Cannabis Banking: Why It’s Such a Struggle - Shift Credit Card Processing
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Cannabis Banking: Why It’s Such a Struggle

In the cannabis industry, access to cannabis banking services may feel impossible. For retailers, vendors, and suppliers (really any cannabis business) bank options are minimal. 

The reason? The Controlled Substances Act. This bill, passed in the 1970’s, considers marijuana a Schedule 1 drug. This places marijuana alongside drugs like heroin, meth, and LSD. As a result, marijuana sales are illegal at the federal level. 

Despite this, many states have legalized marijuana in some form. This creates a hurdle for dispensaries to develop a legal cannabis banking process. 

Credit unions and other financial institutions are hesitant to represent any marijuana business because of the industry’s position in a legal “gray area.”

Current Legality of Cannabis Banking 

This gray area wasn’t always an issue. It wasn’t until 2013, the Departments of Justice first issued a memorandum known as the Cole Memos. This memo stated that the federal government would not enforce a ban on marijuana. Instead, it trusted the states to put in place their own regulatory system for legal cannabis.

However, just five years later, the government rescinded the Cole Memos. This left uncertainty around how law enforcement would respond to the marijuana industry. 

Criminal prosecution loomed over any bank that did business with a cannabis company. Even those with a state-issued licenses. Many cannabis related businesses were left without any help from depository institutions. 

For cannabis related businesses that do get help from banks, compliance remains an issue. 

Even with a bank account, there are still many legal and regulatory hoops to jump through. For example, both the bank and the business must follow FinCEN guidelines to ensure all sales are legal. 

This is expensive for all parties involved. Marijuana businesses experience higher merchant account fees and financial institutions must use their resources to compile all of the data.

The burden of extra costs for banks and merchants are shifted to the consumer, making the purchases at dispensaries more of a hassle and more expensive. 

Besides the expense, cannabis banking processes are inefficient as banks still risk prosecution. The industry does not operate independently from the rest of the economy. They interact like any other brick and mortar business. They lease space, pay utilities, and do business with vendors, suppliers, and transporters. The same as any other business. 

This is problematic because the increased liability makes banks apprehensive to do business with cannabis related business, leaving many dispensaries to cover these costs themselves.

As a result, many cannabis related businesses are left without the support from American bankers and must operate as a cash business, an expensive and dangerous option. 

The extra expenses come from the need to protect the cash. Cash only businesses must hire armored trucks and armed guards. Despite these precautions, a public safety risk remains from the high likelihood of violent theft.  

In response, The National Association of State Treasurers called for legislative action. They encourage common sense legal and regulatory measures in states with legal cannabis. These regulations are aimed to fix the threat that large volumes of cash pose to these businesses and communities.

There is growing support for solutions to these marijuana banking issues. For example, there are credit card processing companies that have created legal avenues for marijuana businesses to process card payments. In addition, several states have begun initiatives to regulate cannabis banking nationwide.

Cannabis Banking at the State Level

In Oregon, the Maps Credit Union is giving marijuana companies bank access. Maps is the only credit union in Oregon currently providing online banking to marijuana businesses. This allows direct deposit payments through wire transfers. Unfortunately, Maps still lacks the legal authority to lend to cannabis companies. This bars them from accepting credit cards. As a result, all deposits incur hefty fees. 

Rachel Pross, the Chief Risk Officer at the Salem branch explained “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.”

Maps also must keep records of all their cannabis clients to ensure they aren’t liable for a lawsuit. This slows their processing times for these businesses. 

California is another state who has identified the need for change in the cannabis banking industry. Recently, the State Senate passed a cannabis banking bill that allows banks to work with the California cannabis industry.   

The author of this bill, State Senate Majority Leader Robert Hertzberg, first pitched the Cannabis Limited Charter Banking and Credit Union Law in May. Since then, it’s gained the support of dispensaries from San Francisco to Los Angeles. 

The bill would issue special bank and credit union checks to cover general fees, like taxes or rent.However, before any of this can happen, it needs to pass in the State Assembly and the governor must sign it. 

Fortunately, these states are not alone in the push to bring banks into the cannabis industry. Recently, Senator Jeff Merkley introduced the Secure and Fair Enforcement (SAFE) Banking Act. 

The SAFE Banking Act

This bill, if passed, would fix most of the current cannabis banking issues. To start, it would limit the intervention powers of federal banking regulators. This protects legal cannabis businesses from forced shutdowns by the government. 

The SAFE Banking Act would also protect bank insurance. Currently, regulators can end bank insurance if they service cannabis related businesses. With the SAFE Banking Act, their insurance is federally protected. 

