The marijuana industry is a strange phenomenon. It’s the fastest growing industry in the entire country by far, with $9 billion in sales. For reference, this is bigger than the snack market, a conglomerate of brands that have been dominating American life for decades now. However, only 30% of all registered marijuana businesses have a bank account.
Such a harrowing statistic points to the fact that marijuana banking is stagnating in its development. What’s holding it back from becoming a mutually-beneficial customer-provider relationship? The answer lies in our legal system and the ever-confusing interjections between federal and state laws.
The federal enigma
While the American legislative system isn’t libertarian per se, it does differ from most legal structures in the world. Every state has the freedom to deal with its own matters, vote for its own laws and enforce them how they deem fit. This is a great opportunity to promote decentralization. However, it’s also a trap for cannabis businesses and anyone willing to cooperate with them.
The current state is overwhelmingly positive for those in favor of cannabis legalization – 33 states have legalized cannabis in some way or form. With state referendums and votes deciding the passing of a cannabis-related law, numerous states have enabled the use of marijuana to their citizens.
We want to highlight the word “state.” These votes were on a state level, but still subject to the watchful eye of Uncle Sam and the long arm of the federal law. Marijuana, after all, is still a schedule 1 drug.
This lack of change in federal laws puts cannabis growers, retailers, and consumers at risk of being legally prosecuted and liable to preposterous accusations. One group suffers equally, if not even more, due to these potential legal repercussions. We’re talking about banks.
Inability to make connections
The FinCEN was aware of the development of the cannabis business and, with it, cannabis banking. They issued their own set of guidelines and rules relating to banks serving cannabis businesses, under the Obama administration. This memo defines all the regulations and laws bankers have to be aware of while managing the accounts of cannabis businesses.
One guideline is more important than the others. “Banking institutions registered on both a federal and state level are legally advised, as well as obliged, to file regular physical reports on any current and ongoing transactions with cannabis growers and retailers registered with the state.” Seems helpful on first glance.
Banks are unique because they don’t just earn money – all they do is handle money and earn more money from that.
As such, they are legally obliged to file frequent reports on their business. This is because the banking industry is the only fertile ground for money laundering. This results in banks becoming a bridge between criminal activity and legally-protected legitimacy.
This alone means marijuana is a risky venture for any bank, regardless of size and reputation. Federal laws are superior to state laws making cannabis still technically illegal.
As banks are under federal jurisdiction, they are prone to be targeted by money laundering laws and other potential risks. The existence of this confusing loophole has prevented both the banking industry and the cannabis industry from growing and making a genuine connection.
Bypassing the loopholes and other obstacles
The inconsistency between federal and state laws has created a legal grey zone which practically legalizes government-enforced terror and blackmail. And we’re not talking just about a hypothetical scenario.
Federal authorities have full legal right to enforce federal laws. One of them, perhaps the most important financial-related law, is a set of rules relating to money laundering.
Cannabis is illegal. Banks, if they accept money gained from clandestine activities, can be prosecuted in federal courts. When these two federal regulations align, you get a myriad of bankers refusing to do business with cannabis growers and retailers.
How do cannabis businesses deal with this problem? Having no other choice but to keep their cash in safes and other physical locations, they are a frequent target of attacks and robberies.
The federal government has challenged cannabis businesses by crippling the potential that marijuana banking has. This is without mentioning the fact that banks are losing on a potential multi-billion-dollar profit.
Progress in the right direction
In 2018, several attempts at an amendment relating to this problem had been thwarted by the congressional committee. Congress hasn’t succeeded in doing their duty, which involves legally protecting their citizens.
In an ethical sense, Congress must protect the people of America, even if it means protecting them from themselves. A schism of political goals and interests has turned this body of power from an institution into a tool for political duels and retribution.
If the majority votes on one of several House bills, we may see the flourishing of marijuana banking. In 2017, there was a 20% increase in marijuana banking ventures, which was temporarily halted by the efforts of one Jess Sessions to weaken state laws further.
The rise has continued once again, but banks still refuse to do business with the cannabis industry. They see the profit, but they also see themselves potentially behind bars.
Liability to legal inconsistencies
One more consequence of cannabis-related legal grey area is the amount of reporting required. Even if both the government and the bank know that marijuana is legal in a certain state, they still have to file an official report. Banks are by law required to report any depositing of monetary funds acquired through unlawful means.
This creates additional problems and bureaucratic obstacles that can cripple an otherwise successful and profitable bank. No one is willing to risk legal repercussions because of one niche industry. When protection against federal-state legal inconsistencies, we will truly see an explosion of marijuana banking.