From Banks to Government, Financial Momentum Building for the Cannabis Industry?
Cannabis business owners have often had the doors of banks shut in their faces, shunned by financial institutions and even had accounts closed just for engaging in cannabis-related businesses.
But when there is money and growth potential on the horizon, support is often not far behind. It seems that, however slowly, assistance is emerging from banks and institutions in the US for the cannabis industry.
As reported by
Chicago Businessin October 2019, the number of commercial banks, credit unions and savings institutions
offering the services grew in January 2017 from 337 to 715 by June 2019. Citing data from the Treasury Department’s
Financial Crimes Enforcement Network, this number is also a big jump from the end of April 2018, when there were around 406 depository institutions offering services to cannabis companies.
The industry expanded with the start of legal recreational marijuana sales in Nevada, Massachusetts and California earlier this year. Even so, cannabis is still an illegal Schedule 1 drug at the federal level, which means banks risk federal prosecution and penalties in some cases. If the tide is to turn, there would need to be a fundamental change passed the top level of government.
On the Senate's table ....
It could be happening right now. In September 2019, the House of Representatives passed the Secure and Fair Enforcement (SAFE) Banking Act. It is intended to force federal banking regulators to keep their hands off any depository institution who does business with a legal cannabis operation. Under the Act, regulators wouldn’t be able to terminate or even limit either deposit or share insurance of a financial institution, just because they are doing business with a cannabis company. Regulators also wouldn’t be able to block institutions from offering financial services to cannabis companies. The SAFE Banking Act is now headed to the Senate where could face scrutiny and amendment.
However, it should also be noted that the 700-plus financial institutions actually represent less than 7% of the total number of banks and credit unions in the US. It’s a revolving game of musical chairs for cannabis, because as some banks enter the industry, others are leaving - forcing their cannabis clients need to find a new institution. The reason for this, is because banking with the cannabis industry currently gets banks on the "suspicious activities" list of the Federal Deposit Insurance Corporation (FDIC).
A long way to go ....
Yet we could be on the cusp of change, especially with an election looming. Senate Majority Leader Mitch McConnell had been a strong opponent of legalizing cannabis, but after visiting California cannabis operators in mid-October, seemed to be open to giving the industry a chance. As the SAFE Act was passing in the House, Politicoheld an interview with Senate Banking Chairman Mike Crapo, who said that he wants to hold a vote on legislation that would enable banks to serve businesses within the cannabis industry.
Could the cannabis industry benefit from the SAFE Banking Act? Would this mean the industry could no longer be deemed to be “a suspicious activity” and be given more room to grow? Leave a comment below and let us know what you think.