Cannabis’s Banking Problem
3/8/19 Edit: since the publication of this blog, a bipartisan coalition of more than 100 co-sponsors has reintroduced The Secure and Fair Enforcement Banking Act (SAFE Banking Act), HR 1595. Representatives Ed Perlmutter (D-CO) and Denny Heck (D-WA) have introduced similar bills every Congress since 2013; however, because of a rolling tide of legalization by states the banking problem is more ubiquitous than ever.
Heck said it best, “We know based on the Treasury guidance that the federal government prioritizes keeping this product out of the hands of children and organized crime. The most effective way to do that is to not only allow, but encourage these businesses to use traditional banking methods to track their sales, deposits, expenses, tax payments, and other business transactions. If Congress fails to act, we are discouraging responsible, regulated markets and allowing a serious public safety threat to go unaddressed.”
Last year, when a cannabis banking bill was introduced in California, Senator Robert Hertzberg said this about the cash heavy cannabis business caused by the industry’s banking problem, “The status quo for [California’s] growing legal cannabis industry is unsustainable…It’s not only impractical from an accounting perspective, but it also presents a tremendous public safety problem.” The bill passed the California Senate, but was later effectively killed by the State Assembly due to insufficient protections against federal authorities and high upfront costs. However, the problem remains.
For years now, most of those who have been legally licensed in the cannabis industry have been forced to operate as cash only because many, if not most, financial institutions still will not bank for cannabis businesses due to fear of federal prosecution. This means that many operations are forced to have large amounts of cash at their place of business causing a myriad of public safety hazards for everyone, including an increased chance of becoming a target for robberies, loss of economic opportunity, and inability to retain workforce talent
While states such as California and Oregon are trying to pass legislation to offer safe banking services for legal cannabis businesses, California State Treasurer Fiona Ma said that “In California, we have been trying to pass many pieces of legislation to either work around, go around, or patch this issue of banking access, and we have come to the conclusion that we really need Congress to act.”
Last week the Consumer Protection and Financial Institutions Subcommittee of the US House Committee on Financial Services held a hearing titled “Challenges and Solutions: Access to Banking Services for Cannabis-Related Business” about a draft bill that provides solutions to the cannabis banking problem.
A bill introduced in 2017, SAFE Banking Act (Secure And Fair Enforcement)**** which would allow safe harbor and remove the risks of sanction for working with cannabis businesses, has garnered 95 cosponsors in the House and 20 in the Senate (20% of the representatives in each case). However, after being sent to committee this bill has been left untouched for 1.5 years.
While we are still far away from a solution, that a hearing took place on Capitol Hill at all is a big step towards eradicating the all-cash environment in the cannabis industry.
In 2014, the U.S. Department of the Treasury’s Financial Crime Enforcement Network (FinCEN) issued guidance which allowed some credit unions and regional banks to provide limited financial services to some cannabis industry businesses. However, many of these institutions charge extra, sometimes exorbitant, fees for their risk – with some requiring continual business activity monitoring as assurance. Furthermore, they make up only a miniscule fraction of banking institutions which is marginal considering the billion-dollar industry (and growing) that cannabis has become.
Change is happening, as demonstrated by Treasury Secretary Steve Mnuchin confirming that his department is reviewing the existing FinCEN guidance and by the conduct of the hearing last week. But for now, banking options remain minimal for cannabis businesses.
If you need help navigating banking as a cannabis business give us a call and we can lend our expertise.