History of Banking and Cannabis
The history of banks and cannabis companies has been marked by a significant amount of caution and reluctance on the part of banks to work with cannabis companies, due to the federal prohibition of marijuana in the United States.
In the early days of cannabis legalization, few banks were willing to work with cannabis companies. This was due to the fact that marijuana is still illegal at the federal level, and banks that work with cannabis companies could be in violation of federal money laundering laws. As a result, many cannabis companies were forced to operate on a cash-only basis, which made it difficult for them to manage their finances and pay taxes.
In 2014, the U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) issued guidance for banks that wanted to work with cannabis companies, which helped to clarify some of the compliance requirements and reduce the legal risks for banks. This guidance allowed some banks to begin working with cannabis companies on a limited basis, in states where marijuana is legal.
However, despite the guidance, many banks still refuse to work with cannabis companies, due to the ongoing federal prohibition of marijuana and the associated legal risks. In 2020, The Secure and Fair Enforcement (SAFE) Banking Act was passed by the house, which would allow banks to work with the cannabis industry without fear of federal enforcement actions, but it hasn't been passed by the Senate yet.
As more and more states legalize marijuana, it is likely that the number of banks willing to work with cannabis companies will increase. However, it's still uncertain when the federal laws will change and banks will be able to work with cannabis companies without any concerns.
The SAFE Banking Act
The Secure and Fair Enforcement (SAFE) Banking Act is a bill that was introduced in the United States Congress in 2019, and passed by the House of Representatives in September 2020. The bill aims to provide a safe harbor for banks and other financial institutions that work with cannabis-related businesses in states where marijuana is legal.
The Act would protect financial institutions and their employees from being penalized or prosecuted by federal regulators for providing financial services to cannabis-related businesses that are operating legally under state laws. Currently, many banks and credit unions are reluctant to work with cannabis companies because marijuana is still illegal at the federal level, and providing financial services to these businesses could put the institutions in violation of federal money laundering laws.
The bill also includes provisions to protect ancillary businesses that work with the cannabis industry, such as landlords, and equipment suppliers. The bill would also provide for more transparency, by requiring the Government Accountability Office to report on the impact of the cannabis industry on the financial sector.
The Act was stalled by the Senate when it was first passed by the House. It was reintroduced by 100 bipartisan members of the House in 2021 with many hoping it to be the year the legislation could be implemented. However, the start of 2023 still has not seen the SAFE Banking Act passed by the Senate and it may have to be reintroduced for another pass through Congress.
Outrageous Fees for Cannabis Companies
Banks that work with cannabis companies may charge higher fees than they would for other types of businesses. This is because cannabis companies are considered high-risk and the banks may need to take extra steps to comply with federal regulations and laws. Some of the fees that cannabis companies may be charged include higher account maintenance fees, higher transaction fees, and higher ATM fees.
Additionally, banks may charge extra for compliance-related services such as account monitoring, suspicious activity reporting, and compliance audits. It's also possible that cannabis companies may have to pay for additional insurance coverage to protect against losses due to federal enforcement actions.
Examples of Banks Working With Cannabis Companies
There are a limited number of banks and credit unions that currently work with cannabis companies, due to the federal prohibition of marijuana in the United States. However, some examples of banks that have worked with cannabis companies include:
Fourth Corner Credit Union
This credit union, based in Denver, Colorado, was granted a master account by the Federal Reserve Bank of Kansas City in 2014, making it the first financial institution to be granted such an account for the sole purpose of serving the marijuana industry.
Partner Colorado Credit Union
This credit union, based in Arvada, Colorado, began working with cannabis companies in 2014. It has since opened accounts for more than 200 cannabis-related businesses.
Salal Credit Union
Based in Seattle, Washington, Salal Credit Union started working with cannabis companies in 2014 and since then it's been helping cannabis-related businesses to manage their finances.
MBank
This Oregon-based bank opened its doors to cannabis companies in 2014 when the state legalized marijuana in 2014. Unfortunately, it had to close its doors to cannabis companies just a year after opening to them due to the lack of resources to manage the compliance necessary.
These are just a few examples, and the number of banks working with cannabis companies is likely to increase as more states legalize marijuana and the cannabis industry becomes more mainstream.
The Future of Cannabis and Banking
Currently, cannabis businesses are considered high-risk by banks due to the federal prohibition of marijuana, which puts the banks at legal risk. But as more states legalize marijuana and the cannabis industry becomes more mainstream, it is possible that the federal government will change its stance on marijuana and allow banks to work with cannabis companies without fear of legal repercussions.
Additionally, as technology advances in areas like blockchain, it could become possible for cannabis companies to conduct transactions and manage their finances through decentralized platforms that do not rely on traditional banking institutions.
Overall, it's a complex issue and the future of banking and cannabis is uncertain but it is likely that as more states legalize marijuana and the cannabis industry continues to grow, the banking and financial industry will find ways to adapt and serve this market.
