Banking With Cannabis: An Industry In Need
One of the newest industries to gain a foothold in the United States and abroad is the cannabis industry—which has shifted from a cartel-run black market to a legal industry in 15 states (and Washington, D.C.), and decriminalized in 16 more states. (DISA, Map of Marijuana Legality by State). The market for legal marijuana is growing so fast that one study estimates it could be worth over $70 billion by 2027. (Grand View Research, Legal Marijuana Market Size Worth $73.6 Billion By 2027). Yet despite its potential for growth, the marijuana industry still faces a lack of access to capital and banking that might prove essential to its ability to thrive.
On a national scale, cannabis businesses face a huge obstacle in accessing banking essentials; the conundrum of marijuana legality in certain states and marijuana’s drug classification at the federal level creates huge hurdles for businesses to access payroll services, loans, and credit. For now, the only thing that banks have to enable them to conduct business with the marijuana industry is a piece of guidance issued by the Department of the Treasury’s Financial Crimes Enforcement Network in 2014 (“Cannabis Guidance”). (FinCEN, BSA Expectations Regarding Marijuana-Related Businesses). The Cannabis Guidance rolls out policies and procedures that banks can use to remain compliant with federal regulations while offering services to marijuana businesses, including strict oversight of customers and ongoing monitoring. Id. A memo issued concurrently with the Cannabis Guidance from then-Deputy Attorney General James Cole to all United States Attorneys (the “Cole Memo”) offered guidance to prosecutors regarding banks servicing cannabis clients. (James M. Cole, Department of Justice). Notably, the Cannabis Guidance and the Cole Memo do not offer banks a shield from criminal or civil liability, and instead only label prosecutions on banks that remain compliant with the Cannabis Guidance as “not appropriate.” Id. Despite the Cannabis Guidance and Cole Memo, the banking industry remained uncomfortable dealing with marijuana businesses, with Frank Keating, then-President of the American Bankers Association, stating that while he appreciated the efforts of the DOJ and FinCEN, the guidance did not alter the underlying complications for banks wanting to do business within the cannabis industry. (Serge Kovaleski, NY Times).
Whether truly a waste in guidance, or perhaps solely due to a swift change in executive administrations, the Cole Memo, along with any other marijuana-related DOJ guidance, was effectively rescinded by then-Attorney General Jeff Sessions just four years later. (Jeff Sessions, Department of Justice). Accessing the services that banks can provide is crucial for any business—using payroll services, obtaining loans, and accepting credit cards are all integral to any operating business. But as they stand now, most cannabis businesses across the country can only take cash; cash to pay employees, cash to pay rent, and cash-only from paying customers. (Ellen Sheng, CNBC). This cash-only policy can have detrimental effects on state regulators too, who have been forced to add additional infrastructure, security, and compliance procedures to work through the tax effects of cash-only businesses. Id.
Some states have been able to implement solutions to the banking problem. But even then, access remains tough, secretive, and strict. In Colorado, for instance, a handful of banks and credit unions offer services to the state’s cannabis industry through strict overwatch and compliance, and rigid non-disclosure agreements with customers. (Jesse Paul, Colorado Sun). Likewise, a law recently passed in California creates a safe harbor for cannabis businesses to start sharing information with financial institutions. (Joyce Cutler, Bloomberg Law). As a result of this legislation, California credit unions have begun announcing new business within the cannabis industry. (Michael Blood, Associated Press). Despite these state efforts, federal regulators have reported, as of September 30, 2020, that only 677 banks and credit unions (a sliver of the financial industry, with well over 10,000 participants) were conducting business with marijuana-related businesses. Id.
Perhaps one of the cannabis industry’s greatest hopes in being able to reach banking on a national scale lies in the Secure And Fair Enforcement Banking Act of 2019 (“SAFE Banking Act”). (Safe And Fair Enforcement Banking Act of 2019, H.R. 1595, 116th Cong. (2019)). The SAFE Banking Act would prohibit federal banking regulators from commencing enforcement actions or any adverse actions on a bank or credit union solely because that bank or credit union does business with a cannabis-related business. Id. at § 2. The bill passed the house with broad support in 2019 (321 for – 103 against) but has yet to see any action taken by the Senate. (Actions, H.R. 1595 – 116th Congress). Efforts to include the SAFE Banking Act’s provisions in a second round of proposed COVID-19 stimulus last year in the HEROES Act once again passed the House and subsequently died in the Senate. (Actions, H.R. 6800 – 116th Congress).
Unless the SAFE Banking Act can become law, cannabis businesses across the country will have a difficult time conducting what ought to be an ordinary business. The need for access to banking services is clear, as growth for cannabis businesses is limited to mostly private individual investors and the cash that customers pay with. For now, though, the classification of marijuana as a Schedule I drug at the federal level hurts the cannabis industry and banks alike; “The rift between federal and state law has left banks trapped between their mission to serve the financial needs of their local communities and the threat of federal enforcement action.” (American Bankers Association, Cannabis Banking).