costs.

The gray area

A financial institution or third-party service provider, such as an e-commerce platform, will most often require more procedural safeguards than the law. For example, many require the attorney to certify that the company uses geographic limitations on its sales and shipping platform to ensure that hemp and CBD products are not purchased and shipped within states that have not approved hemp and CBD sales.

However, not all lawyers specialize in cannabis law. As opinion letters from lawyers verifying the legitimacy of cannabis companies become common practice, new brands may consult with friendly or familiar lawyers who can offer them a deal but may not know all the regulations. and policies of their state or county; where, in states like California, regulations may differ from county to county.

By requiring a legal document from a lawyer attesting to the validity of a brand’s practices, financial institutions leave the verification process to lawyers whom they hope are more familiar with local and national regulations. This essentially made it impossible for cannabis brands to operate without a lawyer in the beginning.

Financial institutions like Wells Fargo and JP Morgan Chase have entire departments dedicated to internal audit and risk assessment; it is a necessary cost of doing business. Requiring an open letter from a lawyer to open an account outsources the risk management to lawyers and shifts the financial cost to small cannabis businesses who face significant costs to start a compliant cannabis consumer business.

The current outsourcing risk assessment system puts lawyers in a strange position. In this case, the cannabis companies are the customer, not the bank. Lawyers have an ethical obligation to their client: we cannot disclose information that could legally harm a client, and the client’s authorization is required for anything disclosed by a lawyer. That said, a lawyer can withhold information but will face serious repercussions like penalties, bar hearings, or the loss of their license for misrepresentation.


Whether or not opinion letters from lawyers are an eternal roadblock for companies looking to break into the cannabis/CBD industry remains to be seen, but attorney-client privilege is key. Creating a situation where lawyers verify and report on the compliance of their clients to help them obtain the necessary access to business banking services puts this privilege in jeopardy. Few other companies require such analysis to open a standard business bank account.

This new policy from banks and e-commerce platforms only pushes the starting line for those who don’t have start-up capital, investors, or a blank check from mom and dad. While financial institutions creating lanes for hemp and cannabis brands are a sign of the future cannabis market, this is an inappropriate and overly burdensome hurdle for businesses simply trying to open a business bank account. .

This article was submitted by an external contributor and may not represent the views and opinions of Benzinga.