rocket domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /home/leftri6/public_html/wpexplore/wp-includes/functions.php on line 6131megamenu-pro domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /home/leftri6/public_html/wpexplore/wp-includes/functions.php on line 6131acf domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /home/leftri6/public_html/wpexplore/wp-includes/functions.php on line 6131The passage of the SAFE Banking Act is the highest profile indication of growing support for the cannabis industry at the federal level. And while cannabis operators, investors and advocates are right to cheer, it is important to note that this is just the first step of many on a long and winding path.
The SAFE Banking Act aims to “create protections for depository institutions that provide financial services to cannabis-related legitimate businesses and service providers for such businesses.” Currently, because cannabis remains illegal at the federal level, the federal government equates providing banking and financial services to cannabis-related companies with money laundering. This creates a litany of both real and perceived risks for financial institutions, making them reluctant to work with the industry, or only doing so with such rigorous checks and balances that services become cost-prohibitive.
The SAFE Banking Act is relatively straight-forward in its purpose. In Sec. 2. SAFE HARBOR FOR DEPOSITORY INSTITUTIONS, the Act states that federal banking regulators may not do any of the following solely due to the fact that services are provided to a cannabis-related business:
It is also important to note that the SAFE Banking Act also extends these same protections to: “a State, political subdivision of a State, or Indian Tribe that exercises jurisdiction over cannabis-related legitimate businesses,” Federal Reserve Banks, and ancillary cannabis businesses.
An under-reported aspect of the SAFE Banking Act is language charging federal banking regulators to review, assess and provide an annual report on the availability and access of financial services to “minority-owned and women-owned cannabis-related legitimate businesses.” The bill also charges the Comptroller General of the United States (GAO) with performing a study and issuing a report to Congress on “the barriers to marketplace entry, including in the licensing process, and the access to financial services for potential and existing minority-owned and women-owned cannabis-related legitimate businesses.”
While passage in the House is a significant step forward, the SAFE Banking Act is a long way from becoming law. First the bill travels to the Senate, which will review it in committee, make revisions, and ultimately conduct their own vote. It is impossible to know how long this process might take, but for comparison, the SAFE Banking Act was introduced to the House on 3/07/2019, and voted on 9/25/2019, with over six months passing between the two. Should the bill successfully pass through the Senate, it then lands on the President’s desk for final approval.
As the SAFE Banking Act moves into the upper chamber, a number of imposing obstacles stand in the way. The first is Senate Majority Leader Mitch McConnell, who has a history of blocking bills that he perceives as not fitting the Republican agenda. McConnell went on the record last year stating that cannabis is “an illicit cousin (of hemp) which I choose not to embrace.” The silver lining is that McConnell has emerged as an unlikely advocate for hemp due to its growing role in the economy of his home state of Kentucky. He helped push the 2018 Farm Bill through, which legalized the cultivation of industrial hemp, and a new provision has been added to the SAFE Banking Act that includes hemp businesses under its protections. Since the SAFE Banking Act is not a “legalization” bill there is, perhaps, a greater likelihood that he’ll at least allow for a vote.
The Senate has had already had cannabis banking legislation in their chambers and Sen. Mike Capo (R-ID), Senate Banking Committee chairman, provided some optimism earlier this year when he stated his support for a banking solution and that he would hold a committee vote before the end of 2019. No further details have emerged regarding this vote, but there is hope that the House’s “Yay” vote will provide further momentum.
One of the more intriguing complexities of the SAFE Banking Act’s progress has been the steady emergence of organizations that stand in opposition to the bill. Prohibition groups have taken a predictable stance against its passage, but more surprisingly, a number of pro-cannabis reform and criminal justice advocacy groups have also expressed criticisms. Most prominently, a coalition of advocacy groups – including the ACLU, Human Rights Watch, and the Drug Policy Alliance – issued an open letter to the House stating that the bill does not go far enough. It reads, in part “We are concerned that if the House approves this bill, it will undermine broader and more inclusive efforts to reform our country’s marijuana laws.” It goes on to state: “The banking bill does not address marijuana reform holistically. Instead, it narrowly addresses the issues of banking and improved access to financial services, measures that would benefit the marijuana industry, not communities who have felt the brunt of prohibition.”
This sentiment has a lot of value, as the SAFE Banking Act does not address issues of legalization and social justice related to cannabis. The cannabis community is largely split between two schools of thought: “any” progress is exactly that; and progress without addressing underlying issues isn’t progress at all.
As momentous and historic as the House vote was, the unfortunate fact is that nothing has changed on the ground for cannabis operators and investors, and there is no clear timetable for a resolution. As a result, the industry must continue to soldier on as they always have, relying on hard work, creativity and a pioneering attitude to grow this promising industry, despite unprecedented and unjust operational and financial obstacles.
