One of the biggest issues plaguing the cannabis industry, has to do with banking laws. Banks are federally regulated entities, and cannabis, in America, is illegal. For years, this has put pressure on the system, even in legal states; where federally-regulated banks don’t want to face repercussions of breaking federal law. Missouri is one of the first to tackle this issue, with a new cannabis banking law meant to smooth things out between institutions within the state.
Cannabis and banking
The big issue with the legal cannabis industry and banking, is that regardless of state legislation, the federal government holds cannabis as a Schedule I illegal substance. And all banks are under federal regulation. So even if a business and bank both operate within a legal state, in terms of federal oversight, the bank is still breaking the law. Whether that makes sense or not.
It doesn’t even matter what part of the industry a person is in, this applies to anything ‘plant-touching.’ As in, anything that supports, promotes, or is in tandem with the weed industry. This is similar to another part of federal regulatory protocol, when it comes to cannabis and income taxes. Anyone in a ‘plant-touching’ business cannot file for basic income tax deductions via Section 280E of tax law. It’s the same concept here. Weed and all plant-touching associated businesses are put through the ringer when it comes to legal banking.
For this reason, cannabis is a cash-oriented business. At least in terms of legal purchases. Major credit cards also won’t allow purchases, so its an industry that relies on cash; even as our world becomes more and more cashless. Cannabis enterprises are often left without the protection (or ease) of financial services; or are gutted for financial services by sometimes predatory companies that take advantage of the situation.
Missouri new cannabis banking law
Missouri is one of now 23 states legal for recreational cannabis use, and 24 if you include Tennessee’s recent legalization of hemp-derived compounds. Missouri won its recreational measure via voter ballot in the 2022 elections. The state put Amendment 3 in front of the population, aptly titled The Marijuana Legalization Initiative. 53%+ decided it was time to legalize recreational use.
In an effort to make it easier for cannabis – or cannabis-related – enterprises, the governor just signed a statewide public safety bill, which includes this topic. This happened on Thursday, July 6th. Obviously, Missouri is just a state, like every other legal state; so how does this bill help the overall cannabis banking issue, if banks are stopped up by federal regulation?
Unfortunately, it doesn’t do much to help with the rift between federal banking policy and cannabis companies; but it does help with that debate internally. The new public safety bill allows the state’s Department of Health and Senior Services to share information with banks; so the banks can serve cannabis companies.
This includes inspection information among other relevant data. As a part of the inspection process for a bank to work with a company, the bank must be in order with investigational regulatory requirements. Without the information sharing; banks were continuously required to repeat the work already done by the government agency.
Department of Health and Senior Services, Jim Regna, put it well in March, “In lieu of doing our own inspections, it’d be very, very helpful for us to be able to get this information from the Department of Health and Senior Services to make the program fluid and keep us in compliance with federal regulators.”
So, no, it doesn’t help with actual federal oversight of banking, and the issues between federal and state mandate; but it does help with some of the issues that make banking harder for cannabis companies in the state. For now, as Missouri cannot change federal policy, its the best that can be done, at least in terms of helping banks navigate the terrain of working with cannabis companies in that state. It comes with a major downside, though.
Negative of new Missouri cannabis banking law
Though the new law can make banking more efficient for cannabis companies and banks trying to comply with federal mandate, there is a drawback. Now, under state law, everyone working in the cannabis industry, is required to get a fingerprint background check. As the banking regulation applies to ‘plant-touching’ businesses of any kind; the law now requires everyone with any involvement, submit a fingerprint scan. Meaning if you’re a landlord who rents out property to a cannabis insurance company – or something else indirect like this; it applies to you too.
When Missouri originally put the legalization question to voters, there was a stipulation that cannabis business owners must submit their fingerprints to the Missouri Highway Patrol, in order to undergo a criminal background check. This only applied to owners, and not employees, or contractors, or volunteers. While employees in the industry generally have to undergo a background check, up until now, they didn’t have to give fingerprint information. Now they do, down to volunteers.
It’s thought this new need will slow down the new-hire process. It wasn’t stated if this is expected because of bureaucratic issues, or because of hesitation by the prospective working personnel to get fingerprinted. Is it that big of a deal? Maybe, maybe not… but think of requiring everyone who works with alcohol in any capacity, to give over their fingerprint information. The comparison makes clear how unnecessary this provision is, and makes questionable why it exists.
To get into it more, the bill does help streamline a process, but if you’ll look, that’s all it does. It helps with something that was already possible; but doesn’t add functionality where its missing. Partly because it can’t on many levels. It can only institute policy for the state, and which doesn’t conflict directly with federal law. It shows us a model of how to start ironing out issues, but it doesn’t seem to serve a greater purpose. And begs the question, because of the fingerprints obligation, of ‘to what end?’
In a (somewhat) comparable capacity of state governments introducing legislation to get around strict federal policy; many states are introducing and passing tax write-off laws. These laws are meant as state-level deductions (same issue of not being able to actually change federal policy); and act as a way to relieve some of the pressure from the federal bar on basic income tax deductions for cannabis companies. In both cases, the issue is federal law; and these measures are workarounds on a state level. In the case of the write-offs, the upside is more obvious. We’ll have to see who this new banking law actually helps.
Federal SAFE Banking Act
The reality of legal weed, is that it’s now in a lot of places, and the US isn’t a small country. At least half the population live in a recreational location, and nearly all live in a place with at least a medical measure or decriminalization policy. That’s a lot of businesses, and a lot of problems where they don’t need to be. It’s taken a lot of time to get the government to do anything about it, especially considering this has been an issue since day one of medical markets. In the last few years, a bill has been up in federal congress, though it has yet to fully pass.
Called the SAFE – The Secure and Fair Enforcement Banking Act, the legislation seeks to end the ability of federal regulators to interfere with cannabis business banking in legalized locations. The bill has been introduced several times within the last few years, and in the past did pass the House of Representatives. As this becomes more of an issue, there is more pressure to get something through. So if it doesn’t happen this year, it’s sure to be up again, until it does pass.
Should S.1323 pass, it would provide “protections for federally regulated financial institutions that serve state-sanctioned marijuana businesses. Currently, many financial institutions do not provide services to state-sanctioned marijuana businesses due to the federal classification of marijuana as a Schedule I controlled substance.”
The bill ensures that banking institutions won’t suffer repercussions by working with a marijuana-touching business. Federal regulators would be barred from asking (or ordering) a bank to stop working with a client; and clarifies that the proceeds earned from cannabis-centric businesses is not unlawful or laundered. Finally, it stipulates that financial institutions and insurers, won’t be held liable for providing financial services like loans or mortgages to a cannabis company.
As of July 10th, the SAFE Act is in the Senate’s Banking, Housing, and Urban Affairs committee; where its been since May 11th. It was introduced earlier this year on April 26th. It is a companion bill to HR 2891, which was introduced to the House on the same day, and which seeks to do the same thing. HR 2891 was referred to the House Financial Services Committee, the House Judiciary Committee, and the House Veteran’s Affairs Committee.
Conclusion
There you have it. Missouri is helping the cannabis banking issue in its state, with new legislation for cannabis and banking institutions to work more seamlessly together. It doesn’t answer all the questions, and it does institute some questionable policies with fingerprints, so jury is out on how useful it is. Perhaps it will make things easier, perhaps its an unnecessary privacy breach. For now, it at the very least attempts to address the issues that arise between banks and cannabis companies, in legally-regulated states.
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