The longstanding obstacles preventing Pot Inc. from accessing banking services may soon be dismantled, potentially paving the way for significant growth in the $50 billion cannabis industry, according to insights from On The Money.
Currently, the major hurdle is opposition from the GOP, particularly within the US Senate, to passing the SAFER Banking Act. This legislation aims to establish a “safe harbor” for marijuana-related businesses, thereby allowing major financial institutions to provide loans to these enterprises.
But hold on, isn’t marijuana — whether in the form of joints, edibles, or topical applications — already legal in nearly every state and, following a December executive order by President Trump, also somewhat acceptable at the federal level?
The situation is indeed complex. While most states have decriminalized cannabis, and some have legalized it entirely, Trump’s recent executive order did not fully legalize marijuana on the federal front. Instead, it made marijuana less illegal. It remains a Schedule 3 controlled substance, meaning it is no longer grouped with drugs like heroin, but it still isn’t equated with over-the-counter medications like aspirin.
This classification means that Pot Inc. cannot open a bank account with institutions like JPMorgan, nor can it access credit card services or consider lending and listing opportunities on US stock exchanges. Banks operate under federal regulations, so until cannabis is completely legalized and reclassified to a Schedule 4 or 5 drug, major banks are likely to avoid involvement.
As long as that is the case, any company that touches the so-called plant must be financed more expensively by smaller lenders and, if it wants to go public, list its shares overseas, thus stunting the growth of Pot Inc.
A workaround is the Safer Banking Act, which would shield banks from any legal liability from lending to Pot companies or underwriting weed stocks. It has faced intense opposition particularly in the GOP Senate — until maybe now. Last week, I interviewed Tim Scott, the GOP senator from South Carolina and chairman of the Senate Banking Committee who suggested the opposition — including his own — may be waning.
“There’s something called the Safer Banking Act, which is to allow for the banking question to be solved,” Scott told me during an interview at the Milken Global Conference. “The answer to the access to the banking system is that Congress is going to have to make it legal.”
Scott’s main concern is that you don’t want to create a nation of stoners. Weed, he says, is today “300% stronger than it was” back when Cheech and Chong began making pot acceptable for recreational use back in the 1970s.
But pot isn’t just for stoners. Weed is used increasingly for its medical benefits and for pain relief, the reasons president Trump classified it down to a schedule that allows for prescriptions.
Full disclosure: I won’t smoke the stuff because I hate being high, but I used weed-infused gel on my sore shoulder and it worked. Plus, it’s now a $50 billion business and growing despite the banking hurdles, meaning the money that can be regulated and taxed is being funneled to god knows where.
Or in Scott’s words: “The other part of the quandary is that what you don’t want is to have a situation where you have these cash rooms, where you have hundreds of thousands of dollars of cash sitting in a location because everyone knows you can’t bank it.” Such a situation, he said, foments “criminal activity … So there is a quandary that we have to solve. I think we’ll get to a solution.”
The Safer bill resides in the House of Representatives. It hasn’t been introduced to the full Senate probably because majority Leader John Thune is still an opponent (His office didn’t respond to a request for comment).
Marc Cohodes, a former hedge-fund manager and investor in Glass House Brands, a major California-based cannabis-cultivation business, makes a good point: “The Mob used to run sports gambling until it was legalized. Having money laying around in dispensaries in an industry that employs lots of people is bad policy, dangerous and wrong-headed.”