Pot Reform: A High Banking Priority
Money / It’s a gas / Grab that cash with both hands and make a stash.
Pink Floyd’s ode to capitalism, the 1973 song Money, seems to presage today’s melding of the psychedelic culture with cold hard business. A major trend in the booming marijuana business these days is the desperate need of ganja-preneurs for financial services. They’re accustomed to stashing their cash in safes because most banks won’t work with them.
But that’s changing. According to a recent report from the federal government’s Financial Crimes Enforcement Network (FinCEN), the number of banks and credit unions that report working with marijuana businesses remained steady in the latest quarter compared to previous quarters.
Those numbers had been declining throughout 2020, due to pandemic-induced lockdowns as well as the reluctance of bankers to do business with marijuana companies. But banking access for pot businesspeople has enjoyed an uptick (see chart).
As of March 31, there were 684 banks and credit unions that filed reports saying they were working with marijuana business clients. (The government requires banks to submit the data in what it calls Suspicious Activity Reports, or SARs.)
Banking gets hip to hemp…
FinCEN, which is part of the U.S. Treasury Department, stopped including hemp-only businesses in its quarterly reports, after the crop was federally legalized under the 2018 Farm Bill. Previous figures had counted hemp accounts, which partly explains the recent declines in the banking access data.
Signed into law on December 20, 2018 by President Trump, the sweeping Farm Bill decriminalized hemp, a cousin of the marijuana plant.
Hemp is a sturdy and versatile fiber with a myriad of industrial and medical uses, but hemp producers had grappled with an inability to receive loans and banking services because the plant was banned due to its (albeit low) levels of THC. Hemp is now legal, with unimpeded access to banking, and the industry is thriving.
FinCEN stated in its latest quarterly report:
“The number of depository institutions (DIs) banking marijuana-related businesses (MRBs) appears to have leveled off from a decline that started at the end of the 1st Quarter FY2020 (December 2019). The decline coincided with the release of guidance by FinCEN and financial regulators on providing financial services to customers engaged in hemp-related business activities.”
The banking industry is lobbying Congress to ease the way for marijuana companies to gain greater access to banking. Lawmakers are heeding the call.
In April 2021, the U.S. House for the fourth time approved the Secure and Fair Enforcement (SAFE) Banking Act. SAFE is designed to protect banks that accept marijuana business clients from being penalized by federal regulators.
The SAFE Act still requires the approval of the U.S. Senate and President Biden’s signature to become law. SAFE’s prospects are uncertain in the 50-50 Senate, but the Democrats are united in their support of the bill and they’re increasingly aggressive in seeking their legislative goals.
Supporters of SAFE portray the bill as a public safety matter, not just a financial one. Most marijuana dispensaries are cash-only businesses…and certainly not by choice. Removing federal restrictions that keep state-legal cannabis dispensaries out of the U.S. banking system would reduce violent crime against these businesses.
As it stands now, marijuana distributors and sellers are compelled to conduct most of their business in cash, making them targets for theft and violent robberies. Marijuana company managers are accustomed to carrying around bags of cash and it makes them sitting ducks for crooks.
In a separate but related move, Senate Majority Leader Charles Schumer (D-NY) and Sens. Cory Booker (D-NJ) and Ron Wyden (D-OR) on July 14 released the draft of their bill to federally decriminalize marijuana.
The Cannabis Administration and Opportunity Act (CAOA) would prevent Americans from getting arrested or barred from receiving essential services for using cannabis where it is legal. The proposal also would give state-compliant cannabis businesses freer access to financial services.
If either SAFE or CAOA pass the Senate and get enacted into law, you can expect a surge in bank lending to marijuana companies, which in turn would ignite a rally in pot stocks.
The time to buy quality marijuana stocks is before these legal catalysts occur and share prices zoom higher. For our report on the best marijuana opportunities, click here now.
John Persinos is the editorial director of Investing Daily. He also writes the twice-weekly e-letter Marijuana Investing Daily. Send your questions or comments to firstname.lastname@example.org. To subscribe to his video channel, follow this link.