A bill that could bring clarity to payments for legal cannabis purchases in the U.S. was set for an important vote this week in the U.S. House of Representatives — though there is still a long path before that bill would become law. The news comes as financial institutions are putting pressure on lawmakers to resolve the situation, given the growing and lucrative nature of legal cannabis business and its inability to move away from cash-based transactions.
According to reports, the U.S. House Financial Services Committee was set to vote on Wednesday (March 27) on the Secure and Fair Enforcement of Banking Act of 2019, or the SAFE Banking Act, as it is more commonly known. A request for comment from the committee was not immediately returned.
The proposed law would essentially offer financial institutions a safe harbor situation when it came to operating accounts for legal cannabis providers and the vendors that serve them. Fears of running afoul of federal restrictions against marijuana, including anti-money laundering laws — despite state legalization efforts, federal law treats marijuana as an illegal substance — have largely kept banks, credit unions, card networks and other payment services providers out of the legal marijuana business.
Market Growth
Despite 47 states having some form of legalized marijuana for sale, the legal cannabis industry exists in a state of potentially dangerous uncertainty when it comes to financial services. Collectively, those 47 states are home to nearly 319 million people, or 98 percent of the U.S. population. In 2018, consumers in Colorado bought some $1.55 billion worth of legal cannabis products. In California, the industry will be worth at least $5.1 billion by 2020, according to California State Treasurer Fiona Ma. That represents a tremendous opportunity for financial institutions and payment services providers.
The SAFE Banking Act still faces opposition from lawmakers and others who have said that before tackling the banking aspects of legal pot, the cannabis and allied financial institutions should first work to get marijuana downgraded on the federal schedule of controlled substances. Doing that, they said, would go toward resolving the underlying tension between state and federal laws, and would eliminate the uncertainty when it comes to offering those banking services.
Rep. Patrick McHenry of North Carolina, the leading Republican on the House Financial Services Committee, has called for a delay on the bill to address those and other concerns. And while some observers have predicted that the bill will make out of the committee — its chair, Rep. Maxine Waters, a Democrat from California, has sided with large financial institutions in favor of the bill — the prospects of the bill becoming law are much less certain.
FI Views
For their part, financial institutions have steered clear of offering even the hint of opinion on the legalization effort, and some have called the Safe Banking Act imperfect. But a letter this week to the House committee from the National Association of Federally-Insured Credit Unions (NAFCU) accurately reflects the general thinking from financial institutions about the cannabis banking issue.
“While not a total solution, a strong safe harbor for financial institutions that wish to serve such businesses would be one step towards improving clarity and addressing what is often perceived as misalignment between federal and state laws,” the letter, addressed to both Waters and McHenry, reads. “While NAFCU still believes that there are complexities in the bill that should continue to be examined as the bill moves through the legislative process, we applaud the Committee for taking this step to address a complex issue.”
The U.S. is not the only place where legal cannabis faces a problem moving away from cash and into the full world of digital payments. A similar situation exists in Canada. There, the market could reach as much as $5.1 billion in annual sales by 2020, according to one estimate — though some predictions are higher, especially ones that include spending on accessories and growing supplies.
Still, even after all these months after legalization, and even with legalization done at a federal scale (as opposed to province by province), the cannabis payments process has hardly hit full stride.
According to various reports and analysis, the Bank of Montreal remains the only “Big Five” financial institution in Canada to deal directly with the legal cannabis business there, including via financing of those state-sanctioned operations. That led to the bank attracting business from cannabis producers seeking bank accounts — news that underscores what happens when a major payment and financial services provider gets in early. Smaller financial firms participated in the action as well.
It can take a lot for a bill to become a law, as we have learned not only via civics and history classes but real life experience. One that involves the movement of money tied to a drug still illegal on the national level has its complications. But it’s fair to stay that political pressure seems to be building to at least clarify the payments situation regarding legal cannabis.
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