In the majority of states today, marijuana use is legal in some form or fashion. Whether it’s recreational or medicinal, many have granted legal access to marijuana and THC-related products. But at a federal level, marijuana remains a Schedule I controlled substances, which puts it in a category with heroin, psilocybin and LSD. For marijuana businesses, this naturally poses some obstacles to growth. Thus far, the DEA has not pursued such companies despite their federal illegality, but the bigger issue relates to access to the country’s financial services. Cannabis banking remains a major problem for these businesses, resulting in many holding enormous amounts of cash. And so far, legislation has not made these struggles any easier.
(Dig into the legal history of psilocybin in this Bold story.)
This may soon change with the SAFER Banking Act for marijuana if it ever passes through the U.S. Senate. While the House has passed several versions of a similar bill, the Senate has yet to do so. As a result, marijuana-related companies continue to lack solutions to their cannabis banking problems. The SAFER Banking Act for marijuana would change all this by providing a safe haven for financial institutions dealing with these companies. They would not be subject to prosecution by federal agencies for banking secrecy or money laundering accusations. But until such a law passed both houses of the U.S. legislature, things remain in limbo. And this persists much to the detriment of the industry and to the country as a whole.
Resistance to Cannabis Banking
The problems marijuana companies face when it comes to cannabis banking are widespread. Major banks simply refuse to deal with such companies. According to recent statistics. Roughly 8,000 banking accounts were closed by banks once they found out they were connected to a cannabis business. Visa and Mastercard will similarly not facilitate any financial transactions that involve marijuana purchases. Not only does this require marijuana companies to stash their cash in their own vaults and safe havens. But it also prevents them from accessing loans, lines of credit, and other financial supports that their company might need. In essence, banks and credit companies aren’t willing to take the chance. This is a key area that the SAFER Banking Act for marijuana would change.
Out of all the banks within the country, about 10% are willing to deal with marijuana-related companies. Likewise, about 5% of the nation’s credit unions participate in these activities. But this degree of financial services does not come close to the cannabis banking needs of these firms. In addition, smaller banks that are willing to support cannabis charge these companies excessively. One example described a company paying a $500 monthly account fee and a 0.5% charge on every cash deposit. In addition, cash deposits made from afar had to be sent via armored vehicle at the account holder’s expense. Assuming a marijuana company could locate such a bank, the costs remain unfavorable. This would also be eliminated with the SAFER Banking Act for marijuana once larger banks began to offer such services.
The Slow Process of Legislation
Since the 1970s, cannabis has been categorized as having no medicinal benefit. As such, it has been considered an illegal narcotic at a federal level to this day. Though states have passed laws stating otherwise, and despite ample scientific studies supporting its benefits, these laws persist. Many believe that eventually the Drug Enforcement Agency will reclassify marijuana as a lower-level controlled substance. But to date this has not yet occurred. This is why the focus currently has been on cannabis banking and the SAFER Banking Act for marijuana. Legislators in favor of eliminating these barriers to the cannabis industry are trying to at least protect financial institutions. If dealing with marijuana companies no longer poses risks to banks, then at least one hurdle can be overcome.
Over the last five years, the House has passed a total of seven different bills related to cannabis financial legislation. However, in each case, the Senate filed to do the same with debates never making out of Senate committees. That recently changed this past September, resulting in the SAFER Baking Act for marijuana. It’s now quite probable that the Senate will vote on this bill sometime this, year. If it passes, then the protections offered to banks and financial institutions would be much broader. Assumedly, this would pave the way for larger banks to open up their services to marijuana companies. But this remains to be seen. Even if the bill passes the Senate, it will then have to be approved through a Republican-controlled House. And banks will have to see their risks as being substantially less as well.
A Clear Need for a Change
The Treasury Department did loosen the restrictions related to cannabis banking in 2014. Banks could work with marijuana companies if they verified their state licenses and filed suspicious activity reports for every transaction. Few banks were willing to take on such rules, which is why legislators are pursuing the SAFER Banking Act for marijuana companies. Currently, these companies are having to store cash themselves, which poses challenges when making payroll or paying taxes. It’s not uncommon for these companies to appear at state tax agencies with millions in cash for payment. As can be imagined, this is far from ideal for anyone involved.
There are many other reasons why the SAFER Banking Act for marijuana should be passed or cannabis’ controlled-substance status changed. For one, not having an abundance of cash with which to deal would reduce risks of theft and fraud. Protecting banks in their dealings with marijuana companies would also invite greater transparency and accountability to the industry. And with greater access to funding and financial products, the cannabis industry as a whole could grow according to market demands. Understandably, the cannabis banking landscape is far from ideal presently. But with some reasonable insight, hopefully this will soon change.
