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With Democrats in Control, House Looks at Ending Cannabis Banking Restrictions

The federal government taxes cannabis mercilessly, and all in cash.

Opinions expressed by Entrepreneur contributors are their own.

As usual in Washington, while speeches are made in front of podiums and quotable soundbites materialize in front of cameras, the real action is happening in a meeting of a subcommittee with a long, boring title.

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In this case, the subcommittee is called the House Financial Services Subcommittee on Consumer Protection and Financial Institutions. A recent hearing in front of the subcommittee could radically change how cannabis entrepreneurs handle their money.

The hearing in February marked the first time Congress has held a meeting on cannabis banking, even though bills have been filed for years on the issue. The hearing focused on the SAFE Banking Act, which could clear the way for banks to provide financial services to the cannabis industry.

“Today’s hearing was a big deal for the thousands of employees, businesses and communities across this country who have been put at risk because they have been forced to deal in piles of cash while Congress sticks its head in the sand,” Rep. Ed Perlmutter, D.-Colorado, said after the meeting. When it comes to marijuana, he added, “you can’t put the genie back into the bottle.”

Shea Alderete, CEO of Gen X Biosciences, said changing banking rules will result in even more cash flowing into the industry: “If the bill is passed, and federal laws are adjusted to not penalize banks for working with cannabis businesses, we will see a domino effect of multiple U.S.-based funding sources pouring money into the cannabis market, as well as a heavy influx of IPO registrations to the NYSE.”

Related: 3 Key Tactics Cannabis Brands Can Learn from Tech Startups

What is the SAFE Banking Act?

The bill under consideration is the SAFE Banking Act (it stands for “secure and fair enforcement”). It was first proposed in 2017 by Perlmutter and Sen. Jeff Merkley, D.-Oregon.

The entire bill is here. Essentially, it blocks federal regulators from cracking down on any bank that “provides financial services to a legitimate marijuana-related business.” That includes ending or limiting the bank’s deposit insurance, discouraging a bank from working with the marijuana industry, or taking any action on a loan made to a person who owns a marijuana-related business.

This needed because, while marijuana is now legal in some fashion in 33 states, it remains fedearlly illegal on par with heroin and cocaine.

Related: Your Cannabis Company Can Get a Bank Account but Not Easily

An important first step.

The crux of the cannabis banking issue is this: there really isn’t any cannabis banking. With marijuana illegal at the federal level, a bank cannot deal in cash from the cannabis industry without risk of penalty for money laundering.

All banks, whether chartered by the state or the federal government, are subject to federal money laundering laws. Additionally, every bank must use the federal payment system to operate, again subjecting them to federal oversight. This has left cannabis companies dealing in cash -- not a safe way to conduct business. Also, they are often forced to pay taxes and fees to the government in cash.

The American Bankers Association, in comments filed with the subcommittee, said the SAFE Banking Act “would be an important first step toward enabling financial services for cannabis-related businesses.” The association said while some banks would still not work with the industry, others felt the law would give them enough clarity on the legal issues to extend financial services to cannabis.

However, some Republicans argued that Congress should wait until marijuana is no longer on the list of illegal drugs, if and when that happens. Rep. Blaine Luetkemeyer (R-MO), the ranking Republican member on the subcommittee, said “we are putting the cart before the horse” by taking up the issue before rescheduling is addressed.

Related: Building Cannabis IP Includes Both Your Brand and Your Technology

Industry reaction

Those within the cannabis industry had positive reactions to Congress finally discussing a way to provide the cannabis industry financial services, as might be expected.

Brad Nattrass, CEO of urban-gro, said banking reform will lead to better worker safety, noting that “operating in a cash environment poses risks for those involved and can invite criminal activity.”

He added, “Beyond the issue of safety, cannabis banking reform could open the door to not only to additional sources of revenue generation for U.S. banks, but also provide ample non-dilutive financing options to our customer base in this maturing and evolving the industry.”

The current banking situation impacts more than just companies that “touch the plant.” At MJ Freeway, CEO and co-founder Jessica Billingsley runs a company that works with the cannabis industry on regulatory compliance. She said passage of the SAFE Banking Act would create the “first time we would be afforded banking protections.”

She added that “legal cannabis operations exist in most states. This is the norm, and our industry should be operating within the proper financial infrastructure just as any other regulated industry.”

George Allen, president of Acreage Holdings, said the conversation in Congress is “long overdue, as banking services are critical to the success of this industry. It is unbelievably hypocritical for the government to levy taxes on the industry, but not to allow access to basic transaction services.”

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