Cannabis and Banking

 

'Members of the US House of Representatives overwhelmingly approved legislation on Tuesday, HR 1996: The SAFE Banking Act, amending federal law so that banks and other financial institutions could partner with state-licensed marijuana businesses. Two hundred and fifteen Democrats, along with 106 Republicans, voted in favor of the measure.

The vote marks the fourth time in two years that the House has advanced the Act. Previously, Senate leadership has either failed to take up the issue or has removed the language from broader legislation.' 

 

- NORML, April, 2021

 

 

It has been two and a half years since the above article appeared. As far as I know, the US Congress, i.e. the House and the Senate, are still playing ping-pong with this most important issue that plagues the industry that earns the US huge amounts of revenue each year, and employs a large number of persons. While the Federal Government tries to conjure up rabbits out of its top hat to pay the mountain of expenses needed to run its government, it still has the time to harass the industry that holds the most promise to bail it out, and help it get out of the climate quagmire that it finds itself in.

 

The legal cannabis industry in the US is projected to be in the range of $45 billion by 2025. The economic impact of the cannabis industry is projected to be $100 billion. The legal cannabis industry employed more than 300,000 full time employees in 2020, as per a report by Leafly.  Cannabis was declared an essential service in nearly all states with legalized recreational cannabis during the Covid pandemic lock down of 2020. Many states have been able to meet their operating expenses, and stay in the green through the cannabis tax revenues that they have collected during the pandemic related economic crisis. As of October 2023, 23 US states have legalized cannabis for recreational purposes, 38 US states have legalized cannabis for medicinal purposes, and all states in the US have legalized cannabis for industrial purposes. The US Farm Bill of 2018 legalized cannabis for industrial and agricultural purposes federally. Tax revenues from the cannabis industry overtook that from the US alcohol industry in 2020. Every US state with legalized recreational cannabis has been seeing monthly sales records being broken, month on month, since the time that they legalized cannabis for recreational use.

 

Despite all the above, cannabis is a Schedule 1 banned drug in the US under the US Controlled Substances Act. Businesses related to the plant do not have access to banking services the way other legal businesses worldwide have. The US federal status on cannabis prevents banks from engaging with cannabis businesses, forcing these businesses to operate on a cash only basis. This has been one of the biggest hurdles to the emerging legal cannabis industry. Businesses and individuals run the risk of robbery as they handle large amounts of cash due to the booming legal cannabis industry. Without banking services for the cannabis industry, the probability of unaccounted money increases, resulting in the potential diversion to other illegal activities, as it happens with the black market. Tax departments face challenges in terms of counting, handling and transporting cash when businesses pay their cannabis taxes. The US banks have a wide sphere of influence, and many nations in the surrounding region, such as the Caribbean and central American countries, are severely hampered in terms of doing cannabis related business, due to the restrictions imposed by the US banking system. 

 

Recently there has been growing awareness of the problems that this situation poses, and a number of US lawmakers have taken up the cause of making the banking system accessible to cannabis businesses and individuals. A number of US states have come forward with progressive banking laws within their states. There have been calls for banking reform from top federal officials from the US Treasury department. There are currently a number of banking reform related bills in the US parliament. There are currently a few credit unions who offer basic banking services to the cannabis industry. With Democratic control over the US House of Representatives and US Senate post the 2020 elections, the chances of banking reform with relation to cannabis has increased. In April 2020, the US House of Representatives voted overwhelmingly in favor of cannabis related banking reforms. This was the fourth time that a bill related to cannabis banking has been approved in the House. I am not sure what happened after that but as far as I know the politicians are still playing the same old games when it comes to cannabis reform.

