Bankers Are Watching the Cannabis Industry: Here’s Why

Bankers Are Watching the Cannabis Industry: Here’s Why


The use of marijuana in the United States is still illegal under federal law. Marijuana under the Controlled Substances Act is classified as a Schedule I substance, prohibited even for medical use. Even so, 37 states allow the medical use of cannabis with a doctor’s recommendation and 19 states have legalized the recreational use of cannabis.

Despite these developments, cannabis businesses are still unable to work with banks like normal companies and are forced to transact in cash. But recently, small banks are venturing into the cannabis industry.

The challenges are still present but the recent development in cannabis sparked the interest of the banking industry. But why are bankers paying close attention to the industry?

Reasons Bankers Are Looking at the Cannabis Industry

1. Fintechs

A growing number of small banks such as state-chartered banks and credit unions are working with cannabis businesses despite the federal risks.

Fintechs offer banks software and apps to help them deal with the extra work and additional burden while closely maintaining compliance with state laws. In the early days, no bank showed interest in doing business with cannabis, but these clients have an attractive financial profile and high net worth entrepreneurs.

With the SAFE Banking Act waiting on the Senate table, fintechs can work with banks to enter cannabis banking while waiting for updates.

2. SAFE Banking Act

The recent urging of senators to include the halted SAFE Banking Act in the broader U.S.-China legislative package gives renewed momentum for cannabis businesses and bankers. If this would pass in the Senate in 2022 or in the years to come, banks would be able to provide services to cannabis firms just as high-risk merchant account providers help regular businesses in a high-risk niche.

3. MORE Act

Even though there are many people in favor of marijuana legalization, the MORE Act has been rejected in the Senate. The long struggle of the cannabis industry to legalize marijuana might end this year, hoping to garner the total 60 votes to pass the Senate.

Observers and the banking industry are anticipating renewed initiatives for regulation. But until the MORE Act passes the Senate, there is no way traditional banking institutions would offer services to businesses in the cannabis industry.

Legislation permitting banks to deal with cannabis businesses will help address public safety concerns. Allowing cannabis businesses to operate and have cashless transactions will help communities and reduce cash-motivated crimes.

While the SAFE Banking Act will open new opportunities for financial institutions, some have raised their concerns about compliance. Some banks commented that compliance might be difficult and it may take time for financial companies to comply, making some banks exit the transactions.

But the industry remains hopeful. For now, while waiting for the SAFE Banking Act to become a law, some banks are already leveraging fintechs by developing their own financial products at the state level for cannabis firms.

Once there’s federal legalization of marijuana, the cannabis industry will be able to conduct business freely while at the same time helping financial institutions benefit from an industry that is experiencing massive growth.


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