Prospects appeared bright for legislation to ease access to the banking system for cannabis-related businesses. That was before the vaping crisis hit.
It was a rare source of consensus in a divided Congress: in September, the House of Representatives passed a bill designed to ease the flow of money to cannabis companies around the nation.
By stripping away federal penalties on providing financial services to these businesses, the bill would go a long way to grease the financial gears of a budding industry, which is now legal in some form in 46 states, but is still prohibited at the federal level.
In addition to shielding banks and credit unions, the Secure and Fair Enforcement Banking Act is also designed to make it easier for cannabis-related enterprises, like dispensaries and growers, as well as business that serve them, like law firms and real estate companies, to access the banking system with funds derived from cannabis products.
In short, such legislation would take what is predominantly a cash-based niche industry where serving or working with a cannabis-related business is still considered taboo and provide it with the safeguards that a majority of all other American industries have by using the banking system and its vast payment networks. For the many middle-market firms poised not only to serve this industry but also to invest in it, the legislation represents an important change.
The bill enjoyed broad support. With 207 members of the House supporting the legislation as either a sponsor or cosponsor, along with industry groups like the American Bankers Association, Credit Union National Association and Independent Community Bankers of America, the bill was passed with bipartisan support with a vote of 321 – 103.
Its prospects appeared bright as the legislation headed to the Senate.
So where is the legislation now?
Today, the legislation is on hold. Senate Banking Committee Chairman Mike Crapo, a Republican from Idaho, said the committee needed to consider which cannabis products could be banked under the legislation.
But that was before the vaping crisis hit.
A little more than a month after the House passed the bill, the Centers for Disease Control and Prevention reported that as of Nov. 5, there were 2,051 “confirmed and probable lung injury cases” associated with vaping products. In addition, the CDC reported that 39 vaping-related deaths have been confirmed in 24 states. Many of these involved THC products.
Today, the legislation is on hold. Senate Banking Committee Chairman Mike Crapo, a Republican from Idaho, said the committee needed to consider which cannabis products could be banked under the legislation.
“That’s a good example of one of the big concerns that I have that we do need to address in the bill, which is the health and safety aspects of the use,” Senator Crapo recently told the American Banker. “So we are working to revise the bill and to develop support for the bill to move forward.”
A fractured legal framework
As much as the general public would view the issue as being of concern only to cannabis companies, the reality is that without appropriate federal legislation and protections, the issues are much broader and pervasive.
- Cash constraints. Cannabis-related companies will still operate predominantly on a cash-only basis, without having access to safety and security assurances that the banking sector provides, which is on top of the concerns of those other companies supporting the cannabis industry.
- Challenges in raising capital. Without appropriate legislation, American brokerages will be hesitant to trade cannabis related securities resulting in investment in the cannabis industry to remain muted.
- Location, location, location. As regulations early on restricted cannabis-related companies as to where they can operate, those companies bought their own property to house operations. Yet, without legislation allowing for more easily accessible capital, these companies are now transacting in sale-leasebacks to open up cash flow and finance growth.
- Wary insurers. Further, cannabis-related risk exposures may also be difficult to insure without broader market support and coverage availability across the U.S.
Given the increased scrutiny surrounding vaping, a fractured political environment, and presidential election less than a year away, the reality is that legislation as broadly popular as the SAFE Banking Act may not see the finish line during the current congress.
