Conquering The Last Of The US’s Unbanked Businesses

In today’s economy, it seems next to impossible that a legitimate small business would be considered “unbanked,” depending on cash for all of its transactions and conducting all of its treasury operations in-house. It’s a way to run a business more often seen in less developed economies, and one that can lead to massive cash flow management problems.

But as the once-taboo market of marijuana slowly trickles into the legal economy at the state level, legitimate, unbanked businesses are popping up and creating a regulatory headache for both the companies and the government, especially as the drug is still illegal under federal law.

Earlier this month, a bipartisan bill was introduced into the Senate that would clear some major hurdles for legal marijuana firms and banks alike. 

Colorado Senators Cory Gardner (R) and Michael Bennet (D), along with Oregon Senators Jeff Merkley (D) and Ron Wyden (D), and Washington Senator Patty Murray (D) teamed up to introduce legislation that would safeguard banks that provide services to marijuana businesses operating in states where the drug is legal. The bill aims to protect financial institutions that provide banking services to these firms from being punished by the federal government for doing so.

In a press release announcing the bill, the Senators said the legislation would target marijuana banking challenges in four ways.

According to the release, the bill would prevent federal banking regulators from:

• Prohibiting, penalizing or discouraging a bank from providing financial services to a legitimate state-sanctioned and regulated marijuana business;

• Terminating or limiting a bank’s federal deposit insurance solely because the bank is providing services to a state-sanctioned marijuana business;

• Recommending or incentivizing a bank to halt or downgrade providing any kind of banking services to these businesses; or

• Taking any action on a loan to an owner or operator of a marijuana-related business.

Banks would also be protected under a safe harbor rule for both offices and employees offering legitimate financial services to legal marijuana businesses. Banks, however, still reserve the right to deny services to these businesses. Those that do choose to do business with marijuana companies would be required to comply with the Financial Crimes Enforcement Network best practices guidance.

While the language of the bill addresses how the legislation would affect the banking sector, the senators recognized how drastically the move would change the way these businesses operate and manage their finances.

Under the current climate, legal SMEs in the marijuana industry must not only rely on cash, but also cannot accept credit cards, write checks, or operate their own bank accounts. It harms the businesses and creates an environment ripe for crime, the lawmakers said.

Gardner described the situation as “insane” in a recent interview with Politico.

“If you’re an employee or a store owner you can’t put money in the bank, but if you’re a municipality collecting tax you can collect the tax, you can put it in the bank and you can spend it,” he told the publication. “This is insane.”

The proposed legislation would resolve this dilemma, he said. “It solves a public safety issue,” Gardner added. “It clarifies a regulatory nightmare and it clears up a pretty blatant hypocrisy.”

In a statement, the senators similarly voiced their disapproval for the way these companies are forced to operate without a bank. “Forcing businessmen and businesswomen who are operating legally under Oregon state law to shuttle around gym bags full of cash is an invitation to crime and malfeasance. That must end,” Merkley said. “The people of Oregon have spoken, and the federal government should make sure that legal marijuana businesses can operate properly without our banking system. It’s time to let banks serve these legal businesses without fearing devastating reprisals from the government.”

Merkley added that while the proposed legislation aims to reduce crime and increase compliance, assuring that marijuana-related businesses can gain access to the financial services they need is a matter of providing the resources all small businesses need to succeed.

“Small, legal businesses should not be turned away from banking services because of fear of unjustified federal prosecution,” he said, “and this legislation will ensure that they have access to the same services as other small businesses and can continue to grow and succeed.”