The only way out is through. Through the Congressional process, that is. That’s the message U.S. Treasury Secretary Steven Mnuchin had for Congress in April when it comes to cannabis banking.
Cannabis-related businesses (and often the non-cannabis businesses that work with them) have a difficult time finding banking and financial services. Banks are hesitant to work with these kinds of customers, even though there are billions of dollars flowing through the industry. The federal prohibition of cannabis means that financial institutions must break federal regulations to offer their services to cannabis-related customers.
Speaking before Congress, Mnuchin made it clear that there is currently no regulatory solution for cannabis-related businesses to receive financial services. The only way forward is for Congress to create a solution “on a bipartisan basis.”
“I will just say I don’t believe this is a failure of the regulators,” Mnuchin said. “I want to defend the regulators on this issue.”
Regulators are not to blame
Regulators have, in essence, only one job: Uphold the regulations as they are written. Due to the prohibitive federal banking guidelines and vague recommendations from the Financial Crimes Enforcement Network (FinCEN), regulators have no choice but to uphold the regulations as written. Change, however, may not be too far off.
While the prospect of updating cannabis banking regulations did not come to fruition in 2018 with the STATES Act, 2019 already seems more promising. The Secure and Fair Enforcement (SAFE) Banking Act has been making progress in the House of Representatives, gaining support and co-sponsors from both sides of the aisle. A few Republicans tried to delay a committee vote so their questions could be addressed, but it was ultimately moved forward. Currently, the SAFE Banking Act (also called HR 1595) has been referred to the House Subcommittee on Crime, Terrorism, and Homeland Security.
The Trump administration has also supported a bipartisan solution to the cannabis banking problem. The administration noted that the IRS has had to build special accommodations just to store all the cash they collect from cannabis-related companies that cannot pay by check or card. In 2017 alone, the IRS collected $4 billion dollars in cash from cannabis-related businesses. All because they couldn’t use the same institutions that every other regulated business can access.
Banks are slowly warming to cannabusinesses
Even though merchant accounts may not be offered at most banks for cannabis-related businesses, more and more banks are starting to open their doors. They’re just doing it quietly. FinCEN’s most recent numbers show that over 430 banks (or “depository institutions”) now offer marijuana banking options in regulated states, and over 110 credit unions do as well. The number of banks working with cannabis-related business customers has been steadily increasing, more than doubling in the last three years. Credit unions have seen a much smaller increase in participation, hovering just around 100 institutions for the last two years.
One of the biggest hurdles for banks right now is the large amounts of paperwork that must be completed for every cannabis-related business customer, and there are some creative solutions for the current state of affairs. Arizona-based company Hypur created an app that takes much of the work out of tracking the financial transactions of a cannabis-related business for its bank, including verification of compliance and license validity.
Solutions like Hypur offer a fix for a temporary problem, but Mnuchin’s message to Congress is clear: permanent resolution must come from a bipartisan effort in Congress.