Banking in the cannabis industry has been a headache for years. Although medical cannabis is legal in most US states, it is still classified by the federal government as a schedule 1 drug. This classification places it on equal footing with hard substances such as heroin or LSD with ‘no currently accepted medical use’, and thus is strictly illegal on a federal level.

Cannabis Banking Consequences

This has made it difficult for many of the companies and individuals involved in the manufacturing or sale of marijuana to handle the finances of their business. Since cannabis is federally illegal, any bank or financial institution that agrees to work with such a business can be found guilty of “aiding and abetting” a federal crime and/or money laundering. As you can imagine, this is a huge deterrent for banks seeking to service one of the fastest growing industries. Banks may still choose to work with cannabis companies, but they are buried in red tape and bureaucratic roadblocks that make it not worth their while in most instances. To tack on to the difficulty of doing business with cannabis firms, these same roadblocks can be prohibitively expensive for banks; an expense that they gladly pass along to the cannabis firms. Thus, many cannabis firms are forced to do business strictly in cash.

Real Life Examples

Tom Gavin, the CEO of CannaTrac, a company providing a semi-banking solution to marijuana-related businesses, estimates that cannabis companies could be losing as much as 20% of their revenue to fees and penalties when conducting business purely in cash. Not having a business bank account can create a whole host of problems. Owners are unable to accept credit cards, pay taxes through checks, or make wire transfers to other businesses. They are forced to conduct business strictly in cash, which can create even more bottlenecks such as precluding them from securing business loans or credit lines making scaling and expansion challenging. Even ancillary businesses are affected. Take Saphira Galoob for example, a lobbyist who represents cannabis companies in Washington, D.C. Saphira was turned down by three major banks when she was opening her firm, and she was not involved in the cannabis distribution process in any way.

The owner of a cannabis business in California prepares $40,000 in cash to pay his taxes, left, while security guards keep watch, right. | AP Images

As alluded to, this is not a one sided conundrum. Many banks want to do business with these firms, and who wouldn’t? Retail sales of medical and recreational cannabis are projected to reach nearly $14 billion by the end of this year, a staggering amount which has been faced with this logjam of financial restrictions. If this situation can clear up, the way is paved for banks to make extremely large amounts of money off the cannabis industry, which is projected to exceed $30 billion in the near future.

So What Now?

However dim the situation may appear at the present, there is some hope that the current state of affairs are improving. The number of commercial banks, credit unions, or savings institutions offering banking services to cannabis companies grew from 337 in January 2017 to 715 in June 2019. This shows an increasing acceptance of risk from banks and other financial institutions, as well as an acceptance from cannabis companies as they become more profitable to incur the banking expenses that were once prohibitive to many.

The SAFE bill is another beacon of light that many in the cannabis industry are optimistic about. The Secure and Fair Enforcement Banking Act (SAFE) outlines a way for cannabis companies to gain access to the banking system. The bill clarifies that any proceeds from legitimate cannabis companies would not be considered illegal, and directs federal regulators to write up rules for how they would supervise such banking activity.

The US House of Representatives voted late last month in an overwhelming majority, 321-103, in favor of the bill. It will now head to the Republican controlled Senate, where its fate is more uncertain; however Senate Banking Chairman Mike Crapo has said he wants to consider similar legislation in the coming months and vote on it by the end of the year. This makes the last few months of 2019 very important for the future of cannabis.

While the SAFE bill is an excellent start, there are other pieces of legislature in the political sphere that are being given heavy consideration. Any new legislation that ultimately does get passed may be an amalgam of different legislations or even a new bill that has not been written yet. Some of these alternative measures include Strengthening the Tenth Amendment Through Entrusting States Act (STATES Act), which would create protections for U.S. states that have legalized cannabis for medical or recreational use. Another bill, the Marijuana Justice Act, would go further, ending the federal prohibition of the drug and expunging the records of people who have served time for marijuana use and possession. The effort in DC does not stop there, with the total spend on lobbying for 2019 through 3 quarter of $3.77 million has already topped the outlay of $2.76 million for the entire year of 2018. Even though nothing is official yet, the signs are encouraging and the biggest takeaway is that the general sentiment towards banking with the cannabis industry is changing, and for the better! Some dispensaries have turned to opening merchant accounts.

How Cannabis Banking Affects Consumers

So what does this mean for you, the consumer? Less stringent banking measures would make life easier for all parties involved — you might find that your favorite cannabis dispensary no longer requires you to use cash for example, getting rid of the hassle of visiting an ATM before buying cannabis. Some of the dispensaries that do conduct business in cash may be able to pass along some of their savings to you with less expenses attributed to banking and finances. Owners of businesses which support the cannabis industry can sleep easier at night knowing they are no longer under the spotlight of money laundering audits. The banking regulations being considered will have a trickle down effect on many facets of the cannabis industry as well as the individuals involved, from grower to final consumer. The future looks bright!

Seed & Smith takes pride in providing ease of access to our patients and customers. From “cashless ATMs” to online ordering, our patrons have options when it comes to paying for their products. We will continue to advocate for more payment options for consumers and when these alternatives do become available, it is our commitment to bring them to our dispensary as soon as we can!