The state-legal marijuana industry in the United States continues to grow – as does support for it. Ten states and Washington, D.C. have legalized recreational adult use and 23 other states allow some form of medical cannabis. According to recent polling, 65% of Americans favor legalization of marijuana. Although interest and investment in state-legal cannabis show no sign of slowing, marijuana still remains classified as a Schedule I drug under the federal Controlled Substance Act (“CSA”).
Because marijuana remains illegal under federal law, banks, credit unions, and other financial institutions that provide even basic banking services to marijuana-related businesses (“MRBs”) face signficant regulatory risk, even if the real-world chances of any criminal enforcement currently appear very remote. For this reason, although some credit unions and state-chartered banks are opening accounts for MRBs, most financial institutions, including the largest banks, remain reluctant to do so.
As we previously blogged, the conflict between state and federal law and the uncertainty regarding how federal laws will be enforced against financial institutions leave most MRBs operating on a cash-only basis. Operating solely as a cash business raises obvious safety and security concerns for both the MRBs and the communities in which they operate, and causes regulatory and tax compliance challenges. Additionally, MRBs may struggle to obtain access to financing needed for operations and expansion.
Recognizing these issues, Congress is taking action — possibly. We discuss here two proposed cannabis reform efforts, the Secure and Fair Enforcement Banking Act of 2019 (“SAFE Banking Act”) and the Strengthening the Tenth Amendment through Entrusting States Act (“STATES Act”). If passed, both bills would provide federal protections to financial institutions servicing MRBs, thereby signficantly increasing MRBs’ access to the banking system. Both bills have received broad bipartisan support, along with support from affected industry groups. Either of these bills, if passed, would represent a major change.
(Please also check out our related podcast on financial services and the cannabis industry, which more generally reviews the many recent developments in this area, including state approaches to banking services, the status of hemp legalization, the interplay between federal and state cannabis law, FinCEN guidance on Bank Secrecy Act expectations, the status of federal regulatory and enforcement activity.)