National Drug Policy Reform Sets Sights on Banking

Today, a very important piece of legislation has taken another step towards becoming a law. The Senate Appropriations Committee passed a bill that will allow banks to provide financial services to state-legalized cannabis businesses, namely dispensaries. In addition, the bill also allows Washington D.C. to establish regulated medical dispensaries. Previously, due to the structure of Initiative 71, one could own or grow cannabis, but the sales and purchasing remained illegal. This was obviously over saturating the cannabis black market, causing some to call the initiative ‘the dealer protection act’, so the establishment of regulated medical dispensaries should come as little surprise.

The most important piece of this bill has to be the banking, right? Well, maybe not so fast. According to some industry experts, this passing, while a solid and productive first step, will likely have little to no impact on the immediate future of the cannabis industry. To help us/you interpret what this bill actually means, we enlisted the help of Lance Ott, CPP/Principal of Guardian Data Systems. In addition to being very well accredited, Lance is the premier liaison between cannabis businesses and banks in America. If anyone knows what this bill means, it’s him.

How has the lack of banking access limited the cannabis industry?

“The lack of bank access has negatively impacted the speed in which the cannabis industry has been able to grow” – Lance Ott – CPP/Principal – Guardian Data Systems

For example, imagine you own an edible company and you would like to purchase a new commercial extractor machine that retails for over $100,000. In nearly any other industry, you would go to the bank to apply for a loan if you didn’t already have access to the capitol. That opportunity is nearly non-existent in the cannabis space and, because of that, instances like this are far too common in the industry.

Does this mean cannabis companies can now access banks?

This is a loaded question and the answer to it would depend on whether we are talking about big banks or local banks.

Local Banks – Yes (But that isn’t new)

Many people are unaware that cannabis businesses are already accessing financial services from smaller institutions.

Cannabis companies are already working with a number of local banks and credit unions, especially in states where cannabis is legal for medical and/or adult use. Companies like Guardian Data Systems have been facilitating these compliant relationships for years now, so the eventual passing of this bill will only increase an existing collaboration.

Big Banks – No

I would imagine that large, commercial banks would steer clear until cannabis is legal on the federal level. Even then they may not enter the space.

Even if/when this bill passes and cannabis businesses can bank freely, the federal prohibition of cannabis will likely keep larger financial institutions (Bank of America, Wells Fargo, Chase, etc) from entering the space. Once federally legalized, the proverbial floodgates might open, especially considering the potential reemergence of credit card processing throughout the industry. As it is now, cannabis businesses, particularly dispensaries, have little to no access to credit card systems. Large banks could attempt to capitalize on that revenue immediately. However, many entrepreneurs we have profiled have claimed they would stick with their smaller, local institutions, as they have already stepped up and are servicing the industry.

“Many people are unaware that cannabis businesses are already accessing financial services from smaller institutions. The reality is, passing this bill and signing it into law could take months, if not years. Even when it is signed, larger institutions would still have to decide for themselves if they want to be involved with the industry, taking into consideration the federal legality of cannabis. I would imagine that large, commercial banks would steer clear until cannabis is legal on the federal level. Even then they may not enter the space.” – Lance Ott – CPP/Principal – Guardian Data Systems

How quickly will businesses be able to access banks?

Again, this bill is only in its infancy stage. The passing and signing into law could take several months, or even years. Perhaps this is for the best. As mentioned in the previous answer, cannabis businesses are already establishing working relationships with smaller, local banks. The longer federal legalization takes place, the stronger these bonds become. Who knows? Working and supporting local, independent banks could lead to a stronger, more independent industry as a whole.

The passing of this bill, by the Appropriations Committee, came as little surprise to those in the industry.

Should we anticipate all banks jumping in, or will some remaining cautious?

A rather comical hypocrisy already exists amongst the larger banks in America. For example, one such bank (to avoid naming names, lets just call them ‘Ank of Bamerica’) successfully bid on an RFP and now collects all the cannabis tax revenue for the state of Washington. However, this same bank refuses to work directly with cannabis businesses. What this means is that most large banks are extremely conservative when it comes to dealing with the cannabis industry and, unless the entirety of the plant and process is 100% federally legalized, don’t hold your breath waiting for them break out of that mold.

Was this legislation anticipated or was it a surprise?

To be frank, considering the equally important legislation that has already passed, no one should be surprised this bill is making its way through the Senate. The lack of banking has created a serious public safety issue across the US. Dispensaries are being forced to operate on a cash basis, meaning they are storing hundreds of thousands of dollars that would otherwise be protected in a bank vault. The legalization and regulation of a proper banking system will create a safer, more efficient industry. The only real surprise is that the federal government has taken this long to realize, and act on, this fact.

“The passing of this bill, by the Appropriations Committee, came as little surprise to those in the industry. Especially when you consider other recent legislation that is impacting the industry, such as VA reform, research reform and the Carers act. While it will take a good amount of time to become law, this bill is certainly a positive step in the right direction. It tells us that the federal government is finally willing to address years of failed drug policy.” – Lance Ott – CPP/Principal – Guardian Data Systems

It tells us that the federal government is finally willing to address years of failed drug policy.

Will legal access to banking be one of the last bricks to fall before federal cannabis legalization?

No. Not according to industry expert Lance Ott.

“Actually, I think it is the opposite way around. Federal legalization of cannabis is the only thing that will allow the full integration of the banking and cannabis industries. You can legalize banking all you want, but institutions will continue to shy away from cannabis until the plant itself is federally legalized.” – Lance Ott – CPP/Principal – Guardian Data Systems

How will a legal banking system effect a financial services company like Guardian Data Systems? Will there have to be a shift in strategy when it becomes law?

Obviously I care for my business, but this movement is bigger than all of us. It is important for us to not lose sight of that.

“In the short term, this bill has little effect because, as I mentioned previously, it could take months or years to go into effect. Long-term, yes, it might hurt our bottom line in some ways, given the way we are currently structured. However, the opportunities for financial services companies are vast and we have positioned ourselves in such a way that we will be able to adapt, evolve and thrive within the new framework provided by regulators.” – Lance Ott – CPP/Principal – Guardian Data Systems

“As a cancer survivor and a passionate advocate, I want the cannabis industry to have the same access to financial services that every other industry in America enjoys today. Obviously I care for my business, but this movement is bigger than all of us. It is important for us to not lose sight of that.” – Lance Ott – CPP/Principal – Guardian Data Systems

If you were in charge of a bank, would you get involved in the cannabis industry? What would entice you and what would keep you at bay? Join the conversation and comment below!