The history of the cannabis industry in the US is a contentious one and filled with ups and downs. However, in recent years, we’ve seen much more positive than negative turns of events. More and more states are legalizing cannabis growing and consumption and the industry is growing at a healthy pace.
However, the financial aspect of the industry has always been a bit problematic. Most financial institutions were apprehensive towards the industry and getting a loan to start a business in the cannabis industry was nearly impossible.
Fortunately, this is changing, and one of the driving forces in this respect is the bill passed in April. In order to understand a bit more about the topic, we reached out to a company specializing in banking for the cannabis industry – Confia.
What Is the Legislation Passed?
Earlier this year, the US House of Representatives managed to pass legislation which essentially allows banks and other financial institutions to offer loans and other banking services to businesses in the industry. Naturally, these financial services are still limited to the states where cannabis has been legalized.
However, what’s important is that the legislation actually leaves room for the nation-wide banking and financing framework, too according to some industry experts.
Why SAFE Act Was Necessary
Banks operating in the states where cannabis use and manufacturing is legal found themselves in a bit of a bind. On the one hand, national banking associations need to abide by federal laws which strictly prohibit financing anything related to cannabis, seeing how it is still classified as an illicit drug. On the other hand, there is the state and local level.
On the local level, these banks are essentially denying banking and financial services to legitimate businesses. This is why banks lobbied heavily for this law to pass. The SAFE Act now promises that the banks and financial institutions will not be legally challenged by the federal government for choosing to work with businesses in the cannabis industry.
Why Lack of Banking Is a Much Bigger Deal than You May Think
Cannabis businesses up to now were cash-only businesses with no access to business loans to improve conditions or even simple payroll solutions that banks readily offer to other businesses. While that might not seem like too big of a problem, consider the amount of money that a dispensary or a farm earns in a week or a month. All of that money is invariantly in cash – which poses so many problems.
For one thing, having so much cash on hand can (and does) attract a lot of attention from criminals – both as a way to launder money through legitimate businesses and by simply robbing these businesses. Not to mention that business owners who want to improve their business or otherwise invest money find it very difficult to find people willing to accept large amounts of cash – even if they have all of the necessary documentation about the origin of the money.
Is SAFE Act Enough
It’s not enough, and not by a long shot. It is a step in the right direction, it will open so many financial services to the industry for the first time – which is absolutely a net positive. However, as the industry grows and becomes international (looking at you, Canada), we will need more robust systems of checks and a steadier framework to build upon.
Financial providers who work with the cannabis operators see the light at the end of the murky tunnel, but faltering now is not an option. If the SAFE Act is overturned or in any way challenged, many financial institutions will be at risk of legal reprisals by the federal government, and that is something we can’t let happen.