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When we discuss the challenges and hurdles facing the cannabinoid industry, we’re often discussing obstacles that are unique to the space given its ongoing state of infancy. While concerns like client acquisition and sustainable scaling are matters that even mature industries brush up against, there’s one problem in particular that exclusively exists as a thorn in the cannabinoid industry’s side: banking.
Despite being legal, cannabis businesses are unable to use the services provided by secure banking institutions. The denial of such basic assistance has created unnecessary difficulties, ones that have proved detrimental to those looking to grow with the space as it expands.
Exclusions like these only perpetuate the negative stigma surrounding the plant, and since lobbyists recognize that such ostracism from financial institutions will continue to hinder the industry’s progress, they have been campaigning to pass the SAFE Banking Act.
CEO of Cresco Labs, Charlie Bachtell, put it best when he spoke with CNBC’s team over at Fast Money, claiming that “access to capital has been so difficult in this industry. And again, this is an industry that is the fastest growing industry in America. [It] increased to 320,000+ full-time employees in the industry last year – that’s up 32%, so this is an incredibly fast-moving, dynamic industry that we have, you know, a hand tied behind our back without access to traditional banking.
What is the SAFE Banking Act?
You may ask. The SAFE Banking Act is a piece of proposed legislation that would allow financial institutions to take on clients within the cannabis sector without the risk of facing federal penalties or a DEA raid.
If this doesn’t sound like a monumental game changer, consider that the head of the IRS, Commissioner Charles Rettig, told Congress that “the federal agency would “prefer” for state-legal cannabis firms to be able to pay taxes electronically, as the current cash-based system under prohibition is onerous and presents risks to workers.”3 Forced to operate as cash-based businesses, the most well-known and successful MSOs have had to pay taxes with duffel bags of cash. This ridiculous mental visual only highlights the absurdity of excluding multi-million dollar companies from the accessibility of banking.
With such obvious reasons demonstrating why financial institutions should start allowing cannabinoid businesses to work with them, you may be wondering what’s been holding them back. The main issue comes in the form of compliance risk. Though many states have fully legalized cannabis, the plant is still illegal at the federal level, meaning the issue of sanctions is a very real and very serious threat that hangs over the heads of banks and credit unions thinking about expanding into the cannabis industry. Unfortunately, their fear of facing the potential ramifications of working within the space further endangers the ones operating in it, placing cannabinoid workers at a higher risk for targeted robberies.
While not the massive reform that many people hoped to see, the SAFE Banking Act is a critical piece of legislation and a crucial step towards creating a compliant industry that’s adding thousands of jobs, bringing in millions of dollars in tax revenue, and ensuring that Uncle Sam continues to get his piece of the pie.