 

The passage of banking reform related to cannabis will be one of the landmark events and will have a knock on effect, not just in the US, but worldwide, in the process of cannabis legalization. With banking accepting cannabis as a legal industry, not only will cannabis businesses have the availability of an essential service that all legal businesses can avail of, it also opens the possibility for cannabis businesses to avail of banking loans and funding. Banks can look to getting true returns on investment from the cannabis sector as the nascent industry takes off. Cannabis is a truly green, sustainable and renewable industry, one of the industries of the future, that can help pull the world away from its path of man-made climate disasters brought about by unsustainable industries. Currently, these unsustainable industries, such as petrochemicals and pharmaceuticals, have so much wealth and influence that they surely have a very strong voice in banking policies, enough influence to dissuade banks from working with the cannabis industry, which they view as a significant threat. The prudent banker will be the one who recognizes that cannabis represents significant, sustainable cash flows that are only going to increase as the world legalizes cannabis. The prudent banker will be the one who reduces dependency on the harmful, unsustainable, and increasingly risky environmentally damaging industries. The prudent banker will be the one who makes independent decisions on the basis of this knowledge and recognizes the true value of the money he deals with. Yes, money talks, but money representing the true value of the earth talks the truth.

Related articles

Below are a set of articles that have appeared in various media regarding banking and the cannabis industry. Words in italics are the thoughts of yours truly at the time of reading the articles.

 

https://www.marijuanamoment.net/house-gop-committee-urges-opposition-to-marijuana-banking-bill-saying-gateway-drug-causes-violence-depression-and-suicide/


Even as 38 states and the District of Columbia have loosened cannabis laws within their borders, the federal government’s classification of cannabis as a Schedule 1 controlled dangerous substance, the same category as drugs such as LSD and heroin, repels financial institutions from taking a risk.

The burden of securing daily revenues then lands on dispensaries, who rely on paper money or cannabis payment apps, like Dutchie Pay — and possibly makes stores vulnerable targets.

https://www.thebaltimorebanner.com/politics-power/state-government/mastercard-debit-cannabis-purchases-TBK2EG47L5ARRC3CVCBFHCHKOA/
 

'“We have a contract with DEA. We are growing cannabis for [Food and Drug Administration] clinical trials and selling it to the DEA,” she said. “It’s unconscionable the way they are behaving—and further proof that the word ‘cannabis’ continues to be completely radioactive even though this is a 100 percent federally legal operation.”

“Fortunately, there are banks that care about the progress of federally regulated and federally legal research and are eager to step up and support us immediately,” Sisley added. “We will be moving our funding from Bank of America and never returning there. Our research continues without harm because other banks that care about scientific freedom were able to step up. Bank of America doesn’t even have the decency to provide an explanation after a decade of banking with an openly plant-touching business.”'

https://www.marijuanamoment.net/bank-of-america-cancels-account-of-marijuana-and-psychedelics-research-institute-registered-with-dea/

'Hood didn’t endorse any particular pieces of legislation, though his remarks do specifically mention the Secure and Fair Enforcement (SAFE) Banking Act, and he said Congress needs to effectively “harmonize” federal and state cannabis laws so that the industry is no longer kneecapped and financial institutions don’t have to fear being penalized for servicing marijuana businesses.

He also spoke more broadly about the prospect of federal legalization and characterized it as an inevitability.

“I’ve heard a variety of perspectives, but there’s one common refrain: they all agree that legalization is a matter of when, not if—and they urge federal action to get it done,” he told attendees at the conference on cannabis banking, payments and compliance. “Legalization in some form is going to happen, and the abdication of responsibility to address these issues in Washington is simply ludicrous. This is precisely the time we need leadership at the federal level to steer this ship in the right direction.”'

https://www.marijuanamoment.net/top-federal-financial-regulator-slams-congress-over-marijuana-inaction-and-calls-for-interagency-banking-workgroup/

'While more banking institutions are offering services to CRBs than ever before, CRBs often still struggle to:

- Find an institution willing to offer services.
- Build and maintain a compliance regime that will be acceptable to that institution.
- Afford the services, given the high fees associated with these types of accounts.

The gap between the need for banking and the financial service providers’ sparse and expensive offerings to the sector have created an opportunity for third-party firms to intervene and provide a compliance structure that will satisfy the needs of the financial institutions.'

https://mjbizdaily.com/changing-us-cannabis-banking-landscape-and-hexos-falling-stock-prices/

'People like Charles have to keep hundreds of thousands of dollars of cash on them, along with buckets of change, so they can keep track of every single cent that goes in and out of the business.

