Ever since California launched its recreational cannabis market at the beginning of 2018, it seems as though legal weed is truly becoming a part of American commerce. This, of course, is an illusion. Although most legal marijuana states will generate millions of dollars each month from the sale of various pot products, these businesses are still being forced to operate on a mostly cash-only basis. Despite what you may have heard, federal law continues to prevent the banking industry from getting into bed with any company associated with the cultivation and sale of cannabis.
It is for this reason that 18 attorney generals from both medical and recreational marijuana states have submitted a letter to Congress. The group is hoping to persuade the suits on Capitol Hill to take action that will allow the cannabis industry to have banking solutions, the same as any other legitimate business operating in the United States.
“The grey market makes it more difficult to track revenues for taxation purposes, contributes to a public safety threat as cash-intensive businesses are often targets for criminal activity, and prevents proper tracking of large swaths of finances across the nation,” the letter reads.
“To address these challenges, we are requesting legislation that would provide a safe harbor for depository institutions that provide a financial product or service to a covered business in a state that has implemented laws and regulations that ensure accountability in the marijuana industry, such as the SAFE Banking Act (S. 1152 and H.R. 2215) or similar legislation.
“This would bring billions of dollars into the banking sector, and give law enforcement the ability to monitor these transactions.”
Although the Obama administration put a non-binding policy into place back in 2013 that allowed the marijuana industry to function without much interference from the federal government, U.S. Attorney General Jeff Sessions recently tossed that memo in the trash. Now, the industry is concerned that any misstep might bring on the heat from the Justice Department.
To make matters worse, those banks that might have been willing to take a chance on marijuana-related companies now have cold feet.
“The withdrawal of the Cole memo really couldn’t have come at a worse time, because now is the time that the types of banks and credit unions that are willing to take on more risk would have been entering the market,” Robert McVay, partner at Harris Bricken, told CNBC.
Since marijuana is still considered an outlaw substance in the eyes of the federal government, banks can be hit with money laundering charges for accepting funds from the cannabis trade. This has given all of the larger financial institutions, like Bank of America and Wells Fargo, the jitters, while some credit unions and other smaller banks have been reportedly charging outrageous rates to take on the added risk. But now, even those types of high-priced banking options could be difficult for dispensaries to find.
“If you weren’t already involved, this doesn’t seem like the right time to start,” McVay said.
For the past few years, federal lawmakers have been working to pass a temporary budget amendment (similar to Rohrabacher-Farr) that prevents the federal government from cracking down on banks that choose to do business with legitimate members of the cannabis industry. But Congress simply isn’t hearing it. Whether that will change at some point this year is anyone’s guess.