Even in states where it is legal, “the possession, distribution or sale of marijuana remains illegal under federal law, which means any contact with money that can be traced back to state marijuana operations could be considered money laundering and expose a bank to significant legal, operational and regulatory risk,” the American Bankers Association explains.
Banks can be held liable if they hold money that was illegally obtained, and as selling cannabis is still considered a federal crime, cannabis businesses are a liability for banks. Cannabis growers and retailers can—and often are—denied the right to open a bank account, but they are not the only ones. Landlords, employees, service providers, as well as anyone indirectly tied to any kind of cannabis business can potentially be denied service. “The rift between federal and state law has left banks trapped between their mission to serve the financial needs of their local communities and the threat of federal enforcement action,” the American Bankers Association adds.
Concretely, that means that cannabis businesses cannot do anything that requires a bank account, be it to receive payment from customers or to pay others. “Currently, hundreds of licensed and regulated businesses do not have access to the banking industry and are unable to accept credit cards, deposit revenues or write checks to meet payroll or pay taxes,” cannabis advocate organization NORML explains. Beyond Full Spectrum, a Whitefish Bay-based CBD business, is one such business. After getting approved for an account with Summit Credit Union, their account was unexpectedly closed by the institution last month.
“Unfortunately, it is our understanding that we cannot legally consider serving businesses that produce and/or primarily sell hemp or CBD products until the oversight program is in place,” Summit Credit Union CEO and President Kim Sponem said in a statement.
As a consequence, Beyond Full Spectrum became cash-only until a better option could be found. “We were able to obtain an account with a credit union, but we haven’t been able to get credit card processing yet,” explained Beyond Full Spectrum founder Aleksandr Gerasyuta. He is understandably frustrated, as CBD is not federally illegal but is treated the same way as cannabis by banking institutions. As of now, they can only receive cash payments or direct debit transactions on a cashless ATM present in the store. “Business loss because of this system is substantial. We are seeing a big decrease in sales, somewhere between 40% and 50%,” he stated.
Possible Solutions
Individual banks can choose to take a risk by offering services to cannabis businesses in spite of the federal ban. However, since such banks are few and far between and the risk of losing one’s account remains, isolated efforts cannot offer a significant safety net for business owners. Forbes estimates that the legal cannabis industry is worth $9 billion in the U.S., yet only 30% of businesses have a bank account.
Thankfully, initiatives exist to try to solve this issue on a structural level. A government funding bill, approved on Tuesday, June 11, by the House Committee on Appropriations, includes a provision protecting banks that provide financial services to cannabis businesses from federal penalties. This budget bill only protects banks during fiscal year 2020, however; the Secure and Fair Enforcement (SAFE) Banking Act aims to permanently enshrine the measure into law. The bill has broad bipartisan support—it has 206 co-sponsors, nearly half of the U.S. House of Representatives—and is awaiting a vote. If it passes without major changes, the SAFE Banking Act could, in one sweeping motion, solve all of the banking issues cannabis businesses have been facing since their inception.