“Imagine you have to do everything in your life in cash, and that’s it. You don’t have a debit card; you don’t have a checkbook; you can’t do anything online, just cash. A contractor comes in, an electrician, does $60,000 worth of work. You’ve got to have $60,000 worth of cash on you. It’s daunting, and you have to have systems on systems on systems,” says Charles.'

https://www.leafly.com/news/industry/the-dangers-of-running-a-multimillion-dollar-cash-business

'While insurance companies already provide a broad suite of services to help cannabis companies sustain their growth plans, federal legalization of recreational marijuana would be a huge step forward, both for MJ businesses and the companies that insure them, Pyfrom said.'

https://mjbizdaily.com/prospects-brighten-for-cannabis-producers-seeking-insurance-coverage/

'The FCA told AgriPulse that its memo was not intended to deter hemp lending.

“What we tried to convey in this memo was that if you, as an institution, are going to finance hemp, these are things you should consider,” said Lori Markowitz, senior policy analyst in the FCA’s Office of Regulatory Policy.'

https://hempindustrydaily.com/federal-loan-memo-warns-banks-about-working-with-hemp-producers/

'The credit union, which services roughly 60,000 people, is partnering with Green Check Verified, a financial technology company that enables financial institutions to “safely and efficiently” offer services to legal marijuana businesses.

The move comes after the National Credit Union Administration in March sent a cease-and-desist order, citing Live Life Federal Credit Union for failing to comply with marijuana banking regulations and ordering the financial institution to stop opening new cannabis accounts.

Since then, Michigan Gov. Gretchen Whitmer has shown support for the Secure and Fair Enforcement (SAFE) Banking Act, which would allow cannabis companies to bank with financial institutions.'

https://mjbizdaily.com/michigan-credit-union-to-provide-banking-services-to-marijuana-companies/

'The road to global cannabis reform is a series of small battles fought by the pioneers of cannabis efficacy, the science of cannabinoids and agriculture and, finally, the fundamental right of legal access to the plant itself.

No matter the jurisdiction, marijuana reform has required a steady process of removing the stigmatization, creating the legal infrastructure for safety and traceability as well as building a safe and fair system for commerce.

What began with the very real need to protect both the lives and livelihoods of small marijuana businesses now sits poised to provide the final piece for global institutions ready to accelerate international reform.'

https://mjbizdaily.com/how-the-safe-banking-act-could-ignite-global-cannabis-reform/

'Members of the US House of Representatives overwhelmingly approved legislation on Tuesday, HR 1996: The SAFE Banking Act, amending federal law so that banks and other financial institutions could partner with state-licensed marijuana businesses. Two hundred and fifteen Democrats, along with 106 Republicans, voted in favor of the measure.

The vote marks the fourth time in two years that the House has advanced the Act. Previously, Senate leadership has either failed to take up the issue or has removed the language from broader legislation.'

https://norml.org/news/2021/04/22/congress-house-members-once-again-pass-safe-banking-act

'“The continued inclusion of my SAFE Banking Act in this package is important for the cannabis industry and its workers,” Rep. Ed Perlmutter (D-CO), the lead sponsor of the standalone marijuana financial services legislation, said. “The industry faces an increased public safety risk and public health risk by being forced to make transactions in all-cash. The SAFE Banking Act, which already passed the House with a broad bipartisan vote, will take cash off the streets, enable better social distancing in transactions, and support good-paying jobs in communities across the country when we need them most.”

That said, there’s lingering frustration that House leadership is willing to stand up to GOP opposition for a measure considered industry friendly but decided to postpone a floor vote on a comprehensive legalization bill amid the objections of certain centrist Democratic members who worried about optics. Those legislators convinced leadership to delay the vote until later in fall, likely after the election.'

https://www.marijuanamoment.net/house-approves-marijuana-banking-protections-for-third-time-as-part-of-new-covid-bill/
 

 

'The U.S. House of Representatives’ vote approving legislation that would pave the way for financial institutions and insurance companies to serve state-legal marijuana businesses without fear of reprisal is a milestone for the cannabis industry.'
https://mjbizdaily.com/after-the-safe-vote-in-us-house-heres-what-you-need-to-know-about-the-current-state-of-banking-in-the-marijuana-industry/


'And, it’s only fair according to DeAngelo. “The cannabis industry currently pays the federal government over $5 billion in taxes each year,” he said, “and it deserves to get the benefits all other business have access to, namely safe banking.”'
https://www.forbes.com/sites/julieweed/2019/09/27/cannabis-executives-cheer-congress-approval-of-pot-business-banking/


'A bipartisan coalition of 34 state and territory attorneys general are urging Congress to pass coronavirus relief legislation that includes language protecting banks that service marijuana businesses from being penalized by federal regulators.

