More than 85 percent of Americans live in a state where marijuana is legal, either medically or recreationally or both. This includes many of the states this publication covers. Despite the evolving legalities, businesses that grow, market or sell cannabis products are legally shut out of the banking system and must rely on cash transactions.
The most discussed federal cannabis-related legislation that would change this is the SAFE Banking Act, which would prohibit federal regulators from disciplining depository institutions that provide banking services to government-licensed cannabis-related businesses. The bill has passed the House six times, most recently in February 2022, but has never cleared the Senate. Partisan differences have complicated the chances of passing the bill: Senate Banking Committee Chair Sherrod Brown, (D-Ohio), believes the Act is too limited and should include sentencing reforms, a stumbling block for some Republicans.
Supporters note that violence remains prevalent due to the cash circulating in cannabis purchases: In one two-week period in Oakland, Calif., there were 25 robberies of cannabis dispensaries. During the American Bankers Association’s Washington Summit in March, Sen. Jon Tester (D-Mont.) said he supports the bill as a way to ease safety challenges and provide bankers with clarity on how to handle cannabis businesses. He predicted the measure would pass the Senate if it was brought to a vote.
Another bill, the Marijuana Opportunity Reinvestment and Expungement Act of 2020, reintroduced this year and sponsored by Jerrold Nadler, (D-N.Y.), has passed the House of Representatives. The bill would make a number of changes to current cannabis policy, including allowing small businesses operating in the legal cannabis industry to participate in SBA lending programs. Currently, the SBA bars any company that derives any income from the activity — even non-directly-touching trades such as lighting, HVAC or plumbers — from receiving SBA loans.
The MORE Act also imposes an excise tax on cannabis products produced in, or imported into, the United States, along with an occupational tax on cannabis production facilities and export warehouses. The bill passed the Democratic-controlled House in December 2020 on a 228-164 vote largely divided by party lines; but the bill went nowhere in the then-Republican majority Senate, according to CNBC.
Neither bill is likely to move forward prior to November’s midterm elections but could during the lame duck session, said Tony Repanich, president and chief operating officer at Shield Compliance. Even if that occurs, however, federal marijuana legalization is not a sure bet. Once legalization occurs, banks will face strict guidelines for banking cannabis similar to the ones related to payday lenders or casinos, he added.
Delene Gilbert, director of sales and marketing for Oklahoma State Bank’s marijuana-related banking program, admits to being “a bit torn” on the benefits of the SAFE Banking Act. “I can understand why they are rejecting it,” she said. “I’m all about businesses having access to regular banking services, but I’m afraid that with the SAFE Banking Act passing, our businesses that we’re banking, will all of a sudden think: ‘All of the banks are going to start taking it now.’”
Michael O’Neill, director of cannabis banking services at St. Cloud, Minn.-based Stearns Bank, said Congress will likely prioritize addressing decades-high inflation and the war between Russia and Ukraine before taking action on either bill. “I’m not holding my breath,” he said.
Even if both bills pass, O’Neill doesn’t believe many banks will rush to serve the market because it will still be a relatively expensive and challenging industry to finance. “I’ve walked through more production houses, dispensaries, manufacturing facilities than I can even think about remembering over the last seven-and-a-half years,” he said. “It’s a different type of banker that you are looking for.”
Financial Crimes Enforcement Network guidance will likely not be revealed until 18 months after either the SAFE Banking Act passes or cannabis is fully legalized, according to RiskScout Director of Compliance Kristin Parker. Any guidance will likely be modeled after the 2018 Farm Bill, she said, which left each state to pass their own version of hemp legalization, as long as it followed the USDA hemp guidelines. She expects the cannabis industry will likely be cash-intensive for several years following legalization as financial institutions and payment processors work through early hiccups.
Though Democrats are considered more amenable to passing marijuana reforms, Minnesota Cannabis Law Firm Founder Jason Tarasek said party support for legalization is not unanimous. “This industry continues to have a stigma,” Tarasek noted. “There are 18 states where it’s legal for adults to purchase [recreational] marijuana. That isn’t very many.”
And while President Joe Biden is not hostile to the cannabis industry, he hasn’t supported the industry as much as some advocates had hoped. “We were looking for a bigger advocate, especially getting more clarity as to CBD products from the FDA,” Tarasek said. “That remains nebulous. It’s a hot potato that no regulators want to touch. And President Biden has shown no interest in resolving any ambiguity for the industry.”