What Would The SAFER Banking Act Mean For The Marijuana Industry?
Dario Sabaghi
Contributor
I cover the cannabis industry with a focus on Europe.
Beautiful green cones of marijuana in the bank
Beautiful green marijuana cones and dollar bills in open bank on dark tableGETTY
The marijuana industry in the United States writes a new chapter of its history with the vote of the Senate Committee on the bill that would secure access for businesses to financial institutions.
The Senate Committee passed The Secure and Fair Enforcement Regulation Banking Act with a 14-9 vote on Wednesday, September 27, after weeks of negotiations and revisions to reach a bipartisan agreement.
The SAFER Banking Act replaces the Secure and Fair Enforcement (SAFE) Act, a bill that has never reached consensus in the Senate. It's not a coincidence that this time the introduction of the SAFER Banking Act started its journey in the Senate.
PROMOTED
The revised text keeps the core of the SAFE Banking Act, which aims to ease the access for marijuana businesses to deposit accounts, insurance, and other financial services.
However, it comes with minor amendments, especially regarding the language used in the proposal, resulting from negotiations between Democrats and Republicans, the latter of whom obstructed the SAFE Banking Act in the last few years.
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The vote of the Senate Committee has been welcomed positively by marijuana stakeholders, as it represents a step forward for consolidating the industry in terms of legislation, as marijuana is still federally illegal.
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Tim Barash, CEO of Dutchie, an all-in-one technology platform powering the cannabis industry with point of sale, e-commerce, payments, and insurance, explained that the SAFER Banking Act would help the company accelerate offerings and consistently support our customers, thousands of dispensaries across the country, as they operate through "the next leg of industry growth."
"Easier access to capital, banking services, and payment methods will be a big benefit to the entire industry," he said.
After the Senate vote, the stock prices of some U.S.-listed cannabis companies initially went up but, for the most part, dropped later.
Matt Karnes, the founder of Greenwave Advisors, explained that this is likely due to macro-driven factors, not necessarily related to marijuana but likely to other catalysts in the near term.
Although Karnes recognizes that the big push for the marijuana industry would be the reclassification of marijuana at the federal level, he acknowledges that the SAFER Banking Act would remove operational risk for marijuana businesses, given the enormous cash floating around.
"With lower risk, that would translate into a higher valuation. But I think another big component of the benefit is that the SAFER Banking Act will also be providing another source of capital for many small businesses that have been disproportionately disadvantaged by the Covid-19 pandemic. The Small Business Administration provided a lot of low-interest loans to many businesses, but small marijuana businesses were disqualified from that, advantaging the big players of the industry," he said.
Peter Su, director of specialty banking for Hanover Bank, who doesn't represent the views of the company on this matter, said that when the SAFE Banking Act was first introduced years ago, the idea of federal legalization was far apart.
"The practical impact of the SAFER Banking Act today is probably not very much as hundreds of financial institutions are already banking marijuana business. It took so long to get here. It was probably groundbreaking ten years ago. But today, its practical impact is heavily minimized," he said.
However, if the SAFER Banking Act becomes law, the options for marijuana businesses to access financial institutions will be more comprehensive.
Su argues that the SAFER Banking Act plays a crucial role in tackling the obstacles that marijuana businesses encounter, such as underbanking and challenges concerning capability, capacity, and expenses. Nevertheless, many of these businesses operate with slim profit margins.
In this context, reclassifying marijuana could provide tax relief to these businesses by enabling them to utilize Section 280E of the Internal Revenue Code, which prohibits businesses dealing with Schedule I or II controlled substances, including marijuana, from claiming tax deductions or credits. A reclassification to Schedule III would alter this situation, benefiting marijuana companies.
Barash thinks that the SAFER Banking Act should be part of a more comprehensive marijuana legislation, able to ensure safe and unrestricted access to legal cannabis for all Americans aged 21 and older, similar to the regulations governing alcohol, in order to end the incarceration of individuals for non-violent marijuana offenses.
"The cannabis industry needs the SAFER Banking Act today as part of an ongoing process to right the wrongs of the last few decades of failed cannabis policy," he said.
The journey of the SAFER Banking Act may have a positive outcome. Karnes thinks there is s more bipartisan support for this bill this time. Furthermore, he highlights that the U.S. is at a point where almost half of the states have legalized marijuana, and more are expected to regulate it soon.
"This puts us over the majority in terms of the number of states. So I think just the mere fact that legalization has so much public support that it just seems to me that this is the right time," he said.
The SAFER Banking Act will now continue its journey to the House, which passed earlier versions of the SAFE Banking Act several times in the last few years.
However, a government shutdown could potentially slow down progress, especially if it's lengthy, affecting the timeline for passing the SAFER Banking Act and other pending legislation.
