Banking Challenges for Michigan Cannabis Businesses – Will It Soon Be SAFE?

marijuana_industry_banking_problemsAs a Michigan cannabis entrepreneur, you know that the viability of your business – whether it can open and whether it stays open – depends on your compliance with all of the state’s nascent yet rigorous rules and regulations that govern the industry. That is why from application to licensing to operations, you follow these requirements to a T. Yet when you and your law-abiding company need basic banking and financial services so you can actually do business with vendors, suppliers, contractors, and customers, you may as well be a common criminal.

That is because marijuana remains a prohibited Class I controlled substance under federal law. This means that banks that dare to service cannabis businesses face exclusion from federal insurance and national electronic payment networks, as well as potential federal prosecution.

Backpacks Stuffed With Cash

As a result, it can be difficult if not impossible for Michigan cannabis businesses to engage in commerce like other legitimate enterprises. They can’t pay with or accept credit cards, write or deposit checks, or make or receive electronic payments. In a financial landscape increasingly dependent on electronic transactions, conducting business on a cash basis creates a range of practical, economic, and security issues. While non-traditional financial services and those of some state-regulated credit unions may be available, they are often prohibitively expensive.

An anecdote in a recent Insurance Journal article exposes one of the many ludicrous – and dangerous – implications of the current situation:

Senator Jeff Merkley once shadowed a cannabis grower and dispenser as he tried to pay his state taxes. He stuffed a backpack with $70,000 in $20 bills and drove 50 miles — unguarded — with the bulging bag in the back seat. Once he arrived at the Oregon Department of Revenue, he went through multiple rounds of security to deposit his satchel in a room packed with guards looking after the millions of dollars pouring in from other cannabis companies.

A SAFE Path Forward?

This conflict between those states with legal marijuana and the federal government is becoming more untenable by the day. The marketplace for legal recreational marijuana continues to expand into more states (Illinois is right behind Michigan in creating its market) and involves dramatically increasing amounts of revenue. As noted in the Insurance Journal article, legal cannabis sales exceeded $10 billion in 2018 and are expected to reach $80 billion by 2030, according to the annual Marijuana Business Factbook.

All of that money, banks that want a piece of it, and the accompanying amplification of voices advocating for a rapidly growing and lucrative industry, has finally moved legislators at the federal level to do something about this problem.

On September 25th, the U.S. House of Representatives passed legislation called the SAFE Banking Act to give banks and financial institutions legal cover and prevent federal regulators from sanctioning banks for working with state-authorized legal cannabis businesses. This would allow cannabis interests to put their backpacks away and do business like everyone else.

While the SAFE Banking Act was approved with bipartisan support in the Democratic-controlled House, the tough sledding will be in the Republican-controlled Senate. Even there, however, many observers see GOP reluctance softening in the face of increasing industry pressure and economic reality.

Kreis Enderle: Michigan Cannabis Industry Attorneys

At Kreis Enderle, we help participants and those wishing to become part of Michigan’s cannabis industry to move forward with their businesses with confidence and clarity. Our cannabis law attorneys constantly stay abreast of developments in the evolving legal landscape and work closely with our clients to keep them informed and ahead of those changes. Additionally, Kreis Enderle brings a wealth of diverse banking experience and capabilities to the representation of cannabis industry clients.

If you have questions related to banking and financial services issues for your cannabis business, please contact one of Kreis Enderle’s marijuana law attorneys at (800) 535-4939 to arrange for a consultation.

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