While some state-licensed cannabis companies have opened financial service accounts with local banks and credit unions, national banks refuse to do business with them because of restrictive federal financial laws. Thus, bank loans and credit lines from institutions like Chase and Wells Fargo, the financial lifeblood of most small businesses, are not available to legally-operating cannabis companies.
This has forced many companies to operate as cash-only enterprises, which pay employees and vendors in cash, prevent customers from using credit or debit cards, and become attractive targets for criminal activity. However, that could all soon change.
Last week, a U.S. House of Representatives subcommittee advanced a landmark bill to protect banks serving the cannabis industry. Introduced by Rep Ed Perlmutter (D-CO), the Secure and Fair Enforcement (SAFE) Banking Act would provide federal protection for financial institutions working with state-legal cannabis businesses.
This is a tremendous step in the right direction because, currently, a federal banking regulator could punish a bank and its employees for doing business with these same cannabis enterprises.
The subcommittee involved, the House Financial Services Committee voted resoundingly in favor of the bill (45 for vs. 15 against) and the full House of Representatives is expected to vote within weeks.
According to the Chair of the U.S. House Rules Committee, James McGovern (D-MA), who wields substantial power in determining which bills go to the floor, the full House will most likely vote and pass the bill in the next few weeks.
You read that right – Experts say we can expect a vote by 4/20!
Regardless of where you stand on legalization, I think we can all agree that it is in the public interest to make banking available to cannabis businesses in states where it is legal – leveling the playing field and improving safety within the industry.
This bill will also hold the industry accountable for providing equal opportunity to all demographics. Before voting on the bill, the subcommittee added an amendment that requires federal banking regulators to issue an annual report to Congress, which contains data on the availability of financial services to minority- and women-owned cannabis businesses as well as recommendations on how to expand those services.
It’s not all blue dream though, the Republican-controlled Senate has yet to take up the issue. Some Republicans on the committee have voiced their opinion it was premature to address how banks can serve an industry the federal government still considers illegal. Before the bill can be signed into law by the President, it must pass both the House and the Senate.
Still, the recent hearing represents the U.S. House of Representatives’ first ever hearing on the issue! As the cannabis industry continues along its growth trajectory, access to banking services is perhaps the most critical challenge facing operators, and this is a huge step in the right direction.
So, let’s hope that history doesn’t repeat itself. Last time lawmakers attempted to address the cannabis banking problem was back in 2014. The measure failed to move through the Senate, but much has changed since 2014 and there are reasons to be optimistic:
- Recreational cannabis is legal in 10 states and Washington DC
- Medical cannabis programs exist in 33 states
- 2 in 3 American support legalizing cannabis nationwide for recreational use
The bill’s champion, Rep Perlmutter said it best, “Today’s hearing is a big deal”!
In summary, a brand new, multi-billion-dollar industry has risen up in a few short years, and yet, most federal financial institutions remain reluctant to work with cannabis businesses due to fears of violating federal money laundering laws. That fear has forced the majority of cannabis businesses to operate on a cash-only basis — creating massive security risks, logistical nightmares, and regulatory headaches for all parties involved.
Hopefully the full House follows the subcommittee’s recommendation and resoundingly votes to provide federal protection for financial institutions that serve state-authorized marijuana
We’ll see come 4/20.