A maxim in business holds that “cash is king.”
But cash may not be the most efficient way of doing business. At least not at scale, and not when it comes to helping nascent industries take flight.
The issue is particularly spotlighted by the cannabis industry, where, as noted this past week in Bloomberg, legal sales of cannabis topped $10 billion in 2018, as estimated by the Marijuana Business Factbook. Within the next several years, that could be worth $80 billion, according to research firm Cowen Inc.
And yet, beyond the patch quilt of states that have accepted marijuana sales, such transactions are illegal on a national level. This, in turn, means that banks cannot offer services to businesses, as they would face prosecution from regulators.
In at least one incremental move that would expand the ability of mainstream financial institutions to serve cannabis-focused firms, Rodney Hood, chairman of the National Credit Union Administration, has said the agency will not punish credit unions working with those companies in states where the substance is legal.
As quoted by the Credit Union Times and other sources this past week, Hood said, “It’s a business decision for the credit unions if they want to take the deposits,” adding, “We don’t get involved with micro-managing credit units.”
The statements come as legislation looms for debate in the U.S. House of Representatives that would let FIs serve cannabis firms. During a Senate hearing at the end of July focused on the Secure and Fair Enforcement (SAFE) Banking Act, chairman and Sen. Mike Crapo (ID) was the only Republican member to attend the event. Some Democrats skipped the hearing, too.
Politically charged as cannabis may be, Hood’s statements show at least some incremental shift toward providing banking services to cannabis businesses on a grander scale. Similarly, the SAFE legislation has more than 200 co-sponsors in the House, and of course that breadth of support is bipartisan.
Recent developments in New Hampshire show how financial services can extend at the state level to cannabis firms. As reported over the weekend by the New Hampshire Union Leader, the state’s five licensed alternative treatment centers (or ATCs, which operate as medical marijuana dispensaries) have gained access to a range of financial products through the GFA Federal Credit Union, such as 401(k) plans and various insurance products.
“We’ve built a turnkey banking solution for cannabis businesses,” GFA CEO Tina Sbrega told the site. “We’ve formed partnerships with other third-party providers to be able to bring similar solutions to cannabis operators that we would for any other business.”
Cannabis firms can apply for basic financial services directly through GFA, according to the credit union.
Apple In The Spotlight
Separately, Apple is being eyed by regulators in Russia for allegedly unfair competitive practices. As Reuters reported this past week, Kaspersky Labs has said the tech giant is abusing its market position, having lodged a complaint with the Russian watchdog Federal Antimonopoly Service (FAS) that Apple’s operating system had declined a new version of Kaspersky Lab’s Safe Kids application, which had, according to the Moscow Times, resulted in a “significant loss” in functionality for the app, which lets parents control what their children access online.
A bit closer to home, the New York State Department of Financial Services (NYDFS) has stated that it will lead a multi-state investigation into alleged violations of state regulations of the short-term lending industry.
Of particular focus will be payroll advances, according to reports. The announcement came from Financial Services Superintendent Linda Lacewell, who said that she, along with banking regulators from nine other states and from Puerto Rico, will examine charges levied by the lending firms that are classified as “tips” or “membership fees.”
“High-cost payroll loans are scrutinized closely in New York, and this investigation will help determine whether these payroll advance practices are usurious and harming consumers,” Lacewell said in a statement.
The lenders are companies that offer loans that let borrowers access wages that have been earned ahead of subsequent paychecks. The aforementioned charges, said regulators, may add up the equivalent of high interest rates charged on the loans.
In one example, Earnin’ has been the subject of an investigation by NYDFS since March, and offers borrowers advances of as much as $100 per day in advance of the next payday, and the business model encourages users to leave “tips” as signs of gratitude for being paid early.
No discussion of regulations would be complete without some nod to the changing regulatory landscape tied to cryptocurrencies.
In South Korea, as reported by CoinDesk, the Ministry of SMEs and Startups has eased a number of regulations for blockchain development, in what amounts to a partial “regulation-free” zone for the sector across blockchain development for public safety and tourism. That does not mean unfettered access for cryptos, as ICOs will not be on the table — but as reported, investors may move the equivalent of as much as $25 million into the region by 2021.