On Wednesday, marijuana stocks like Tilray, TLRY, and Cronos Group, CRON, shot up, only to fall again on Thursday, triggering renewed discussion on the growing cannabis industry. For all of that talk and despite rapid growth, the prospect of hefty returns and increasing support for recreational cannabis, the industry still faces a big problem in the U.S.: banks.
Even though recreational cannabis is legal in nine states and the District of Columbia, and legal for medical use in more than 20 others, it is still classified as a Schedule I drug by the federal government. That means that banks don’t want anything to do with money from the cannabis industry. Selling cannabis violates federal law and banks that handle money from cannabis transactions could be charged with money laundering or face prosecution for “aiding and abetting” a federal crime. That’s a huge legal risk.
If banks did decide that it was worth the risk of a sudden crackdown of federal enforcement (like that threatened by U.S. Attorney General Jeff Sessions) they would still face an unmanageable mountain of government red tape as regulations require a suspicious activity report for every single transaction involving the cannabis business. Not only is that a lot of hoops to jump through, but compliance is a huge expense making even banks that would want to work with the industry unable to do so.
So cash, long abandoned for plastic in most industries, dominates the cannabis business. With $9 billion in sales, that’s a lot of cash trading hands for everything from wholesale weed bought by dispensaries, to the gardening supplies bought by growers, to the salaries paid to employees.
For the industry as a whole, that limits growth and makes transactions key to any business, including getting tax revenue to the IRS, much more difficult. The block on banking also puts U.S. competitors at a disadvantage compared to our Canadian neighbors who, with the passage of country-wide recreational legalization in June known as the Cannabis Act, now have access to legal banking services and all of the potential growth that goes with it.
Washington’s failure to address the lack of banking in states where cannabis is already legal is an avoidable negative that stifles growth, adds costs for security necessary when transporting large sums of cash, and gives foreign competitors (in what will likely be a legal, global industry) a leg up. Besides, keeping that money out of banks means that banks, which otherwise could lend those earnings elsewhere, don’t have access to funds tied up in private cash holdings.
If President Trump and Congress are actually pro-business and interested in creating jobs then they must remove barriers to one of the fasted growing sectors of the economy. Short of rescheduling or nationally legalizing marijuana, fixing the banking mess could be done quite easily. Either the Treasury Department could guarantee not to enforce federal cannabis laws against banks or Congress could pass legislation (like bills with bipartisan support introduced in both the House and Senate) that blocks federal enforcement against banks.
For the U.S. cannabis industry to thrive, the federal government needs to take action and fix this regulatory mess. Restricting banks and forcing a growing industry to operate in cash is irresponsible and an abdication of regulatory responsibility.
