Despite marijuana legalization making big strides throughout the US over the last half a decade, many legal cannabis companies have been left struggling to manage their finances.
A big reason for this is that major banks are reluctant to work with people in the marijuana industry because federal laws say the plant is still a drug, and many are worried about being penalized should they have the finances of licensed cannabis businesses on their books.
To combat this, seventeen state treasurers and attorneys general from 34 states and four U.S. territories are backing the marijuana banking bill that was authorized by U.S. Rep Ed. Perlmutter, Democrat of Colorado.
Supporters argue that the current law pushes licensed cannabis businesses out of the banking system, leaving them dependent on cash and sitting targets for crime. Without major banks willing to accept these companies, regulating and taxes these companies is also extremely difficult.
Though some are against this change, believing it will push the U.S. too far into marijuana legalization, there are many reasons why the marijuana banking act could be beneficial.
In May, a report released by the Congressional Budget Office (CBO) revealed that the federal government would benefit from the banking bill, saving money if marijuana businesses’ access to banks is approved.
This is because the legislation would change federal law in such a way that protects financial institutions that service the cannabis industry from being penalized by regulators, providing these banks with the reassurance they need to change their own rulings.
Should this reform occur, CBO predicts that it would set off a chain of events, beginning with a likely increase in the number of banks accepting deposits from these businesses. Last week, it was revealed that Square, the large payment processing company, has been secretly accepting CBD oil vendors as a trial, a sign in the right direction.
You might also be interested to learn that the CBO predicts both banks and credit unions would experience increased profits, predicting that bank deposits would begin to see a $1.2 billion increase while credit union deposits would grow by $200 million beginning in 2022. By 2020, these numbers could even rise to $2.1 billion and $350 million respectively.
Though these statistics sound great (and there are more to back the industry up!) , another reason some are hesitant about the marijuana banking bill is that it will definitely result in some initial costs for banks and credit unions.
Taking into account the potential for individual finance enterprises failing, CDO predicted the cost of resolving those failures would cost around $5 million.
Another cost to think about is the administration costs, which are said to be estimated at $3 million. As the FDIC and NCUA are able to charge premiums on the financial institutions they regulate to cover much of these costs, the real outlay is expected to be a lot lower, at about $1 million in total once deductions have been made.
The Federal Reserve would have to spend funds to implement the bills, which would reduce remittances to the Treasury Department. As their remittances are considered revenue, it could see their revenue decrease by around $1 million should the legislation be implemented.
Other provisions of the bill will also cost money to set up, too.
This includes financial regulators, who would have to update and issue new guidance, as well as the government accountability office having to spend money on studying barriers to entry in the marijuana industry and finding services for minority and women owned cannabis businesses.
The former cost is expected to cost less than $500,000 over the 2019-2024 period. The latter is expected to cost less than $500,00 annually, and could lead to great improvements to society and the attitudes around marijuana as a legal agricultural product in the future.
Though these costs certainly seem astronomical when read all at once, Michael Correia, director of government relations for the National Cannabis Industry Association, seems to think they are more than justified.
“For years, cannabis advocates have been preaching the net benefits of SAFE banking will have on consumers, patients, financial institutions, regulators and taxpayers. This CBO cost estimate confirms that. The increase of insured deposits, coming from the added certainty this legislation brings, far outweighs the minor administrative costs to implement this bill.”
Representative Ed Perlmutter, the marijuana bill’s chief sponsor, thinks it is important to highlight the fact that fiscal savings are not the only benefit this bill would have.
“Getting cash off our streets and making our commitments safer will come at no cost to the federal government and actually save money while providing a much-needed long-term banking solution for legitimate marijuana businesses across the country.”
Essentially, this bill provides more financial and physical security for CBD and other marijuana businesses throughout the U.S., allowing them to operate lawfully while reducing their risk of being involved in a robbery or being targeted by others in their community.
The good news is that this House bill is currently going well, currently having 184 cosponsors, and a companion Senate version that 30 lawmakers have signed on. The committee of jurisdiction in the upper chamber has not yet set a hearing or a vote, but pressure is continuing to increase for this to change.
This pressure largely comes from banking associations from all 50 states, who urged the Senate to take up the legislation earlier in May, and are passionate to serve marijuana companies without being concerned about being penalized.