Cannabis Has A Banking Problem, But A Solution May Be On The Horizon

By: Spencer Israel

This will go down as the decade where cannabis went from the frontier to the mainstream.

It was only in 2012 that Colorado and Washington became the first two states to legalize recreational marijuana. By 2014, so had Alaska, Oregon, and Washington D.C. By 2016, five more states had done so.

Today, 46 states have some form of cannabis legalization, whether it’s for medicinal or recreational use, and another 8 states are expected to take the issue up this year.

On the federal level however, things remain murky. While there is growing support for the U.S. to join Canada and Uruguay in fully decriminalizing cannabis, a change to the federal law is not imminent. And until that happens, there remains a key issue that is standing in the way of the industry’s growth: banking.

Naturally, as the cannabis market has bloomed over the past few years, so has investor interest. But aside from the legalization question, banking, or lack of it, remains the biggest outstanding issue for the industry right now.

As it stands, most U.S. financial institutions are unwilling to work with cannabis-based businesses due to the federal prohibition. Banks have consistently made this known.

These lack of financial services—and institutional capital that comes with it—has essentially tied the industry down, and forced license producers, operators, and retailers to turn to alternatives like banking in other countries or only accepting cash.

But there is hope.

The 2018 Farm Bill that decriminalized hemp was a major stepping stone for the industry, and there are two key pieces of legislation on the table that could change the game even further.

One, the Strengthening the Tenth Amendment Through Entrusting States Act (or STATES Act), introduced last year in both the House and Senate, would protect businesses operating in states with legal cannabis from federal enforcement. The bill has some bipartisan support, including from Attorney General William Barr, but it’s unclear when it would come up for a vote.

And then there’s the Secure and Fair Enforcement Banking Act, or SAFE Banking Act which would protect financial institutions who work with state-approved cannabis businesses from federal penalties. The House Financial Services Committee voted with bipartisan support on March 28 to approve the bill for a full-body vote, which is likely to take place in the coming weeks. This marks the furthest a cannabis banking bill has ever made it through Congress. A corresponding bill was also introduced in the Senate last week.

Of course, momentum is one thing. Laws are another. More and more companies may be lobbying Congress to make it easier for banks to enter the marijuana market, but whether any legislation can actually get through Washington’s pipes is a whole other issue.

For now, the industry will have to settle for small victories, like Fed Chair Jerome Powell saying he wants more clarity, and Treasury Secretary Steve Mnuchin saying he supports a change.

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