A “Growing” Industry?: Banking Regulation’s Impact on the Legal Cannabis Industry’s Growth


With the increase in the number of states legalizing cannabis for recreational or medical purposes, issues come to light surrounding the implications of the relationship between the legal cannabis industry and banks. Due to marijuana’s current illegal status under federal law, the legal cannabis industry suffers in several ways from its lack of banking access.

As of 2019, in the United States, marijuana is legal in 33 states and Washington, D.C., for medical use, but only twelve of those jurisdictions allow both medicinal use and recreational use of marijuana. While most states have legalized marijuana in some form, under 21 U.S.C. 812(b)(1), marijuana is a substance with a high potential for abuse, has no currently accepted use for medical treatment, and a lack of accepted safety under medical supervision (Schedule I substance), and remains illegal under federal law. Marijuana’s current legality status under federal law makes banks very reluctant to work with the cannabis industry. If banks provide services to the cannabis industry, those banks risk criminal prosecution for not only money laundering, but also aiding and abetting in a federal crime. If desired, banks could file a suspicious activity report for every transaction dealt with by the cannabis business, allowing banks to still work with the cannabis industry. However, this rarely occurs as it is costly and tedious because banks would have to take into account all types of interactions by cannabis businesses, such as with accountants and cleaners.

Not having access to services by banks and other financial institutions hinders the health and growth of the cannabis industry in multiple ways. Due to the inability to make bank deposits, most cannabis businesses must handle all transactions in cash because there is no way to accept credit or debit cards. Cash-only handlings put these business owners in a logistical struggle to pay their workers and taxes. Although the cannabis industry is illicit, dispensary owners still need to pay taxes as required by U.S. Code § 280E. Most dispensary owners must take their cash and travel to the local Internal Revenue Service (IRS) office and pay taxes that way. As one can imagine, carrying large amounts of cash poses substantial risks of becoming victims of violent crimes. Many marijuana dispensary owners live with the fear of being a victim of a crime that comes with running a cash-only business. One owner in particular stated, “carrying such large amounts of cash is a terrible risk that freaks me out a bit because there is the fear in my mind that the next car pulling up beside me could be the crew that hijacks us[.]” Those in the cannabis industry also face the challenge of not being able to improve, expand and add new staff members to their businesses without proper banking loans. While many want to resolve these issues through the cannabis industry itself, some believe in promoting anti-money laundering regulations because bank regulation harms many entities that interact with the cannabis industry, such as state governments and the federal government.

Wanting to move away from a cash-only industry, marijuana dispensaries have already taken measures into their own hands by using cashless ATMs. In this way, customers can purchase a voucher with a credit or debit card and then exchange the voucher for marijuana at the dispensary. Cashless ATM use is possible due to dispensaries using omnibus accounts—an account that deals with anonymous transactions between two or more individuals, specifically with the name of a broker to protect the identities of those performing transactions. Dispensaries have also attempted to use cryptocurrencies, gift cards, and payment networks that bridge state-chartered banks with credit unions that have already begun providing banking services to the cannabis industry, such as CanPay. Despite the industry’s creativity in attempting to move away from cash-only transactions, none of these methods are fully intact as even for traditional banking, it “has had a lot of time to get it right[.]”

There is some harm toward other entities as a result of their interactions with the cannabis industry. But of course, very apparent is the harm occurring in the cannabis industry itself due to its lack of banking access. Interestingly, just like plants need sun and water to thrive, businesses (including marijuana dispensaries) must have access to banking services to thrive. There are some solutions on both a state level and federal level that may end or diminish this impact on the cannabis industry.

Nevada has introduced a three-year pilot program in which businesses and customers could purchase tokens on an app to buy marijuana at dispensaries (by customers) or to pay state and local government (by cannabis businesses). The benefits of this system would include the simplicity of marijuana dispensaries paying growers, as well as paying taxes, which in turn, states would easily convert the tokens that dispensaries deposit into dollars. This pilot program is set to begin running by July 2020. In May 2019, the California Senate passed state legislation that would allow state-run banks in California to service the cannabis industry. However, this legislation still “requires approval of the Assembly and California [Governor] Gavin Newsom to become law.” The effectiveness of some states’ progressive solutions for solving banking struggles within the cannabis industry is currently unknown. Nevada’s pilot program is an interesting and creative approach. Still, it seems to only address the cash-only dilemma in some respects and not others, such as dispensary owners’ continued inability to receive loans for business growth. California’s legislation seems a bit more promising. State-run banks that work with the cannabis industry would likely solve issues that go beyond a dispensary owner’s fear of trekking large amounts of cash to an IRS office, such as helping with the growth of a marijuana dispensary through loans.

As of September 25, 2019, there is a significant shift in the federal perspective surrounding the cannabis industry and its access to banking. The House of Representatives passed the Secure and Fair Enforcement Banking Act of 2019 (SAFE Banking Act), in which its purpose is to allow banks and other financial institutions to provide banking services to the cannabis industry without punishment. The bill is now in the Senate’s hands, and it will be fascinating to see the future developments surrounding this legislation. However, some believe that even with the promising rapid progression of the SAFE Banking Act, we likely will not see a meaningful banking reform in the near future. But if the SAFE Banking Act passes the Senate, that would be a huge step forward in how the federal government sees the cannabis industry. If the SAFE Banking Act successfully passes both chambers, it will help not only the cannabis industry and the many problems it faces in the short and long-term, but also financial institutions’ abilities to service the cannabis industry without worrying about federal prosecution. Of course, concerns remain as to the uncertainty of how the Senate will approach the SAFE Banking Act. If the Senate stymies the bill, progressions may lag with or even be set back to square one on a federal level.

Although there are some proposed solutions, it is unclear how the issues resulting from the cannabis industry’s lack of banking will affect the industry. As with traditional banking, only time will tell if the implemented approaches to non-cash transactions will be of practical use by dispensaries. However, we may not even see the long-term effects of those options if the SAFE Banking Act comes to rescue the cannabis industry by solving the banking issues that plague it.


michael hewsonAbout the Author: Michael Hewson is a second-year student at Cornell Law School, and in 2017, he obtained a B.A. in Psychology from Queens College, CUNY. Currently, Michael is an online associate for The Issue Spotter and serves on several student organization e-boards.


Suggested Citation: Michael Hewson, A “Growing” Industry?: Banking Regulation’s Impact on the Legal Cannabis Industry’s Growth, Cornell J.L. & Pub. Pol’y, The Issue Spotter, (Apr. 13, 2020), http://jlpp.org/blogzine/a-growing-industry-banking-regulations-impact-on-the-legal-cannabis-industrys-growth/.

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