In essence, this banking bill would end the pressure private banks face. Now, they can service medical and recreational marijuana dispensaries without fear of prosecution. The bill would create a ‘safe harbor’ for the cannabis industry to operate. 

The SAFE Banking Act provides more than safe harbor, it also appears to have a safe bet to become law.  In the time since the bills introduction, it has earned over 200 co-sponsorships. 

These sponsors come from both sides of the aisle. Including Democrats Rep Ed Perlmutter and Rep. Denny Heck. Also sponsoring the bill are Republicans Rep. Steve Stivers and Rep. Warren Davidson. 

As an added bonus, soon after the bill’s introduction, it earned widespread support. The most prominent support came in letters to Congress written by Attorneys General. 

An Attorney General is the most important legal adviser to a state government. The SAFE Banking Act earned signatures from thirty-eight of them. From states, Washington DC, and US territories, they all called for cannabis banking solutions. 

The letter reads: 

“Our banking system must be flexible enough to address the needs of businesses in the various states and territories, with state and territorial input, while protecting the interests of the federal government. This includes a banking system for marijuana-related businesses that is both responsive and effective in meeting the demands of our economy.”

Currently, the bill has passed out of the house financial services committee. Next, it must pass a vote on the House floor. However, even if it passes in the House, it will take time before it reaches the Senate or office of the president.

If passed in the House, the bill must then go into the Senate Banking Committee. If it makes it from that committee, the Senate must pass it and the president must sign it into law. 

The Overarching Challenge for Cannabis Companies

Even if the SAFE Banking Act becomes law, it is still has its flaws. The most prominent flaw being that it does nothing to legalize marijuana nationwide. Meaning that for the states without any legal cannabis, the bill accomplishes nothing. 

Additionally, because marijuana will remain illegal, marijuana companies won’t be publicly traded. As a result, even if the bill becomes law, no cannabis company will gain the benefits of the stock exchange. 

While both of these are downsides to the bill, the biggest obstacle is the government. The lengthy bill-to-law process has so many opportunities to end the bill and only one way for it to pass.

Until there is legislation allowing banks to help businesses, there are still options. One solution that is working currently is allowing credit card processing for dispensaries. 

This banking system helps high-risk businesses like medical and recreational dispensaries get merchant accounts. Instead of having to go overseas for an account, this solution processes payments here in the US.

This system allows dispensaries to accept credit and debit cards at EMV terminals. This means less cash payments and more on plastic. This system uses a patented blockchain technology that keeps payment information encrypted. As payments (blocks) come in, they form chains that record the transaction information. Once verified, that information completes the payment. In short, their system allows cannabis payments to happen the same way as any other.  

As a whole, cannabis banking is an area of great potential. More than half the country has legalized some from of marijuana. That means more than half the country has cannabis related businesses operating without a bank to support them. 

The Current Frustration of Banks & Business Owners

The lack of cannabis banking options has brought about some real frustrations in both banks and business owners.

For banks and other financial institutions, there are many strands of red tape to avoid. Maintaining expensive monitoring systems or facing lawsuits is less than ideal. Not only that, it is almost impossible for banks to guarantee they are not breaking federal laws.  

For a cannabis business, a lack of cannabis banking is expensive. With only cash, a business owner must hire armored trucks or armed guards to ensure their money is secure. On top of that, day-to-day expenses like payroll, rent, or taxes are much more difficult with cash alone. 

For communities, government inaction to allow cannabis banking is a danger. When local dispensaries have large sums of cash on hand, incidence of crime increases. 

Until the legalization of cannabis banking, businesses, banks, and communities are paying the price of inaction. This price affects every aspect of the industry. From growers, to vendors, to retailers, and ultimately, consumers. 

Cannabis banking allows better, easier, and safer business practices. 

Without fear or prosecution, banks would be able to accept more clients. This is profitable for both the bank, the business, and the government. Also, it would allow the marijuana industry to join the regulated sector. This would help combat illegal transactions and legitimize the industry.

Without costly upkeep of workarounds, marijuana businesses would be more profitable. It’s a well known fact that people buy more with card payments. In addition to higher profits, cannabisrelated businesses would have fewer fees. No longer will they have to spend money to protect piles of cash. 

When cannabis businesses can digitize payments, streets are safer. With cannabis banking, communities will (and have) seen fewer instances of crime. It’s clear- the benefits of cannabis banking extend far beyond the monetary perks. 

The question isn’t whether or not cannabis banking can be legal. It’s the financial industry overcoming the stereotype of the cannabis industry that seems to be the largest hurdle that is holding back cannabis banking from improving beyond cash only business.

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