In the early days of marijuana legalization, the first states to allow the use and sale of recreational cannabis almost immediately ran into problems. One of the most complicated issues surrounding the sale of marijuana is still around today, and it has to do with banking.
Recently, the Department of Justice sent a memo to congressional lawmakers interested in submitting a marijuana banking bill during the lame-duck session outlining the department’s concerns over the proposed measure. The contents of the memo highlight the bureaucratic difficulties states face as they continue to navigate a government system divided over cannabis.
Initial Financial Woes
Colorado was one of the first states to pass a measure legalizing the sale of recreational marijuana. An immediate problem for newly created recreational-cannabis businesses was a lack of financial support from banking entities and credit unions. Even in states where recreational cannabis use is legal, the drug is still categorized as a Schedule I illegal substance by the federal government. The federal status of marijuana creates a legal gray area for institutions that conduct business across state lines, like banks.
Since marijuana is considered an illegal substance at the federal level, money made from it can be considered the proceeds of illicit drug sales, a federal crime. A bank or credit union conducting business with a cannabis retailer could potentially find itself in hot water with federal law enforcement. It’s a risk financial institutions are unwilling to take.
The solution? Work in cash. States like Colorado, which allow legal recreational sales, operate on a cash-only basis. Customers can only pay in cash, and employees of cannabis retail shops are paid in cash. In November of 2021, Colorado dispensaries raked in $175 million, pushing the state’s annual marijuana revenue past $2 billion for the first time. That’s $2 billion in cash or debit transactions. (Purchases with debit cards are treated as ATM withdrawals.)
Limiting access to banking services puts marijuana users and retailers at risk, making them easy targets for theft.
An Industry Banking on Change
In 2021, federal lawmakers passed the Safe and Fair Enforcement Banking Act for the fifth time since the measure was first introduced by Ed Perlmutter (D-CO) in 2013. The measure passed as part of the National Defense Authorization Act or NDAA.
The goal was to give banks more guidance on working with legalized cannabis-related businesses and prohibit federal regulators from assessing penalties on banks that service legitimate cannabis businesses. Supporters of the measure claim the bill offers more stability and security to marijuana retailers who continue to be forced to work under a cash-only model. Unfortunately, the bill consistently meets with resistance from a gridlocked Senate, stalling its passage.
Today, lawmakers in the 2022 lame-duck session are taking up the mantel of marijuana banking and the SAFE Banking Act. Only this time, lawmakers face some resistance from the Department of Justice. The DOJ recently sent a memo to congressional lawmakers who support the measure, noting that the legislation could “significantly complicate law enforcement investigations and prosecutions.” Essentially, the DOJ worries that making it easier for legitimate cannabis businesses to access the resources of financial institutions could also make it easier for illegitimate entities to become involved in money laundering and other illegal activities.
Democratic Senate Majority Leader Chuck Schumer is taking the concerns of the DOJ seriously and believes that minor changes to the legislation can improve the measure and address the agency’s worries. The refined bill, SAFE Plus, is still in the works as lawmakers continue to hash out the details. However, hurdles remain. There is the worry that changes to the bill may turn off Republican supporters in the House, jeopardizing the bill’s passage yet again.
Calls for Action Increase
It is not just lawmakers at the federal level who want to see action taken. The leaders of several states where marijuana is legal are calling on the federal government to act. Officials in Colorado, including Governor Jared Polis and Colorado Department of Public Safety Executive Director Stan Hilkey, sent a letter to federal leaders urging them to support the SAFE Banking Act.
The letter highlights how cannabis businesses are increasingly becoming targets for armed thieves, jeopardizing the safety and security of hard-working entrepreneurs and their employees. The state notes that burglaries associated with commercial marijuana retailers increased between 2019 and 2020. It is not hard to find headlines from California to Oregon linking violent crimes to smash-and-grab cannabis jobs.
It isn’t just political leaders begging for change either. The Independent Community Bankers of America and 44 other state banking associations also sent a letter to federal leaders urging them to pass the SAFE Banking Act. A recent survey conducted by the American Bankers Association suggests that 66% of Americans support giving legalized cannabis businesses access to traditional banking services like checking accounts, savings accounts, and loans. In another ICBA survey, 71% of respondents believe allowing cannabis businesses access to banking services would reduce crime.
Many banking associations are clamoring for change, saying that allowing them to conduct business with cannabis entrepreneurs is essential and prohibiting access is a disservice to the communities that banks serve.
The End Result
Pressure continues to mount from all sides on congressional lawmakers. However, the SAFE Banking Act has been in limbo since 2013. It is uncertain how this new iteration of the measure will fare in a congress where there is still division on the issue of legalized cannabis. Still, there is hope that there is still time to make this the year cannabis businesses and retailers can bank on earning access to a basic service that the public takes for granted.
Consider how difficult your life would be if you had to conduct every transaction in cash. Now think about how challenging it is for a business in a multi-billion-dollar industry to maintain smooth operations under these constraints. The SAFE Banking Act aims to change the future of legal marijuana transactions, making buying and selling products easier for everyone. Time will tell whether lawmakers are ready to take the leap.
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