Push for Legislation allowing banks to Serve the Cannabis Industry. Nearly Too Late?

You thought you had banking and credit card problems. The Cannabis Industry is finally gaining Positive Momentum.

The push for legislation that would allow banks to do business with cannabis companies without the risk of federal enforcement action is gaining momentum, and credit unions are playing a key role. 

The National Association of State Treasurers adopted a resolution on Friday that calls for “common-sense federal laws and regulations” for companies in states that have legalized cannabis for medical or recreational use that are forced to deal with large amounts of cash. 

“Cash-based systems are inefficient, expensive and opaque, making illicit activity more difficult to track and posing a significant risk to public safety by increasing the likelihood of violent crime,” the association said in its resolution. 

Because cannabis remains a Schedule I drug at the federal level, a classification that groups it with heroin, federally insured banks are unable to do business with companies for fear of being shut down, a situation that experts agree is hampering the development of the sector. 

As Canadian companies enjoy their first-mover status in the only G-7 country to fully legalize cannabis, U.S. companies have been unable to open bank accounts or tap capital markets to raise the funds needed to grow their businesses, and many have been forced to hire security companies, such as Brink’s Co., to guard cash piles. 

Ryan Donovan, chief advocacy officer for the Credit Union National Association (CUNA), said one out of every two cannabis businesses has been robbed. “We wouldn’t tolerate that in any other industry, and we shouldn’t tolerate it here,” he told MarketWatch. 

Credit unions have a core mission of serving the communities they operate in, and are keen to help the fledgling cannabis sector grow and thrive, but they, too, need a safe harbor or state exemption to fully participate, he said. CUNA has no official position on cannabis itself, but it would like to see one of two measures currently under consideration be adopted, said Donovan.

The Secure and Fair Enforcement (SAFE) Banking Act is a bipartisan bill introduced in March that would protect banks and their employees from liability for federal prosecution when servicing cannabis companies. The bill is sponsored by Colorado Democratic Rep. Ed Perlmutter, Washington Democratic Rep. Denny Heck and two Ohio Republicans, Steve Stivers and Warren Davidson, and is supported by the banking sector, the National Association of Attorneys General and Treasury Secretary Steven Mnuchin, among others.

Separately, lawmakers are promoting the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act, which gives each state the right to determine its own approach to cannabis legislation. That bill is backed by Elizabeth Warren and Cory Gardner, both Senate Democrats and presidential hopefuls and Attorney General William Barr has said it is his preferred solution.

“The bill that becomes law will be the better bill,” said Donovan. “Our interest is making sure that credit unions can service businesses that are legal at [the] state level, either through a safe harbor or a law that recognizes [a] state’s authority to decriminalize the substance.” 

The issue runs deeper than the challenge of cash management. Cannabis companies face a variety of obstacles, including in acquiring real estate, in land-title issues and in buying insurance coverage.

“Like any other business on Main Street, they have deposit needs, but also payroll, building supplies, expanding and getting into other lines of business, and payments,” said Rachel Pross, chief risk officer at Maps Credit Union in Salem, Ore., which has been working with cannabis companies since 2014. While companies are banned from using card networks, Maps can allow them to wire money and use online banking and pay with direct deposits.

Maps is not lending to the sector for now, although that would change if there’s a change in the federal treatment of cannabis companies. “It’s certainly something we would evaluate much more open-mindedly,” she said. 

Pross testified on behalf of CUNA at a Federal Committee in March, on her institution’s experience of banking and cannabis, emphasizing the risks to the community of cash-only businesses. 

Maps has received more than $500 million in cash deposits from cannabis companies in the last two years, she said. “That’s $500 million removed from Oregon’s sidewalks that used to be carried around in backpacks and shoe boxes by legitimate, legal business owners,” she said. 

Cannabis banking can be conducted safely and effectively, she argued. The Maps approach is to collect extensive records and to conduct criminal checks on account signers to ensure they are complying with all state laws and regulations. The credit union has invested in the infrastructure needed to monitor and maintain high-risk cannabis accounts and files quarterly suspicious-activity reports on any account suspected of engaging in illegal activities.

Financial institutions that decide not to bank for the sector are still at risk of serving those businesses, she told the hearing.

“Indirect connections are often difficult to identify and avoid because growers and retailers don’t operate in a vacuum,” she said. “Like any other industry, they work hand-in-hand with vendors and suppliers. These are Main Street businesses like the printing company that makes a business card, the landlord that rents office space, and even the utility company that provides water or electricity. Under the existing status quo, a credit union that does business with any one of these indirectly affiliated entities could unknowingly risk violating federal law.”

Most states that have legalized have done so through the ballot, demonstrating the growing public support for cannabis. It’s now up to lawmakers to devise the rules needed to protect them.

Published: May 22, 2019 7:39 a.m. ET

Edited for content.

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