Marijuana banking problems have long plagued the industry. Cannabis companies are unable to do business with most traditional, federally insured banks. This limits their access to other financial services like 401(k) plans and loans.
Senate Majority Leader Chuck Schumer (D-NY) has renewed his commitment to tackling marijuana banking problems. He is now joined by the U.S. Treasury Department. The organization is also exploring options to address the issue. Read on to find out more.
Tackling Marijuana Banking Problems
A hearing before the Senate Finance Committee was held last week wherein Sen. Michael Bennet (D-CO) questioned Treasury Secretary Janet Yellen about marijuana banking problems.
He argued that the industry is more stable than cryptocurrency. Yet banking regulations have allowed for large cryptocurrency investments to contribute to the collapse of at least one bank this month.
Yellen responded saying, “As you pointed out, in the case of marijuana, it is against federal law, and that’s a barrier, unfortunately, to appropriate banking services for the industry.
“It’s something the regulators have been looking for solutions to,” she said.
Efforts Made to Resolve Marijuana Banking Problems
Marijuana banking problems are also being addressed by bipartisan congressional lawmakers. They are seeking to resolve the banking issue.
The House has repeatedly passed legislation to protect financial institutions that work with cannabis businesses. They introduced a reform as part of a cannabis package that Schumer attempted to enact last session. However, he was blocked by GOP opposition.
Despite Congress’s divisiveness, he revealed to the press that he still plans to push the reform forward, alongside Sen. Steve Daines (R-MT).
The House has passed legislation called the SAFE Banking Act on six occasions. This would amend laws to accommodate legal cannabis companies. Unfortunately, the bill has never made it to the Senate floor due to Senate priorities.
Could Federal Guidance Be the Answer?
It is unclear what Treasury regulators will be able to do in the meantime, but some feel clearer federal guidance could help solve the problem.
The Financial Crimes Enforcement Network (FinCEN) under Treasury has guidance for banks still in place which was created during the Obama era. It regulates how to navigate conflicts between state and federal governments. But many banks are reluctant to represent marijuana clients for fear of federal penalties.
Frustration with Current Circumstances
Yellen has discussed marijuana banking problems with lawmakers on various occasions agreeing that the status quo is untenable.
Last year, she called Congress’s inability to pass legislation like the Secure and Fair Enforcement (SAFE) Banking Act “extremely frustrating”. She mentioned that the treasury is “supportive” of the proposal.
“We have talked about it for a very long time, and I agree with you: it’s an important issue and it’s an extremely frustrating one that we haven’t been able to resolve,” she said at a House Committee hearing.
Senator Cory Booker (D-NJ) showed similar sentiment stating that he believed it could take “many years from now” to pass legislation if Democrats didn’t take action during the lame-duck session.
Chairman of the House Financial Services Committee Rep. Patrick McHenry (R-NC), said that he still opposes the banking proposal, but he won’t stand in its way.
The White House was asked where President Joe Biden stands on the matter. Press Secretary Karine Jean-Pierre said the ball is in Congress’s Court and there are no plans for administration action to resolve the issue.
What are the Major Marijuana Banking Problems?
Most marijuana banking problems stem from the fact that cannabis isn’t federally legal. Even though it’s legal in many states, it isn’t recognized as legal by the U.S. government.
Banks are federally regulated and therefore, wary of working with cannabis businesses. Convoluted regulations and the risk of penalties are making them shy away from partnerships.
According to the American Bar Association and the federal Financial Crimes Enforcement Network, only 563 banks and 160 credit unions were providing services to marijuana-related businesses as of Sept. 30, 2019. This is a very small percentage.
Even fewer providers were offering 401(k)s which cannabis companies can legally provide employers.
Compliance issues play a major role in marijuana banking problems.
According to the federal government, banks are allowed to work with marijuana-related businesses. But to do so, they must deal with a wealth of complicated federal anti-money laundering laws.
Despite many states legalizing marijuana, the sale, possession, and distribution of cannabis means any money generated by the industry could be traced back to state marijuana operations and be considered money laundering. This makes banks subject to a good deal of risks.
Banks wishing to move forward must file a wealth of paperwork for every transaction they have with a marijuana business, and many would rather not deal with the hassle.
Issues Companies are Dealing with Due to Marijuana Banking Problems
With few options, many marijuana companies have decided to forgo banks and work on a cash-only basis. However, this poses a risk in terms of theft.
It also makes it difficult for companies to handle payroll and make direct deposits. It increases the risk of inaccurate payments. As a result, many companies are sued for unpaid wages and other violations.
Cannabis companies are also unable to provide their employees with 401(k)s due to restrictive banking practices, even though they are legally allowed to do so. This makes it difficult for them to compete with companies that are offering benefits. It makes it hard for them to find and retain talent.
Recent efforts to find solutions to marijuana banking problems are making cannabis companies optimistic. But there’s no telling when new laws will be approved. In the meantime, businesses can only continue working with what they’ve got.