Money has always been a significant issue with any cannabis-oriented business. Loans, payroll, electronic payment, and other financial services have all been withheld for many years. Hopefully, with the passage of the Secure and Fair Enforcement (SAFE) Banking Act, all of that will change.
The SAFE Banking Act vows to reform the way banks work with legal cannabis businesses. If this pivotal law passes, it will put the entire cannabis industry in a more stable financial and legal position.
WHY BANKS WON’T TOUCH LEGAL CANNABIS BUSINESS MONEY
Currently, the cannabis industry has $9 billion in sales and climbing. Unfortunately, almost none of the related businesses have a bank account. If you have legal cannabis or ancillary business, you also probably lack one.
Marijuana is scheduled as a class one drug according to the Controlled Substances Act. In the eyes of the federal government, marijuana remains on par with dangerous narcotics like cocaine or heroin.
As a result of that scheduling, any bank that provides a service to a legal marijuana business can face prosecution. This prosecution could fall under “aiding and abetting” a federal crime.
The charge could result in a bank losing its FDIC deposit insurance.
Banks also need to file a suspicious activity report for every single transaction that involves the sale of marijuana. On top of facing prosecution, banks will need to deal with an unreasonable amount of paperwork.
Clearly, large financial institutions and most credit unions will stay far away from accepting money from cannabis dispensaries, cultivators, and related companies. They simply don’t want to deal with the red tape and risks of serving a legal cannabis business.
Associated businesses aren’t safe either, even if they don’t deal directly with the plant. The banks still see the money they receive as “cannabis-related revenue” and can charge the company with money laundering.
LEGAL CANNABIS BUSINESSES LACK BASIC FINANCIAL TOOLS
Lack of banking options is especially a problem for newcomers and small businesses. No loans can be taken out to pay for new inventory or needed staff. In short, expansion becomes difficult without essential banking tools.
Consequently, the growth of the cannabis industry will stagnate by keeping small operations down. Only those companies with substantial private financial backing can compete, creating an uneven playing field.
At the moment there are limited electronic payment solutions, all of which charge a high processing fee. E-wallet apps are emerging as a new solution, but so far they are not widely implemented.
Furthermore, having an all-cash business creates a public safety risk. Holding large sums of paper money invites theft and robbery.
Marijuana dispensaries and ancillary businesses can’t transport their money either. Even if it’s to pay the state their taxes, they need to bring massive sums of money themselves to a state-building.
Without the transparency of banking records, there is no oversight. The possibility of tax evasion, fraud, and money laundering increases significantly.
THE CURRENT CANNABIS BANKING SITUATION
At the moment, it’s not entirely impossible to open a bank account, but it’s a massive headache. No major bank will take on cannabis accounts, but smaller credit unions might.
No matter which state you live in, there will only be a few brave enough to handle legal marijuana accounts. Those who do are going to limit the number of accounts they take on.
Most are at capacity and not willing to accept more businesses. For example, one such credit union in Colorado has a waiting list of up to two years. High demand means these small banks can charge significant premiums to house and ensure their money.
HOW DOES THE SAFE BANKING ACT ACTUALLY HELP?
The SAFE Act will protect banks and credit unions from legal recourse if they choose to work with legitimate cannabis businesses. The law keeps federal banking regulators from:
Terminating a banks FDIC deposit insurance just for accepting legal cannabis business cash
Discouraging or prohibiting a bank from taking lawful marijuana money
Incentivizing or encouraging a bank to refute an account from someone who owns, works in, or whose work is related to a cannabis business
The law also states that the Financial Institution Council (FIC) needs to develop guidelines to help banks and credit unions serve legal marijuana merchants. If passed, banks will need to implement the law within 180 days.
The law also clearly states that Native American tribes and reservations are covered as well. The Native American reservations are often overlooked, and the law attempts to amend that.
Furthermore, legal cannabis businesses will not need to file suspicious activity reports for every transaction anymore. They will report suspicious activities without bias and by following established guidelines.
In summary, owning and operating a legal cannabis business will become much more manageable. You will have the ability to store, transport, and electronically process money like any other company.
Loans will also become more accessible, but not completely. Since marijuana is still considered a class one narcotic, it can’t count as an asset. So debts from any marijuana business will need to come from property or equipment.
Additionally, cannabis businesses won’t benefit from federal bankruptcy protection. No inventory can be insured unless the class one scheduling changes sometime soon.
If the SAFE act goes into effect, there will be much more accountability. Legal marijuana businesses will be able to maintain verifiable and accurate records.
THE CURRENT AND FUTURE STATUS OF THE SAFE BANKING ACT
The good news is that the bill has been introduced into Congress and passed the Committee on Financial Services. It has bi-partisan support, and at the moment, 178 cosponsors. With this many backers, it should make it through the house without a hitch.
The bad news is that the bill will need to pass the Senate, and the Senate majority leader Mitch McConnell isn’t a fan of marijuana.
Despite that, if the SAFE Banking Act passes, it will be a huge leap forward for the cannabis industry as a whole. It will be an essential stepping stone on the path of the marijuana industry from the shadows and into a more secure legal position.
With financial legitimacy created with this law, it’s not implausible for marijuana to eventually become legalized on a federal level. Regardless of what happens, it’s a step in the right direction, and legal traction is what the cannabis industry needs the most right now.