The case they lay out runs directly counter to seemingly coordinated statements by GOP lawmakers in opposition to the banking provision’s inclusion in legislation the Democratic-led House passed on Friday.

 In a letter to House and Senate leadership on Tuesday, the top state law enforcement officials said there are three main reasons that providing the cannabis industry with banking access is especially necessary during the pandemic.'
https://www.marijuanamoment.net/34-bipartisan-attorneys-general-tell-congress-to-pass-marijuana-banking-as-part-of-coronavirus-bill/


Organized thuggery and targeting by vested interests using the smoke screen of public disturbance..now haven't we seen this before?
https://thcnet.com/news/several-us-cannabis-companies-targeted-during-nationwide-protests-as-business-owners-lose-millions-to-looters

 

 
'PayQwick has expanded beyond the cashless ATM concept and now offers an alternative payment service on the business-to-business transaction side.'
https://www.electran.org/publication/transactiontrends/transaction-trends-exclusive-ce-series-risky-business/


'An Ohio credit union confirmed Monday it will offer “limited banking services” to the state’s medical cannabis companies.

While it’s not clear at this point what “limited banking services” means exactly and what may be offered to marijuana businesses by Wright-Patt Credit Union, the move is a positive one for cannabis companies that hope to avoid operating on an all-cash basis.'
https://mjbizdaily.com/credit-union-offering-limited-banking-services-ohio-medical-marijuana-companies/


'At least one bank in Massachusetts is willing to do business with medical marijuana companies.

Swansea-based BayCoast Bank said it will take deposits from MMJ businesses, according to the Boston Business Journal.

BayCoast Bank is offering to work with medical marijuana companies – as well as MMJ businesses that have entered the state’s new adult-use market.'
https://mjbizdaily.com/massachusetts-bank-willing-to-accept-deposits-from-some-cannabis-businesses/


'While a small percentage of the nation’s credit unions currently serve the legal weed industry, Skinner and others suggested credit unions considering entering that space do so now rather than waiting for greater clarity at the federal level.'
https://www.cujournal.com/news/patchwork-of-pot-laws-compounds-credit-union-headaches


'Puerto Rico’s medical marijuana companies have lost their only banking solution, forcing them to conduct business in cash.

Tu Coop, an in-state credit union, had been providing banking to MMJ firms as part of the cooperative sector, which is regulated by local authorities, Caribbean Business reported.'
https://mjbizdaily.com/puerto-rico-medical-marijuana-no-banking/


'There are simple solutions. The Treasury Department, which has the regulatory pen, could simply exempt banks from reporting on state-licensed marijuana businesses. Another easy move would be to exempt state and local governments from any filing as a result of depositing tax revenue from this industry. Bank regulators who examine institutions for compliance should clarify the process for both serving marijuana firms and for dealing with existing customers who do business with those firms.

Yes, there are political risks to fixing the situation. But failure to act has created an absurd situation. Conservatives who dislike costly regulation and progressives who favor state-legalized cannabis ought to be able to agree and fix it.'
https://www.latimes.com/opinion/op-ed/la-oe-klein-marijuana-banking-20190130-story.html


'The credit union is limiting the size of the deposits made by cannabis businesses so the institution can manage its capital ratios, Call noted, and it’s risking federal prosecution and investigations for handling financial transactions for those companies, he told the publication.

Increasingly, credit unions are providing banking services to marijuana businesses, which are often rejected by private banks.'
https://mjbizdaily.com/california-credit-union-banking-services-cannabis-businesses/


'A February 13 hearing on the issue would come almost exactly five years to the day after the Obama administration’s Treasury Department issued a Valentine’s Day 2014 memo outlining guidance for how banks can serve cannabis businesses without running afoul of federal regulators.

