A proposal to allow the US banking industry to provide services for marijuana companies was discussed in Washington this week. The big risk for investors in the sector is that, although the vast majority of Americans live in states where some form of legalisation of cannabis has taken place, it remains federally proscribed. This has meant banks and other companies have held back from providing services to any business involved in the fledgling industry. Proposing legislation that allows banks to operate in a federally illegal market really does not make sense. As one Republican senator noted, US legislators want to put the cart before the horse. However, the path towards marijuana becoming a fully legitimate industry appears to be getting clearer.

US companies operating in a legal environment under state laws could be at risk should the federal government decide to stop the industry in its tracks. This means hardly any banking facilities are available for marijuana companies, as institutions – quite rightly – fear potential legal repercussions from Capitol Hill should the wind change direction. This is not ideal for a number of reasons. There have been a number of shootings of security guards in robbery attempts because of the vast amount of cash companies are forced to hold outside the banking system. Also, without traceable bank accounts, there is a high chance of racketeering and tax evasion, two of the very things state legalisation was supposed to prevent.

Now the Democrats control the House of Representatives there is a greater push to resolve the situation. This week’s hearing saw representatives from banks and the cannabis industry testify in front of the House financial services subcommittee, urging lawmakers to pass legislation that would allow pot businesses to access loans, credit lines and other banking facilities. Banks have also been reticent to act as custodians for related exchange-traded funds (ETFs), so any change in the law will likely allow more options for investors that want exposure to the sector.

“Lawmakers are not being asked to weigh in on whether marijuana should be legal or not,” Mason Tvert, of advocacy group Marijuana Policy Project, told the subcommittee. “They are simply looking at whether banking services should be available to these businesses in states where it is already legal.” California is the largest state where recreational use has been approved and its state treasurer Fiona Ma also spoke in favour. However, banks are likely to be cautious unless full federal legalisation occurs – and investors should share their caution too.

Perhaps more significantly, last week senator Ron Wyden, of Oregon, introduced legislation that would do just that – decriminalise cannabis at the federal level and allow states to operate as they see fit. The S. 420 Marijuana Revenue and Regulation Act proposes removing cannabis from the controlled substances schedule, as well as establishing a sliding scale of federal taxation that starts at 10pc before rising to 25pc over five years. It is believed the bill is now more likely to pass following the departure of Jeff Sessions as attorney general in November, as he was seen as a major obstacle to legitimising the industry.