The legal cannabis industry needs banking services to continue its growth. Though it’s clear that federal cannabis prohibition will come to an end, lawmakers haven’t figured out how or when it will happen. The SAFE Banking Act languishes in committee without a hearing. Senators discuss the Cannabis Administration & Opportunity Act without urgency.
The fight for change is taking on many forms. In the meantime, cannabis businesses and consumers must play by cash-only prohibition rules. Still, there’s hope for meaningful change this session.
While Cory Booker might be opposed to piecemeal cannabis reform, other lawmakers aren’t as absolutist. Sen. Jeff Merkley (D-OR) recently amended an appropriations bill to include expanding medical cannabis access for veterans. The Senate also passed an infrastructure bill this week with a cannabis research amendment from Diane Feinstein (D-CA).
Advocates and businesses may have to settle for reform by amendment, but its a slow road. As legislators try to reconcile federal and state policy, cannabis businesses, employees, and consumers are left with the consequences. And amendments quietly added can be removed the same way.
Profiles in Legalization asked cannabis community leaders for their thoughts on the need for cannabis banking. This article is the first in a series based on their responses. All quotes are from email.
“Predatory pricing and inefficient banking services”
Mark Lozzi is the CEO of Confia, a financial transaction platform for legal cannabis businesses. The company’s website boasts a “tech enabled” compliance program to help owners operate in the cannabis industry.
“Confia was born,” Lozzi told Profiles, “out of the vital need for cannabis operators to have low-cost and efficient financial services.”
The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) serves as antagonist in Confia’s origin story. In the name of fighting money laundering and terrorism, the agency contributes to a difficult and dangerous business model.
“Cannabis operators found themselves cornered by predatory pricing and inefficient banking services.” Lozzi writes. “Historically, and even today, the cannabis industry has operated in a world of uncertainty.”
Lozzi believes that more banks participating in cannabis will lead to increased scrutiny and he’s ready for it. His company helps businesses deal with heavy regulation, but he would still welcome reform.
“This is the landscape we’ve prepared for and believe we’ll be best positioned to support.”
According to an August 10 press release, Confia is moving into the East Coast cannabis market, following its success in California.
“It moves us a step closer to legalization”
CannaTrac is another company that helps cannabis businesses navigate in a complex regulatory world. Tom Gavin, the company’s chief executive, takes an optimistic view of proposed cannabis reforms. He agrees that a change is long overdue.
“I am a huge proponent,” Gavin writes, “because of the doors it can open for cannabis research. There is so little research on something that has been around for so long and so widely used.”
Though opponents of cannabis legalization often cite a lack of cannabis research, their arguments are disingenuous. The University of Mississippi, through a federal program, has been the sole cannabis provider to researchers for decades. Because its work is funded by Congress, the government has a say in which research to approve.
Requests to research the medical benefits of cannabis, as opposed to the harms, still face heavy scrutiny. Feinstein’s amendment would allow researchers to study the cannabis products sold in state-legal systems. To Gavin, this is a step in the right direction.
“Although this may not address the entire problem.” Gavin told us, noting re-scheduling as a lingering issue, “it moves us a step closer to legalization.”
For banking and financial institutions, FinCEN also requires what’s known as “Know Your Customer” compliance and due diligence research. The extra work, and the accompanying risk, in dealing with cannabis businesses often deters banks.
Gavin argues that cannabis banking reform would benefit society as a whole.
“It improves safety by taking cash out of communities,” writes Gavin, “promotes transparency, and provides additional due diligence to assist banks with their [Bank Secrecy Act] requirements.”
It’s about more than business for Gavin, though. He believes it will be good for communities.
“Cannabis has proven to be beneficial to a large part of the population,” Gavin writes. “Let’s hope our politicians listen to their constituents and think about health and safety by approving this.”
“A political end-around the legalization issue”
Some industry insiders take a more measured tone. Even if the amendments pass, they argue, cannabis businesses still face a tough road.
“The provision offers some protections to banks,” Ryan Hale notes, “but marijuana-related businesses still face extensive regulations.”
Hale is a partner and the chief sales officer for Operational Security Solutions (OSS). The company provides cash management and financial solutions for the cannabis industry. He doesn’t think proposed changes go far enough.
“While we applaud all efforts to legitimize the state-legal cannabis industry,” Hale told us, “this recent spending legislation is really a political end-around the legalization issue.”
With cannabis prohibition still in effect, Hale sees plenty of challenges for business. He’s positioned his company as a comprehensive solution. OSS offers a range of services from compliance consulting all the way to hiring armed security guards.
Hale’s note of caution may be expected, given his work, but it shouldn’t be ignored.
“While legislative updates such as this may encourage some banks to work with the cannabis industry,” Hale writes, “the need for careful compliance is greater than ever.”
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