As SAFE Banking Gets Vaulted in Congress, Legal Cannabis States Look to Draft Their Own Stopgap Rules to Fill the Void

Cannabis businesses can’t wait for SAFE Banking, they need to protect themselves

While Rep. Ed Perlmutter (D-CO) continues to push the SAFE Banking Act, the bill’s text has passed the House only to be defeated in the Senate … five times. The sixth passage is as an amendment to the America COMPETES Act, which awaits senate action. Meanwhile, the Biden administration shows no signs of support for cannabis reform legislation.

With gridlock the status quo at the federal level, lawmakers in newly legal cannabis states are forced to take matters into their own hands.

Pennsylvania state Sens. John DiSanto (R) and Sharif Street (D) distributed a co-sponsorship memo to colleagues last month. They unveiled their plan to pass legislation to protect banks and insurers that deal with cannabis companies from penalties. In the same week, researchers investigated banking trends in states that have legalized cannabis, and found that banking activity increased in those states.

State lawmakers forced to draft their own patchwork legislation because of federal gridlock isn’t ideal. However, the industry demands further reforms – even if they are stopgap measures.

Lawmakers are right to support protection for cannabis businesses. In California, especially in the San Francisco Bay area and in Oakland, a spree of smash-and-grab lootings have disproportionately targeted dispensaries and cannabis businesses. The crimes highlight the federal government’s failure to help these imperiled businesses.

Protect a cannabis business by “hardening” it

Most of the marijuana-related businesses (MRBs) targeted throughout California operate cash-only businesses without the proper security. Thankfully, solutions exist to help this important industry get through a troubled infancy.

Most MRBs – from cultivation sites to manufacturing facilities to dispensaries — are what we call “soft targets”. A soft target is a location that is relatively unprotected and easily accessible to the public, making it vulnerable to attack. “Soft Target Protection” is important for businesses and facilities under increased threat.

Frankly, lack of federal reform forces cannabis businesses to operate in completely unacceptable circumstances. These companies deserve access to safe banking services.

Scott Solomon, CEO, Operational Security Solutions

Solutions include strategies to “harden” facilities and operations by reinforcing the business’s physical structures to deter criminals. Protective gates, hardened doors, reinforced display cases, and safes or vaults for cash and cannabis products are bona fide protective strategies. However, it’s costly reengineering many businesses can’t afford.

Often, in conjunction with facility hardening, today’s businesses can choose one of numerous effective and affordable video monitoring systems. Once installed, these systems can easily be maintained by employees and directly connected to area law enforcement.

Static security – armed or unarmed security manpower at a set location – can involve manned services at access points, the proximate guarding of equipment, inventory and personnel, even roving patrols to secure facilities. Since this option requires the installation of trained security personnel, it requires a significant financial commitment from business owners.

There are also important tactics to better manage inventory through cash transport and offsite vaulting that can greatly reduce threats from criminals.

Operational Security Solutions recommends contracting licensed and insured Cash-In Transit (CIT) providers to regularly pick up, validate, and deposit cash to reduce theft opportunities. Owners need to research available CIT providers to ensure that they have the pedigree, equipment, insurance coverages, and licensing/permits required of a qualified cash management and logistics company.

Further, a company’s CIT provider should have Bank Secrecy Act/Anti-Money Laundering (BSA/AML) training to support a strong relationship with your financial institution’s compliance team. A qualified CIT provider should be flexible enough to work with your financial institution while offering proximate vaulting services that reduce the amount of cash inside your facilities. 

Lastly, the number one source of loss for MRBs (after taxes and fees) is employee theft. This is what we call the “Insider Threat.” The previously mentioned security measures – in conjunction with inventory control systems such as METRC that are connected to POS systems – can help business owners mitigate these threats.

The benefits of employing best practices while investing more in your security staff, facilities and equipment can include a no-loss record, discounted insurance rates and higher staff retention.

The unacceptable climate of the cannabis industry

Frankly, lack of federal reform forces cannabis businesses to operate in completely unacceptable circumstances. These companies deserve access to safe banking services. They deserve to be afforded the competitive advantages available to most commercial enterprises, including the ability to declare deductions on their taxes.

While we wait for much-needed reform, it is important for cannabis business owners to be vigilant. Take the time needed to evaluate cash management and logistics providers that can give you the best security and CIT options available. Solutions are immediately available to help businesses harden their soft targets, to protect them from criminals, and to safeguard their assets.

Scott Solomon is CEO of Operational Security Solutions (OSS), a leading provider of risk management and compliance services to support the security and banking needs of highly regulated markets. OSS supports two dozen financial institutions and more than 100 high risk businesses through bicoastal operations based in California and Philadelphia.