Will the SAFE Banking Act Commoditize Banking Services for the Cannabis Industry?

As we move inexorably closer to the SAFE Banking Act becoming law, there is anticipation that this will move large numbers of financial institutions into providing a broad-based of financial services to the industry and make the pricing of those services competitive with more traditional commercial businesses. I hate to burst that expectation, but it simply won’t.

After SAFE Banking gets signed into law FFIEC (the Federal Financial Institutions Examination Council) will begin writing the rules and regulations to govern how federally chartered institutions provide banking services to the cannabis industry. The truth is that FFIEC has been gathering data and observing cannabis banking for some time now. Most of us who have been involved in regulated financial institutions for some time are fairly confident that cannabis will be deemed among the highest risk type of customers (think casinos, check cashing operations etc.) and that the regulation for Federally chartered institutions will be pretty stringent. Why? The answer is that there is a lot of illicit cannabis business that coexists alongside the 100% legal and compliant business. Well, that doesn’t apply to State chartered institutions, right? Well, not right! As long as a bank has their deposits insured by the FDIC or a credit union has their deposits insured by NCUA, compliance with the federal regulations cascades down to state regulators.

As there has been no real regulatory apparatus provided to financial institutions in banking cannabis to date, many of the existing programs may have to reinvent themselves and put a lot more infrastructure in place in order to keep their programs. Some of those institutions will decide it is not worth the expense or risk. This is especially true if the institution has not scaled their program and only has a handful of cannabis clients. Thus, this could reduce, at least temporarily, the number of institutions that bank cannabis. And, for those that choose to continue or go into cannabis banking, they will need to put robust and comprehensive compliance programs into place which will add cost to the institution that they will need to pass on to cannabis customers.

We do believe that more institutions will move into cannabis banking over time once federal clarity around regulation has been established. But, they will do it with comprehensive programs and the intention to produce a return for taking on the additional risk. There are other changes that can also be very positive for the industry. With Federal banking clarity, the large payments interchanges (i.e., Visa, Mastercard, AMEX, Paypal, etc.) will be likely to enter the space. Also, major armored car services like Brinks and Loomis Fargo will make it much more efficient to courier cash. Finally, in recent iterations of the bill, the SAFE Banking Act would allow for financial institutions to lend to cannabis businesses with a government guarantee, which would ameliorate some of the collateral risk for institutions. Thus, SAFE Banking will be a substantial boon to the cannabis industry. It will provide open, permanent and broad-based financial services and more efficiency in operations. If only it solved for the unfairness of 280E, but that will take legalization I suppose. 

To learn more about what a successful, comprehensive cannabis banking program looks like, contact us through our website at hdcompliance.com. You can reach Andy Montgomery at a.montgomery@hdcompliance.com.

Andy Montgomery
Founder-CEO | HDCS, Inc.