Since 2012, 11 states decided to legalize the possession and recreational use of marijuana, with all except Vermont allowing or planning to allow commercial distribution of the substance. This has sparked rapid growth in a new industry. However, many of these businesses face an obstacle: the reluctance of banks to provide any services to trade which, despite state rulings, remains illegal under federal law. Some smaller banks and credit unions have taken the leap into this strange, new, legally-uncertain world, but they operate in the shadow of possible criminal charges. Two pieces of national legislation, the SAFE Act and the STATES Act, have been proposed as solutions to this dilemma.
The recreational marijuana business has boomed following legalization in many states. In Oregon, for example, monthly sales climbed from about $3 million in October 2016 to about $55 million in October 2018. In Colorado, annual sales increased from $303 million in 2014 to $1.1 billion in 2017.
However, marijuana is still classed as a Schedule I drug and thus strictly prohibited under federal law. This means that banks could be charged with money laundering for having any part of the money gained in the drug’s distribution. As a result, most banks, especially larger institutions, have steered clear of the burgeoning sector, forcing businesses to deal exclusively in cash.
Notably, a number of smaller banking institutions, such as local credit unions, have decided to accept the risk. Partner Colorado Credit Union, located in a suburb of Denver, took the lead in offering banking services to marijuana businesses. Oregon’s Maps Credit Union and Washington’s O Bee Credit Union have also reached out successfully to members of the new, legally-shaky industry.
Two laws have been introduced in Congress as possible solutions: the Secure and Fair Enforcement (SAFE) Banking Act and the Strengthening of the Tenth Amendment Through Entrusting States (STATES) Act. The SAFE Act, which was voted to advance for consideration by the full U.S. House in May of 2019, would protect banking institutions engaged in commerce with state-legalized marijuana business from federal-law repercussions. The STATES Act, introduced for the second time in April 2019, would provide broader protections against federal law for the state-legalized cannabis industry as a whole. While the SAFE Act has been a Democrat-driven effort, the STATES Act was introduced by a Democrat and a Republican together, with the latter, Rep. Cory Gardner, touting a promise of support from President Trump.
In the meantime, retailers and banks in cannabis-permissive states are stuck in legal limbo. Banks remain reluctant to take advantage of a flourishing yet risky industry. Marijuana purveyors are forced to handle unwieldy and unsafe quantities of cash. While the SAFE and STATES Acts each boast some bipartisan support, the Democrat-majority House of Representatives appears much more likely to pass legislation than the Republican-controlled Senate. While both bills are on the legislative agenda and under public discussion, the financial future of this newly-legitimate business still looks hazy.