Why Cannabis Companies Are Paying So Much In Bank Fees

It’s 2021, and for many in the country, buying weed no longer entails calling up a friend of a friend and meeting at a sketchy parking lot. Today, cannabis is a major business, with the industry boasting record profits in the billions. It’s not just marijuana that’s changing the face of cannabis, either. With hemp now legal, the CBD industry has completely exploded. Just peruse your local pharmacy and you’ll see bottles of CBD oil lining the shelves or at least some beauty products infused with the cannabinoid.  

But if the modern marijuana industry and hemp marketplace function just like any other legitimate business, then why are financial institutions charging exorbitant bank fees to these companies just for dealing in cannabis?

Is Cannabis Legal? 

high thc is not legal

If you live somewhere, like the West Coast, then it certainly feels like cannabis is legal. There are tons of dispensaries slinging everything from hash to THC-infused gummy bears, and as we mentioned before, everywhere you look, there’s another CBD product. 

Even though legal restrictions around the plant have significantly loosed in the last decades, marijuana is still very much illegal in the eyes of the federal government. In fact, the DEA still classifies THC as a schedule 1 drug: a compound with no currently accepted medical use and a high potential for abuse. The dissonance between federal law and state law makes the plant’s overall status feel somewhat hazy—especially for banks.

To further complicate matters, not all cannabis is federally banned. Just a few short years ago, the 2018 Farm Bill legalized hemp on the federal level. For those who might not know, both marijuana and hemp are varieties of the cannabis plant. Cannabis plants with more than 0.3% THC per dry weight get classified as marijuana, and those with less than 0.3% THC are considered hemp. Historically, the fibrous stalks of industrial hemp have been used in textile production and papermaking. However, the vast majority of hemp plants grown in the hemp industry daily, are grown for CBD.

Cannabis And Banking 

cannabis and banking

Even though the bulk of cannabis companies operate above board and are entirely legal, banks still have some hangups with providing their services to cannabis-related businesses. Because the federal laws are still hazy, major financial institutions have a fear that they may face federal prosecution if they work with marijuana or hemp companies. As a result, almost all of them flat out refuse to work with cannabis companies, and the few that do charge an obscene amount of fees to incentivize their risk. 

In practical effect, this makes it incredibly difficult for would-be entrepreneurs to enter the legal cannabis industry unless they already have access to fat stacks of startup capital since acquiring a business loan for a cannabis venture is nearly impossible. It also makes things more dangerous for those already working in the industry. Because dispensaries don’t have access to conventional banking services, they mostly have to operate as cash only. All that cash makes them prime targets for thieves and robbers. 

The SAFE Banking Act

The SAFE Banking Act

Fortunately, there’s a piece of legislation that may go a long way in helping alleviate these banking issues. It’s called the Secure and Fair Enforcement (SAFE) Act, and it aims to introduce safety measures for financial institutions that lend to cannabis-related businesses. 

Last year, House Democrats attempted to pass the SAFE banking act as part of their coronavirus relief package. However, it never made it into the final draft following negotiations with the Senate. The bill caught a second wind earlier this year when it was once again proposed by the house, this time as a standalone bill. In a rare show of bipartisan support, the House passed the bill by a margin of over 200 votes. Now, it’s up to the Senate to move it along to the Biden administration. Currently, it’s unclear which way the Senate will vote.