The ten largest industries in the U. S. exceed $800 billion dollars: information, which includes publishing, Internet publishing, broadcasting, media, sound recording, and motion pictures is #10 on the hit parade at $807.9 billion.

Cannabis, estimated to grow to $30 billion isn’t even close. But it is growing exponentially across the country. Over a dozen proposed marijuana legalization initiatives are in play including attempts to legalize marijuana for medical purposes in Wyoming, Idaho, and Mississippi, medical and adult uses in Nebraska, and adult recreational use in Arkansas and Ohio. Nebraska is significant as it is one of the few states who has not previously loosened restrictions.

Despite all this activity at the state level, Section 812 in Title 21 of the U.S. Code still classifies marijuana as a Schedule I controlled substance under the federal Controlled Substances Act. Schedule I substances are defined as those that have “a high potential for abuse,” “no currently accepted medical use in treatment in the United States,” and “a lack of accepted safety for use of the drug or other substance under medical supervision.”

JP Morgan, Citibank, and Chase Manhattan as well as large credit card processors like Visa and Mastercard have wanted nothing to do ofwith the world of cannabis, fearing federal enforcement blowback. In fact, Visa recently sent a memo to banks saying cashless ATMs, a workaround used by some dispensaries to avoid dealing in cash, were no longer acceptable.

And just as states have taken it upon themselves to enact local legislation legalizing the sale and use of marijuana, smaller local banks are taking it upon themselves to offer services to the cannabis industry.

Local Banks Fill The Gap

The number of credit unions and state-chartered banks providing services to the cannabis industry is accelerating.

“In the early days, no banks were willing to do this (work with cannabis businesses),” said Peter Su, a senior vice president at Green Check Verified. Green Check Verified offers banking software dealing with the regulatory burden of working in cannabis. Green Check was established to fill the absence of the big financial institutions. In 2021, the number of financial institutions Green Check supports grew by 270% to 100 banks and credit unions.

Shield Compliance, a company helping financial firms do business with the industry, has also experienced strong growth. “We’re seeing more and more bankers recognize that there’s a clear path to serving these customers,” said Tony Repanich, the company’s president.

“More people are dipping their toe in this industry over the past year,” said William Hufnagel, chief executive officer of Dart Bank. The bank started in 2019 with a single Michigan client and now has hundreds in the state. Dart’s customers include both retail operations and ancillary companies, such as testing labs and law firms.

Todd Gunderson, CEO of Credit Union 1, said his institution, which like Dart uses Shield’s software, started in 2019 with a single cannabis client in Nevada. Credit Union 1 now works with around 150. “Our comfort level is very high with cannabis banking. I think we’re taking on more and more clients every day,” he said. Gunderson estimates the number of his cannabis clients has more than doubled in the last six months.

State of Federal Banking Legislation

There are two major proposed bills intended to loosen federal policy towards marijuana: the Secure and Fair Enforcement Banking Act (SAFE Banking Act) and the Cannabis Administration and Opportunity Act (CAO Act).

For banks, the most attractive bill is the SAFE Banking Act, which prevents federal regulators from taking action against banks providing services to state-legal cannabis firms. The act would require the Federal Financial Institutions Examination Council to establish uniform cannabis banking program evaluations. The legislation passed the House of Representatives by a comfortable margin in 2020 and again in 2021 but has not yet made it to the Senate floor for a vote.

The outlook is not good for SFE: U.S. Representative Ed Perlmutter of Colorado, the biggest supporter of liberalized rules for cannabis banking and a major supporter of the SAFE Banking Act, just announced his retirement.

Senator Cory Booker (D-NJ), a vocal proponent of marijuana legalization and the author of the landmark Marijuana Justice Act, intended to end the federal prohibition on marijuana is not in support of a banking bill without comprehensive reform. Senator Booker has said that he “will lay myself down” to block any other senators passing marijuana banking legislation before the body approves comprehensive cannabis reform legislation, for fear the large banks will reap profits without adequate redress for the victims of the failed War on Drugs.

In the House, the SAFE Banking Act was added as an amendment to the National Defense Authorization Act, and there is no guarantee the amendment will be included in the final version of the bill.

Senate leadership is now focused on the CAO Act, draft legislation decriminalizing marijuana in the United States, titled the Cannabis Administration and Opportunity Act (CAO).

Introduced by Senate Majority Leader Charles Schumer (D-N.Y.) along with Sens. Ron Wyden (D-Ore.), and Cory Booker (D-N.J.), the bill would remove cannabis from the list of federally controlled substances and introduce new regulations on interstate and international trade. 

Most critically, the bill calls for restitution for individuals who were previously prosecuted and convicted for being in possession of marijuana as part of the previous war on drugs policy campaign, which notably targeted people of color. CAO would include measures to expunge federal nonviolent marijuana crimes and help those currently serving sentences. 

“It’s our legislative proposal to end the federal prohibition on marijuana and repair damage done by the War on Drugs—especially in communities of color,” said Schumer.

Power to the People

As the federal government decides what to do (if anything), local banks and credit unions continue to fill the gap. In the South (Alabama has legalized medicinal marijuana, Mississippi has decriminalized possession and Georgia has legalized CBD oil) a major customer changed their business model from growing greenhouse flowers to growing marijuana. Their local bank decided to reduce their marijuana restrictions after losing a good part of that customer’s business to a cannabis-friendly competing financial institution.

With states legalization, voter’s support of legalization (most recent polls show 65% of voters supporting legalization), and the large business opportunity, an increasing number of banks are building lines of business to benefit from the market, or at least, not lose customers to it.

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