Banks and other financial institutions are gearing up for potential massive involvement with the marijuana industry after last month’s passage of the SAFE Banking Act by the U.S. House of Representatives.
While it remains unclear how the measure might fare in the Senate and if President Trump would sign it into law, the bill’s eventual passage would allow banks to add state-legal cannabis firms from all over the country as customers without fear of federal reprisal.
It also could subsequently free up capital access for MJ companies and may even allow for possible trading in cannabis stocks on major U.S. exchanges, some industry watchers believe.
“We have been completely inundated with banks wanting to learn more,” said Sundie Seefried, CEO of Partner Colorado Credit Union, which provides banking services for Colorado marijuana businesses, and Denver-based Safe Harbor, a cannabis banking program/platform developed by Seefried and licensed to financial institutions that want to provide banking services to MJ companies.
While some observers suggested it is more likely that smaller banks and credit unions could find themselves better positioned to offer services than larger ones, multinational financial institutions are showing more interest than ever, Seefried said.
The next step for the SAFE (Secure and Fair Enforcement Banking) Act appears to be a likely Senate committee vote this fall. Senate Banking Chair Mike Crapo, an Idaho Republican, indicated he is increasingly positive about getting the bill up for a vote in the full chamber in 2020.
“It is gaining momentum, but what will really move the needle are the proposed rules coming out and what the banks will do then,” said Mike Kennedy, co-founder of compliance software company Green Check Verified, which is based in Connecticut.
“There are ongoing conversations with banks and there are more canna-curious companies. The bottleneck is actually launching a program.”
FinCEN offers protection
Banks and credit unions more comfortable working with cannabis-related businesses (CRBs) are already doing so because of Financial Crimes Enforcement Network (FinCEN) rules that offer substantial protection against any possible prosecution of financial institutions working with the marijuana industry.
FinCEN is a division of the U.S. Treasury that collects and analyzes data about financial transactions to crack down on possible terrorist funding, money laundering or other financial crimes.
Banks are in reality free to work with the cannabis industry already, sources said.
Indeed, there is evidence more of them are working with CRBs, with recent data showing a 62% year-over-year jump in terms of banking options for marijuana businesses.
“I don’t think (the U.S. House vote) changes that much,” Dave Rodman, founder of Denver-based cannabis specialists The Rodman Law Group told Marijuana Business Daily. “The reason for that is very onerous compliance (under FinCEN).
“The ones that are doing it now will continue to do it.”
For some banks, particularly smaller ones, working with CRBs is an essential part of their business. They also may be better placed to lend to small firms given that is more their expertise, Jaret Seiberg, an analyst at Cowen Washington Research Group, wrote in a research note.
Smaller banks also are more vulnerable to M&A or simple failure in a highly competitive landscape, said Kennedy at Green Check Verified.
Such institutions don’t have the luxury of choosing whether to take the very small risk of working with CRBs, Kennedy noted.
Rachel Pross, chief risk officer at Maps Credit Union, a network of 14 Oregon-based credit union locations, has been a witness to Congress on behalf of the Credit Union National Association (CUNA) as it seeks better access for CRBs to financial institutions.
Maps Credit Union’s philosophy is to serve the underserved and enhance community safety, Pross explained, making cannabis a perfect industry with which to work.
“There is probably not a better example of an underserved industry than the cannabis industry,” she said in a CUNA website video.
Bigger banks more cautious
That said, larger banks are far more conservative as well as being much better resourced.
That explains their caution about jumping in until the situation is absolutely watertight – even as the overall risk remains tiny.
One such bank is San Francisco-based Wells Fargo, which is actively following the federal situation with SAFE.
“Wells Fargo is monitoring this debate, reviewing the bill, and would like to see a resolution to the current patchwork of laws,” said Ann Wasik, a spokeswoman for the bank.
“For financial services companies and their customers, the conflict between state and federal marijuana laws presents a number of challenges.”
Another big public bank, Minneapolis-based US Bank, declined to comment.
But there seems little doubt big banks will come in if the SAFE bill becomes law, allowing them to potentially offer investment to marijuana companies that may even be able to subsequently trade on U.S. exchanges.
“This would provide cover to the banks to lend into the industry and will add grease to the wheels,” Danny Moses, an adviser at New York-based Merida Capital Partners, told MJBizDaily.
“This could help the ability of large (multistate operators) to access capital via the debt markets – the SAFE Banking Act will help this.”
For now, the current hefty compliance issues with FinCEN also are off-putting for bigger players who can afford to wait longer to take even negligible risks.
“The biggest risk is reputational risk, which is very difficult to wrap your arms around,” said Kennedy at Green Check Verified.
Banks on the sidelines also may remain wary as they look at the example of the hemp industry, which is still struggling to gain consistent access to banking facilities even after December 2018 passage of the U.S. Farm Bill, which effectively legalized the crop.
In reality, however, there are more regulations protecting banks working with marijuana-related businesses than there are currently those working with hemp-focused businesses, said Nathaniel Gurien at New York-based FinCann, which helps with access to banks for cannabis companies.
Nick Thomas can be reached at firstname.lastname@example.org