That document encouraged some financial services providers to work with marijuana businesses, but many banks remain reluctant until federal law is formally changed. As a result, many cannabis growers, processors and sellers conduct their state-legal activities on an all-cash basis, which can make them targets for robberies.'
https://www.marijuanamoment.net/congressional-democrats-plan-hearing-and-vote-on-marijuana-business-banking/


'During his remarks this morning at #ABACCB, @BankersPrez called for “Congress to step in and reconcile the gap between state and federal law when it comes to banking cannabis.” He added that the divide is creating public policy concerns for many communities.'
https://twitter.com/ABABankers/status/1095084797385416704


'“Forcing legal businesses to operate in all-cash is dangerous for our communities,” Merkley said in a press release. “It’s absurd that cannabis business owners in Oregon have to shuttle around gym bags full of cash to take care of their taxes or pay their employees. Operating in cash is an invitation to robbery, money laundering, and organized crime. This is a public safety issue, and I hope that this will be the Congress when we build a bipartisan consensus to put this common-sense fix into law.”'
https://www.forbes.com/sites/tomangell/2019/04/11/senate-bill-would-let-marijuana-businesses-store-profits-in-banks/#63684fde6389


'California's treasurer and attorney general will study whether the state should create its own publicly owned bank to serve the state's now-legal cannabis industry. On a conference call Tuesday, Treasurer John Chiang, a candidate for governor, said his office will look into costs, regulation and other operational issues the state would need to consider before creating such a bank — an entity that would be one of just two in the nation.'


'"If we don't change our laws here and the banks don't have a chance to come in and fund companies and have access to out capital markets, we're going to end up having our industry owned by Canadian conglomerates," Peterson said.'
https://markets.businessinsider.com/news/stocks/marijuana-stocks-terra-tech-canada-leaving-them-in-dust-2018-10-1027612501


'California's insurance commissioner released an updated list of cannabis insurance agents and brokers'
http://www.insurance.ca.gov/01-consumers/160-cannabis/upload/10-05-18-Insurance-List-Cannabis-Insurance-Agents-and-Brokers.pdf


'Growers want protection against crop loss and other business coverage, and weed distributors and retailers need insurance as well. The companies have long known that U.S. banks won;t let them open accounts because of the federal law, and now they’re finding it difficult to buy insurance.'
https://www.bnnbloomberg.ca/nationwide-isn-t-on-their-side-insurers-shying-away-from-pot-1.1128314


'With most retail categories in the United States already accepting electronic forms of payment, there are few places left from which to realize new sources of revenue and profit. The legal cannabis industry is an exception, and fortunately, it has the potential to be a lucrative one.'
http://www.electran.org/publication/transactiontrends/guest-post-policy-changes-to-legal-cannabis-provide-opportunity-for-eta-members/


'Louisiana’s top banking regulator has joined colleagues in other marijuana-legal states asking the U.S. Congress to clear the way for banks to do business with the marijuana industry.'
https://mjbizdaily.com/state-leaders-seek-banking-solution-for-marijuana-industry/


'Hawaii’s top banking regulator joined the growing chorus of state leaders urging Congress to consider banking solutions for the cannabis industry.'
https://mjbizdaily.com/hawaii-regulator-calls-for-federal-marijuana-banking-solutions/


'In March, Assistant Treasurer Josh Stowers told MetroNews that banks informed the office they are “uncomfortable” and “unwilling” to process funds relating to medical cannabis because the drug is still illegal on the federal level.'
http://wvmetronews.com/2018/09/17/with-financing-still-uncertain-questions-largely-unanswered-on-future-of-medical-cannabis-law/


'We cannot accept this false sense of security” Seefried told 200 attorneys, academics and politicians last week during the Cannabis Law Institute at George Washington University in Washington, D.C. Her “Emerging Risk in Banking” presentation identified systemic legal obstacles confronting CRBs and their counsel.'
https://newfrontierdata.com/marijuana-insights/recognizing-banking-risks-emerging-cannabis-business-ventures/


'Recreational and medical marijuana businesses in Massachusetts can look forward to having access to banking services after a credit union announced it is willing to serve them.

