The SAFE Banking Act is designed to shield banks and credit unions that work with cannabis companies from legal penalties. Specifically, it would bar federal regulators from terminating a bank’s FDIC deposit insurance, a threat that has thus far prevented most banks from accepting cannabis business.
With the bill’s passage, it’s likely that more banks would open their doors to cannabis businesses. In turn, cannabis business owners would be able to open checking accounts and credit cards, and otherwise operate as normal businesses. Banks could even provide other services, such as payroll, creating a much-needed layer of accountability, transparency, and stability within the industry.
However, these changes wouldn’t happen overnight. Before accepting cannabis accounts, banks would need to meet certain compliance and reporting requirements, a process that could take several months.
If the SAFE Banking Act is passed, it would likely drive down the costs of cannabis financial services. Currently, the few credit unions that handle cannabis accounts charge significant premiums to compensate for the elevated risk and compliance costs these accounts represent. With increased competition from banks, premiums will inevitably decrease, reducing financial pressure on cannabis companies.
A second consideration is public safety. Today, most growers, dispensaries, and related companies are forced to do all their business in cash, putting them at risk on various levels. Giving businesses access to basic banking tools could reduce the costs of securing and transporting large amounts of cash.
Aside from the safety risk, the current cash-based system makes it more difficult for cannabis businesses to keep accurate, verifiable financial records. Establishing bank accounts will create more accountability, putting small businesses on the right track of recording and reporting their financial transactions.
One thing the SAFE Banking Act is unlikely to improve is access to loans. Cannabis companies still won’t have federal bankruptcy protection, and their product will remain a Schedule I narcotic. We’ll likely see a continuation of today’s environment, where private debt funds will lend against cannabis companies’ property (usually real estate and equipment) but not their inventory or other assets.
Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
InsightPerspective: New IRS ‘Marijuana Industry’ page offers useful resources, but few new insightsMichael HarlowWhile it is good to see the IRS acknowledging the marijuana industry and aggregating useful links, the page overall offers little new information. Read more.
InsightTop considerations in starting a cannabis-focused alternative investment fundMarc Wolf, Moshe Biderman, Cheryl Watson, Jeffrey MoskowitzFund managers looking to create cannabis-focused investment vehicles face specialized tax, operational, and regulatory considerations.
InsightLeak of 30,000 cannabis customer records heightens need for effective data securityIra WeinsteinBusinesses in the cannabis supply chain should fortify their systems and processes to comply with data privacy regulations. Here’s what to know.
InsightWayfair, a game changer for cannabisWhen you think of Wayfair, you might think of furniture and home goods, but Wayfair also has made its way into the cannabis sector. What’s the connection?
InsightQ & A: An inside look at Canada’s public marketsDue to limitations in accessing capital from U.S. banks and public markets, cannabis companies operating in the U.S. are increasingly listing on Canadian exchanges.