If signed into law, it would ensure that financial institutions could take on cannabis business clients without facing federal penalties.
By Lauri Kibby
Discrepancies between federal and state laws discourage banks from serving the highly profitable and legal cannabis industry. U.S. cannabis companies generated more than $17.5 billion of sales in 2020 alone. It will only continue to grow as more legal markets open.
There are 36 states that have legalized cannabis for medical or adult recreational use. But it is not legal at the federal level. Meager guidance from regulators leaves banks dubious about whether they can safely bank cannabis businesses and other companies that provide them with products and services.
While federal authorities have said they will not override state cannabis laws, for banks it is very complicated and many fear excessive rules, compliance burdens, missteps and sanctions. This keeps most banks and credit unions from working with the industry. There were 515 banks and 169 credit unions that provided some level of service to cannabis-related businesses by the end of 2020, according to Financial Crimes Enforcement Network. But that is less than an eighth of the nation’s banks and credit unions.
As a result, businesses, workers and communities in several states must deal in piles of cash because of the conflicts between state and federal law. This creates logistical challenges and, for many, threats to safety. Businesses that house large sums of cash are obviously vulnerable to robberies. They also must comply with regulatory requirements to ensure proper reporting of the movement of cash. We conjecture that many of these requirements leave businesses vulnerable to penalties due to noncompliance.
The lack of clarity also senselessly complicates sales tax collections, costing municipal and state coffers.
Importantly, under current conditions, taxes that are collected from cannabis companies are freely deposited into bank accounts by city, state and federal governments. That smacks of a double standard and highlights the folly of existing policy.
The federal SAFE Banking Act — reintroduced this year to a new Congress — would help to change all of that. It is not a panacea. But if signed into law, it would ensure that financial institutions could take on cannabis business clients without facing federal penalties.
The legislation also incentivizes federal regulators to issue guidance to financial institutions on how best to work with cannabis companies, encouraging transparency and fairness while also providing banks more clarity on rules. Concerns about excess regulatory burden should be eased.