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For Cannabis Companies, the SAFE Banking Act Could Be a Game Changer

Legal cannabis companies can easily find customers who want their products, but often can’t find banks that want their business. The lack of access to financial services is one of the most significant challenges affecting legitimate cannabis companies. It limits the ability of emerging businesses to break into the industry and exposes these businesses to risks that endanger employees and public safety.  There’s potentially good news on the horizon: A bill currently before the Senate could create the banking reform that cannabis companies desperately need. 

Cannabis Companies and the SAFE Banking Act

Because cannabis remains illegal on a federal level—despite 36 states and D.C. allowing medical marijuana, and 18 states and D.C. allowing recreational marijuana—major lenders tend to be unwilling to work with cannabis companies. Cannabis is a highly regulated industry, so even those financial institutions willing to lend to cannabis clients must meet extensive regulatory requirements when serving cannabis clients. The reporting requirements are time-consuming and banks can be heavily penalized for failing to comply. 

The Secure and Fair Enforcement (SAFE) Act, also known as the SAFE Banking Act, would eliminate penalties for financial institutions that work with cannabis businesses, incentivizing these institutions to extend their services to legitimate companies. The bill passed the US House in a 321-101 vote in April and is now with the Senate, where its future is uncertain. Several Senators have expressed hesitation to move forward with a cannabis banking bill without also addressing issues including legalization and sentencing reform. Rep. Ed Perlmutter (D-CO), who sponsored the SAFE Banking Act, said on Twitter that he supports comprehensive cannabis reform legislation too—but stressed the urgency of passing the banking bill quickly as a matter of public safety. 

Because cannabis companies are forced to work on a cash basis, they’re a prime target for thieves who know that there are potentially hundreds of thousands of dollars in cash on the premises. Dispensaries around the country have been burglarized and targeted by armed robbers. Cannabis company owners have had to hire additional armed security to protect their employees and customers. Being able to accept credit card payments would immediately slash the amount of cash these businesses have to handle and keep on hand, and would make accurate accounting and record-keeping easier—which is especially important if the business ever decides to sell and needs to provide comprehensive financial records. 

The passage of the SAFE Banking Act would also benefit small business owners of cannabis companies. Currently, owners who can’t secure loans and access credit may have no choice but to use their own savings to fund and support their struggling business. Expanding banking access could also make selling your cannabis business easier. The pool of potential buyers would be increased if access to capital necessary to purchase a cannabis concern were more available. 

Relatedly, the Act would also make it easier for new business owners to enter the industry. (David Torrisi, the president of the Commonwealth Dispensary Association, told the Boston Herald that banking and capital access is the largest barrier to entering the cannabis industry.) Starting a cannabis business generally requires hundreds of thousands of dollars in startup costs. Being unable to get bank loans prevents would-be cannabis entrepreneurs from breaking in without substantial savings or family wealth. The lack of financing options disproportionately affects low-income people as well as people of color, who are less likely to have substantial savings and generational wealth. ​​Meanwhile, the industry is dominated by a handful of major entities that have the necessary capital to buy or start cannabis businesses. Expanding banking access could do a great deal to create more racial and social equity within the cannabis industry.

Cannabis Companies and the MORE Act

The passage of the SAFE Banking Act would clear one barrier for cannabis companies, but another major hurdle would remain: Cannabis is categorized as a Schedule I controlled substance, as it has been since the Controlled Substances Act was enacted in 1970. The DEA defines Schedule I substances as having “no currently accepted medical use … and a high potential for abuse.” (Other Schedule I drugs include heroin and LSD.) Scientists now know that cannabis can have significant medical benefits, but its status as a Schedule I drug continues to generate a lot of red tape for researchers studying its potential applications. Changing its status as a controlled substance would facilitate more medical research and expand patient access to cannabis. 

There are currently several federal cannabis reform bills being considered by Congress. The Marijuana Opportunity, Reinvestment and Expungement Act of 2021 (MORE Act), introduced in the House, would remove cannabis from the federal list of controlled substances, federally decriminalize cannabis and eliminate related criminal penalties for the manufacturing, distribution and possession of cannabis. (However, States would continue to be able to criminalize cannabis.) If the MORE Act is approved by the Senate and signed into law in its present state, it would also create a process through which convictions for non-violent cannabis offenses could be expunged, establish a trust fund to support communities that have been most affected by the war on drugs and impose a five percent tax on cannabis products to fund the trust. 

Removing cannabis from the list of scheduled controlled substances could have significant financial benefits for current and future cannabis business owners. The MORE Act would give these businesses access to loans and other services from the Small Business Administration. Decriminalization would eliminate a lot of the legal uncertainty that currently exists for cannabis business owners and buyers. 

At this time, it’s too soon to predict the MORE Act’s fate. An earlier version of the MORE Act was approved by the House last year, but the bill had limited Republican support and didn’t survive the Senate. Rep. Jerry Nadler (D-NY) reintroduced the bill to the House in May. A companion bill is expected to be introduced in the Senate sometime before the end of 2021. We’ll keep you updated on legislation that affects the cannabis industry as developments unfold. 

Sassoon Cymrot, LLC is here to help cannabis companies navigate their unique financial and regulatory challenges. From emerging businesses and startups, to established businesses looking to sell, we help cannabis companies meet their compliance requirements and explore their financing options to identify the best path for future growth. Contact us today!

Lauren A. Puglia has been practicing business law for more than three decades. Her areas of expertise include mergers and acquisitions, representation of start-up companies, issuers, franchisors and franchisees, and venture capital funds. Ms. Puglia also acts as “outside general counsel” for several small to mid-size businesses, assisting and advising them on all aspects of their business.
Ka-Yung Wong began his law practice as an immigration attorney in 1996. Today, he continues to advise his clients in business matters. With a strong background in business law, his clients are drawn from a wide range of industry sectors, including technology, transportation, restaurant, retail, wholesale, and financial services.
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