Would Better Banking Destroy Small Marijuana Businesses?

With little or no access to mainstream banking services, all but a few marijuana businesses have remained small ventures. Growth opportunities – within cities, across counties and certainly across state and international borders – are significantly curtailed by the fact that the drug remains illegal under the U.S. Controlled Substances Act. Federal money laundering statutes prohibit financial institutions from offering their services to state-legal cannabis companies so long as the drug remains – no matter how matter how implausibly – a Schedule I narcotic.

Medical marijuana is currently legal in 33 states and 11 states allow recreational marijuana sales and possession. It’s now considered one of the fastest-growing job sources, with some more than $3 billion in projected sales in California alone (the biggest legal market anywhere in the world).

Still, lack of access to banking services has been one of the biggest sources of angst among legal marijuana business entrepreneurs. In addition to difficulty with day-to-day transactions and savings – and all the security issues that arise from being a cash-only operation – marijuana businesses have difficulty starting retirement plans for workers, obtaining insurance or federal bankruptcy protection.

Yet any bank that risks going into business with marijuana cultivation or retail operations is going to put itself in danger of federal money laundering or racketeering charges.

Congress Considering Safe Harbor Federal Banking Regulations

To address the these issues that have stymied marijuana businesses, Congress is weighing the Secure and Fair Enforcement (SAFE) banking act, one that would establish a “safe harbor” of sorts against the kind of federal banking prohibitions that prevent financial institutions from doing business with cannabis companies.

As it stands, the bill, which sailed through the House Financial Services Committee earlier this year, now has more than 200 co-sponsors. It’s backed by lawmakers and Cabinet members on polar opposite sides of the political spectrum, underscoring its common sense logic.

Cannabis businesses have gotten around the stringent federal laws by leaning on banks that are state-chartered, as well as credit unions that don’t answer to the U.S. government as a primary regulator. Even so, banking as a marijuana business is pricey, with some banks charging as much as $5,000 a month for their services.

Would Reform Make It Easier for Bud Businesses? 

Still, there are some concerned that streamlined financial services could all but wipe out mom-and-pop pot shops. Many in Congress seem inclined to back the SAFE Banking Act not for the sake of their votors, but rather their donors.

After all, high-priced lobbyists like John Boehner, former House speaker, aren’t being paid by small-time operatives.

Already, we’re seeing the once-small-time industry blossom into a haven for big corporations. Retired football players, rappers, celebrities and investment firms are supporting large cannabis operations – to the tune of hundreds of millions or even billions of dollars. It’s being viewed as an untapped gold mine.

Some are concerned that what has long been an artisanal space will soon morph into a corporate one. Many Americans have been swayed to relax marijuana laws because, for instance, they don’t want to see their college freshman at risk of prison because they brought a bag of weed to share at a party. Big business wasn’t much considered as part of the equation for the average voter.

As marijuana lawyers, one concern we have is that if too many voters start to see the marijuana industry align with big businesses that most Americans may shy away from their support – which ultimately could threaten the cost of widespread legal status.

If you have concerns about how to establish solid financial services for your marijuana business, we can help.