Analysis: Marijuana Business Access to Banking Act

The marijuana banking bill introduced on July 9, 2015, in the Senate and passed out of the Senate Appropriations Committee on July 23, is way overdue. The companion legislation in the House has gone nowhere since it was introduced in April.

What this means to the industry, however, on the front lines of change, is that this summer marks the one year anniversary of the nation’s second recreational market, and the financial status of the industry is, for all the minor improvements, pretty much stuck in the same place.

As Aaron Smith, the Executive Director of the National Cannabis Industry Association remarked to the Credit Union Times, “The legal marijuana industry is worth nearly $3 billion nationwide. We shouldn’t be forced to carry that around in duffel bags.”

But what does the federal Senate banking bill really try to do?

The official purpose of the bill is to create “protections” for depository institutions, otherwise known as banks and credit unions, that provide financial services to marijuana-related businesses. The first thing this means is that the bill prohibits the U.S. Treasury from using federal funds to take punitive actions against banks who serve state-legitimate marijuana businesses. The idea is presumably much the same as the impetus behind last summer’s big victory over the DEA.

However, no matter this small similarity, there are few others. The technical issues are a bit more complicated, for starters.

Even if marijuana was re- or de-scheduled tomorrow, the many issues inherent in marijuana banking reform would not just go away. For this reason, both congressional bills limit the actions of the Treasury Department in specific ways.

Federal banking regulators would be prohibited from penalizing banks providing services to the industry.  They would also remove the ability of regulators to terminate or limit a bank’s federal deposit insurance solely on the basis of providing basic banking services to legitimate cannabusiness, such as accounts, checking, payroll and credit cards. Further, regulators would be not allowed to recommend or incentivize a bank to halt or downgrade banking services, including loans, to legitimate ganjapreneurs—in effect “redlining” them.

The most interesting final piece of this, however, is what it underscores. Banks who choose to proceed with this line of business must also agree to follow the guidance of the Financial Crimes Enforcement Network guidance, while at the same time understanding that this guidance is in a long period of sustained flux and streamlining. This means that there is still considerable risk to financial institutions in servicing cannabusiness during the transition.

At present, the industry is muddling forward in a situation where there is no real “right way” to proceed. Many banking institutions have flat out refused to engage with the industry. And because of this, the financial protections inherent in a transactional business become that much riskier, including obtaining insurance. Lloyds of London just announced earlier this summer that it would not insure or re-insure any business related to marijuana until federal reform. This has a roll-on effect because Lloyds is an underwriter, not a front-line retail institution. For this reason, banking reform is very much a part of this conversation too.

For all the bad news about delay, however, there have been notable sources of hope. Earlier this year, the Washington state-based credit union OBee began actively pursuing marijuana banking business as well as creating what many in the financial services industry are calling the first cannabis banking blueprint in the country.

With legalization fast becoming the law of the majority of the states, this kind of federal legislation is now critically urgent.

As Smith said, “Providing access to basic banking services for legitimate cannabis businesses should be a no-brainer. Without banks, many of our members are forced to operate entirely in cash, which puts their employees at risk for crime and creates massive challenges for businesses simply trying to pay their taxes, licensing fees, and other ordinary expenses.”

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