]]>Very simply put, the conflict between state and local cannabis laws that allow for adult- and medicinal-use of cannabis are in conflict with federal laws that categorize cannabis as a Schedule I controlled substance. As a result, major banking institutions are reluctant to provide traditional banking services to cannabis companies due to the risk of federal prosecution for money laundering or a variety of other offenses.
As a result, the cannabis industry is almost exclusively cash-based. Cannabis business operations – including payroll, rent/lease payments, vendor payments and taxes – are primarily conducted with cash. This results in hundreds of thousands of dollars in cash being moved between locations, simply to pay farms or manufacturers, or even to pay taxes. This inefficient system leads to a wide variety of issues, including significant operational difficulties, and growing risk threats from both untrustworthy employees and out right robbery.
Cannabis businesses have found a number of creative ways to navigate the banking issue. Some business restructure so a professional services firm, not directly touching the cannabis, provides payroll and other financial services. Shops and dispensaries have adopted a variety of debit or gift card payment systems. And finally, a handful of cannabis operators have established relationships with local credit unions willing to work with the industry. But the vast majority of cannabis operators must navigate daily risks related to the collection and remittance of large cash sums.
“We’re trying to examine how outdated banking regulations on the federal level are hindering reform on the state level when it comes to marijuana,” said Democratic Congressman Gregory Meeks, chairman of the Consumer Protection and Financial Institutions subcommittee, in advance of Wednesday’s hearing. The event brought together a wide range of affected parties, including representatives of credit unions and banks, cannabis industry advocates, and finally government officials advocating for responsible cannabis laws.
The hearing was called to discuss the Secure and Fair Enforcement Banking Act of 2019 (SAFE act). The bill was introduced by a bipartisan coalition that includes Colorado Democratic Rep. Ed Perlmutter, Washington Democratic Rep. Denny Heck and Ohio Republicans, Rep. Steve Stivers and Rep. Warren Davidson. The SAFE act seeks: “To create protections for depository institutions that provide financial services to cannabis-related legitimate businesses, and for other purposes.”
Prior to the hearing, the American Bankers Association offered public support for the SAFE act, stating in part: “Simply excluding legal state cannabis activity from the banking sector has not prevented the growth and spread of this industry, but providing access to the banking system could help facilitate public safety, streamline tax payments, and enable effective oversight in the states where voters have chosen to embrace cannabis legalization.”
Fiona Ma, Treasurer for the State of California, offered her support for the bill in a written testimony that reads in part: “an effective safe harbor mechanism in federal law promotes the safety of the public, improves the efficiency of collecting the taxes and fees we use to regulate the industry, and does not allow the banks and credit unions to totally abdicate their responsibilities to know their customers and avoid illicit money laundering.”
“(Current laws) encourage tax fraud, add expensive monitoring and bookkeeping expenses and—most importantly—leave legitimate businesses vulnerable to theft, robbery and the violence that accompany those crimes,” said Maj. Neill Franklin, Executive Director of the Law Enforcement Action Partnership (LEAP). He closed his passionate testimony by stating that the “safety of thousands of employees, business owners, security personnel, police officers and community members is in your hands.”
The primary purpose of the hearing was to create public momentum for a change in cannabis banking laws. The House Financial Services subcommittee heard hours of public testimony, largely in support of changing federal laws to support the cannabis industry. While nothing concrete emerged from the hearing, allowing so many influential advocates and politicians to publicly support the cannabis industry represents a major step-forward.
It will be a long process before any laws change, but in the meantime there are a number of legal actions a cannabis business can take to alleviate the stress of being denied traditional banking relationships. Most of these, including restructuring a business or implementing alternative payment systems, are complex activities that require professional guidance to execute successfully.
Additionally, there are a number of cash management solutions and internal controls all cannabis businesses should implement to limit opportunities for fraud and criminal abuse, both internally and externally. The MGO | ELLO Cannabis Alliance has long been an advocate for responsible practices regarding cash management in the cannabis industry. The Alliance provides a comprehensive suite of risk management solutions designed to promote operational best practices in the cannabis industry.
For more information or to arrange a consultation, please contact us.
About the author:
Linda Hurley is the leader of the MGO | ELLO Alliance Governance, Risk, and Compliance practice. She has over 20 years of experience providing risk advisory, compliance, accounting, internal audit, and auditing services to a wide variety of public and private companies. She is primarily focused on providing cannabis enterprises with a holistic view of their risk and compliance needs. She designs and implements internal controls, risk management procedures, and governance practices that support every level of a cannabis organization.
]]>