Banking has been a hurdle for cannabis businesses since the birth of the industry. Despite the fact that these businesses are state-legal, financial institutions have historically hesitated to work with them due to cannabis’ federally illegal status. While the federal SAFE Banking Act—which seeks to provide banking protections for cannabis businesses—continues to hit road bump after road bump in the U.S. Congress, some states have decided to take matters into their own hands. One of those states is Pennsylvania.
The Financial Crimes Enforcement Network (FinCen) issued guidance known as the Cole Memo in 2014 that allowed banks to work with businesses operating in the cannabis industry but required them to file what is known as a suspicious activity report for any cannabis business that they served. The Cole Memo also provided a list of various red flags that, if noted, required banks to report the violating businesses for being out of compliance.
The Cole Memo, however, did not require banks to serve cannabis-related companies. It also did not normalize federal taxation for businesses within the sector. This has led many banks to choose the route of not working with cannabis-related businesses due to the risks associated with cannabis businesses and the federal illegality surrounding the sector.
Unfortunately, this lack of access to banking and other financial resources has caused many security risks and issues for cannabis businesses, their owners, their employees, and the consumers they serve. The cannabis sector is a multi-billion-dollar one that shows no signs of slowing down. An industry this large having to operate as a primarily cash-only industry is dangerous and cumbersome. For several years now, this is an issue that many representatives have tried to tackle with little success.
The most notable measure that has moved forward in addressing this issue is the above-mentioned SAFE Banking Act, which has been in circulation in Congress since 2019 when U.S. Rep. Ed Perlmutter (D-Colo.) first introduced it. In September 2019, the House of Representatives passed the bill. In May 2020, the provisions of the SAFE Banking Act were included under a COVID-19 relief bill known as the Heroes Act and passed in the House. The Senate, however, refused to even consider it.
It was reintroduced under an updated version of the Heroes Act and once again passed with a majority vote of 214-207 in the House. The bill was reintroduced once more in 2021 and added to the National Defense Authorization Act for the fiscal year 2022 (NDAA) via amendment at that time.
In January 2022, the act’s original sponsor Rep. Perlmutter once again introduced the SAFE Banking Act provisions as an amendment to the America Competes Act, which passed by a majority vote in the House on Feb. 4. Stakeholders hope to see it passed, but the bill’s track record doesn’t provide much assurance.
On March 30, the Pennsylvania State Senate Banking & Insurance Committee advanced a piece of legislation known as Senate Bill (SB) 1167. The measure set forth provisions that would provide a safe harbor for financial institutions that choose to work with cannabis-related businesses. It also includes provisions that will allow for compliant cannabis businesses operating within the legal Pennsylvania state cannabis program to deduct common business expenses on their Pennsylvania business taxes.
The measure’s sponsor, Sen. John DiSanto (R), stated the following regarding the measure in a statement published on his website:
“Access to financial and insurance services is essential for operating any business and it is against the public interest to relegate a multi-billion dollar industry to deal in piles of cash. Banking this cash safely in Pennsylvania provides certainty for businesses, is a huge opportunity to grow our economy, and should ultimately lower costs for medical cannabis consumers.”
Meredith Buettner, the executive director for the Pennsylvania Cannabis Coalition, expanded on this topic, stating that this bill would not only expand the financial and banking opportunities for legitimate cannabis-related businesses operating in Pennsylvania, but it would also create “significant tax savings for medical marijuana operators that can be passed on to patients without significant loss of revenue for the Commonwealth.”
Let’s take a closer look at what the bill does exactly.
This bill provides financial institutions authorized to operate within the commonwealth the authorization to provide financial services to “legitimate cannabis-related businesses” with the requirement that all laws (including consumer protection laws), regulations, and “any additional requirements applicable to the institution established for the provision of services TO A LEGITIMATE CANNABIS-RELATED BUSINESS OR ITS BUSINESS ASSOCIATES by a Federal financial regulatory agency, the Department of Banking and Securities or a financial regulatory agency of the state under which the institution is organized.”
SB 1167 also authorizes insurance companies in the commonwealth to provide insurance services “to or for the benefit of” compliant cannabis-related businesses in Pennsylvania as long as all requirements listed above are fulfilled in their entirety. This bill does not require insurance companies or financial institutions to work with cannabis-related businesses. It does, however, provide a safety net for businesses in the commonwealth that choose to.
It’s uplifting to see states filling the gaps left by federal law. Hopefully, Pennsylvania’s move to support its cannabis businesses will inspire other states to follow suit.
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