The GFA Federal Credit Union, a state-chartered credit union with $500 million in assets, will begin accepting marijuana clients by Oct. 1, offering basic services that include cash management, checking accounts, payroll, wire transfers and bill payments, The Boston Globe reported.'
https://mjbizdaily.com/massachusetts-credit-union-says-it-will-serve-recreational-marijuana-businesses/


'But with the legal marijuana market forecast to reach US$146.4bn by the end of 2025, according to Grand View Research, the opportunity may be too tempting for banks to pass on for much longer. '
https://www.reuters.com/article/marijuana-loans/banks-pass-on-marijuana-loans-for-now-idUSL2N1XD0MN


'“This is the first time we’ve explicitly called for the federal rescheduling of marijuana,” Tom Martin, NLC’s director of communications, said in an email. “For the past five years or so, we’ve been asking the federal government to resolve the conflict between state and federal laws in regards to the banking issue.'
https://www.marijuanamoment.net/local-officials-from-across-us-call-for-federal-marijuana-rescheduling/


'“The stupidest thing these guys could do is keep cannabis out of banking,” says Henry Wykowski, a former federal prosecutor who now represents California cannabis dispensaries with a focus on tax cases. “If anything, they should be wanting to monitor the cannabis industry instead of forcing it to become further entrenched in the underground where it’s been, and that makes it much more difficult to regulate and control.”'
https://qz.com/1461947/the-irs-cant-handle-cannabis-companies-all-cash-tax-payments/


'The increasing momentum behind marijuana banking legislation is the latest sign that the politics of pot are rapidly changing in the nation's capital, as voters across the country back legalization.

"We now have I think close to a majority of the nation's population that lives in states where some form of access to marijuana is legal," Heck said. "The businesses that either grow it or process it or retail it are operating under this terrible cloud because banks and credit unions aren't quite sure what the federal regulators will do to them if they provide those services."'
https://perlmutter.house.gov/news/documentsingle.aspx?DocumentID=2286


'Conventional wisdom says that it’s going to be a tall order to pass banking legislation next term, but there just might be a key exception.

One measure to watch will be a legislative fix for banks with customers in the legal marijuana business. While success is certainly not guaranteed, a narrow safe harbor for financial institutions in states where cannabis is now permitted is beginning to draw wide support from industry officials as well as from lawmakers on both sides of the aisle. As chatter picks up, such a provision could find its way to passage in what may be an otherwise deadlocked term.'
https://www.americanbanker.com/opinion/the-one-banking-bill-congress-might-actually-pass-next-term


'Joseph Otting, the comptroller of the currency, told reporters that lawmakers “have to act at the national level to legalize marijuana if they want those entities involved in that business to utilize the U.S. banking system,” according to PoliticoPro.'
https://www.marijuanamoment.net/trump-treasury-official-wants-congress-to-fix-marijuana-businesses-banking-issues/


'Banks are caught in the conflict between state & federal law when it comes to cannabis, which is why we support @RepPerlmutter @RepDennyHeck @RepSteveStivers @WarrenDavidson #SAFEBanking Act to improve clarity for banks and the communities they serve'
https://twitter.com/ABABankers/status/1103801418312544256


Another reason to bring in banking, e-payments and re-scheduling the plant at the federal level?

'“This will make it easier and more lucrative to rob a delivery person than a liquor store,” said Swing, who is president of the California Police Chiefs Assn. He notes drivers would be allowed to carry up to $10,000 in cash. “Robberies are the tip of the iceberg. They can lead to other crimes, including aggravated assaults and homicides.”'
http://www.latimes.com/politics/la-pol-ca-california-pot-deliveries-state-regulations-20180917-story.html


'Fred Guttenberg wasn’t happy with Wells Fargo’s decision to keep banking with the gun industry after the Parkland shooting, in which his daughter Jaime was one of the 17 people killed, but he was willing to continue talking when the bank’s CEO told him they wanted to remain politically neutral.

Then came the bank’s decision to shut down Florida Agriculture Commissioner candidate Nikki Fried’s campaign account due to the financial support she received from the medical marijuana industry.'
https://www.miamiherald.com/news/politics-government/article217444495.html