Federal Hurdles & Financial Freedom: How Cannabis Banking Reform Will Impact Payment Processing

Cannabis Banking Reform image

We live in a day and age where pretty much anything can be purchased by simply tapping a screen or swiping a credit card. How convenient. For the cannabis industry, however, the situation is quite different, with marijuana retailers—even though legal—having only to rely on cash due to federal banking regulations.

While the cannabis sector generates more than $30 billion in regulated sales each year, the inability to take credit cards and the intricacies of debit card transactions present significant challenges for enterprises like theirs.

However, there’s growing hope that Congress will change this via cannabis banking reform.

The Conflict Between Federal and State Laws

While there has been some progress made over the last decade or so, the marijuana industry has been facing barriers to accessing a critical component of the US economy, which is the financial system. As such, for cannabis businesses, the sentiments have been that Congress should cease using banks as drug enforcement detectives or legalize marijuana.

Despite marijuana being fully legalized in 24 states, it still remains illegal at the federal level, making it a tricky issue for financial institutions such as banks. To local police in states where it’s legal, the cannabis industry is just any other business. However, the outlook is different for the Drug Enforcement Agency (DEA) and other federal agencies.

Therefore, a huge industry segment is denied access to the financial system. In fact, companies such as Mastercard and Visa prohibit the use of their networks in the marijuana sector as long as federal laws remain as they are.     

The State of Banking

To clarify, the current regulations don’t prohibit any bank or credit union from providing financial services for the marijuana business. Instead, there are simply too many compliance costs and legal risks, so banks and other financial institutions prefer to keep their distance.

According to a 2021 report by the Financial Crimes Enforcement Network (FinCEN), only 553 commercial banks in the US out of approximately 5000 reported servicing the cannabis industry.

As mentioned earlier, financial institutions must file reports with Uncle Sam documenting any unlawful or questionable activities. This process may turn out costly, as banks may face significant fines if perhaps they are accused of failing to implement reporting guidelines properly by a future federal banking regulator in the future, or if they erroneously report on their transactions. This reporting can be thorough and should include every single action by the customer because it is based on the assumption that the unlawful activity is taking place covertly.    

In other words, if banks and other financial institutions want to work with marijuana businesses, they must essentially function as drug enforcement detectives. And although these investigations may help financial institutions in their client’s risk assessment, financial institutions shouldn’t act as federal government investigators, especially when the general public is unaware of such surveillance.  

Cannabis Banking Reform

Janet Yellen, the US Treasury Secretary, reaffirmed her support for cannabis banking reform via legislation, like the Secure and Fair Enforcement (SAFE) Banking Act. First introduced in 2019, this marijuana banking reform aimed to make traditional financial services accessible to state-regulated marijuana businesses despite their not being legal according to federal law.

According to Reuters, Yellen was asked about her thoughts on the matter during a House of Representatives Appropriations subcommittee hearing.

“I think it’s a real problem, and it would be desirable to have legislation that alleviated this problem,” she said.

Even so, the SAFE Marijuana Banking Bill was rebranded to the Secure and Faith Enforcement Regulation (SAFER) Banking Act and advanced by the Senate Banking Committee in September 2023. However, the bill, which aims to protect any financial institution wanting to offer its services to state-legal marijuana businesses, has yet to be brought for a vote on the Senate floor.         

The SAFER Banking Act’s passage in September 2023 marks the first time the marijuana banking bill has made notable progress in the Senate, especially considering the previous iteration (SAFE Banking Act) has passed the US House of Representatives seven times but continually stalled in the Senate’s upper chamber.

Going Forward

While some legislators are eager for the bill to be voted on as soon as possible, it must get 60 votes to pass the Senate. Hurdles exist on either side of the chamber, including opposition from the lower house that passed the initial SAFE banking act seven times.

Nonetheless, we are excited and continue to brace ourselves for the day when traditional banking services, tech, and mainstream retail penetrate the cannabis market. As this revolutionary journey continues, FLEX Payments is set to be at the forefront of shaping the future course of cannabis payment processing.

Your Go-To Specialized Payment Processor

Unlike other industries, state-legal cannabis businesses face specific payment processing challenges. Their options are limited, mostly to cash or crypto, with traditional banking services generally inaccessible. But as this post has established, that might be about to change.

While we wait for the legislators to do their thing, working with specialized payment processors such as FLEX Payment Solutions can prove a game changer for state-legal cannabis businesses. We boast a notable compliance background and business approach that can help you streamline your payment processes.

So, contact us today for convenient and fast cannabis payment processing solutions.

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