SAFE Banking Act
Updated: Feb 24, 2020
As of 2019, there are more states in the U.S. that have legalized cannabis in some form than not, and the Federal Government’s stance on cannabis is becoming increasingly outdated. As more states gear up to legalize cannabis in 2019, the Federal Government needs to catch up with the budding legal cannabis industry. The discrepancy between Federal and State law regulating cannabis has led to a number of problems for legal cannabis operators in states that permit its use. One of the largest problems legal cannabis businesses are faced with is the continued inability to secure legitimate banking contracts.
Lack of access to banking has left the cannabis industry flooded with cash and it continues to prevent cannabis businesses from being able to conduct business as other businesses would in a regulated industry. Legal Cannabis businesses must use cash to pay employees, vendors, taxes, as well as everything else that involves a transfer of funds. This has left cannabis professionals vulnerable to crimes such as extortion, burglary, robbery, and other violent offenses because they require immediate access to large sums of cash and often have no safe place to store it.
Lack of access to legitimate banking has an immense impact on legal operators who have multiple financial obligations that cannot be handled through cash transactions. Some taxes, such as payroll taxes, and other obligations can carry penalties as high as 15% when paid in cash, which is a massive burden on companies with limited legal means to convert their cash to electronic funds without excessive fees. When operators do not have sufficient cash to cover a transaction they cannot avail themselves to small business loans from accredited institutions; instead, Cannabis business owners are often left looking for exorbitant hard money loans or are forced to agree to usurious interest rates on unpaid vendor balances.
Beyond the obvious safety and financial risks associated with lack of banking, many cannabis business owners have been forced to pursue “creative” solutions to procure bank accounts as well as access to credit cards and credit card processing capabilities. These creative solutions are often touted as a necessary business decision, but at the end of the day the majority of these solutions involve acts and representations that amount to money laundering under Federal Law.
Earlier this month a subcommittee of the House Financial Services Committee discussed the Secure and Fair Enforcement Banking Act of 2019 (SAFE Banking Act), which would allow banks to service the cannabis industry without risk of prosecution for money laundering. If approved, this would be the first-time banks would be able to explicitly approved to work with cannabis professionals, as opposed to the few credit unions that do accept their business presently. Most importantly, this bill would take the high cash volumes off the street, make it accessible through banks and transferable through electronic means, which provides added safety and financial transparency to individuals that work in the cannabis industry.
While there is little doubt that the federal government needs to reevaluate its stance on cannabis and its effect on the industry’s access to banking, many pundits remain skeptical about the SAFE Banking Act being passed any time soon and most believe federal rescheduling of cannabis will need to happen before the Act, or something comparable, is seriously considered by members of the House. While the bill is promising for banks and the cannabis industry, there are many specifics that will need to be further determined before we see a complete resolution of the National cannabis banking dilemma.
In addition to the SAFE Banking Act, there are a few other initiatives at the federal level that are attempting to offer solutions to the cannabis banking dilemma. For example, Senator Cory Gardner reintroduced the STATES Act in December of 2018, which offered hope of basic banking services to cannabis businesses, but the Act was thwarted by Senate Majority Leader Mitch McConnell. Furthermore, the Treasury Department recently lent its voice to the debate with Department Official Joseph Otting’s challenge to Congress to fix the banking issue by 2020.
Hopefully these fragmented attempts at the federal level will be consolidated into a single, coherent, well-supported campaign to help resolve this continuing logistical challenge to industry operators. Cannabis businesses and Cannapreneurs are encouraged to stay tuned, as our team at Green Consulting Partners will continue to provide updates on current news surrounding cannabis banking and the cannabis industry as a whole.
Image 1: "Banking" by Nick Youngson, CC BY-SA 3.0, Alpha Stock Images