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How SAFE Banking Act Could Benefit US Cannabis Companies

How SAFE Banking Act Could Benefit US Cannabis Companies

The Secure and Fair Enforcement (SAFE) Banking Act, was reintroduced in Congress, on March 19th. A version of the bill in 2019 garnered 321 votes in its favor, and 103 in rejection. However, the bill floundered in the then Republican-controlled Senate. There is renewed optimism now that Democrats hold a slight control of the Senate.

The bill seeks to offer federal-wide protection from prosecution for US bankers that serve the cannabis market. 

Cannabis companies must be cautiously delighted but deepen lobbying on federal-wide uniform rules; insurance access rather than just retail banking and robust data capture. 

State/federal dilemma

The biggest dilemma of the US cannabis market is that trade, consumption, or banking for participants is lawful in select states but there is no federal blanket protection. From 2012, adults over the age of 21 can lawfully use marijuana in 15 states and Washington DC. Additionally, 36 states have legalized the usage of medical cannabis meaning – loosely – the majority of Americans can possess marijuana for medical or recreational purposes.  

This arcane patch of rules is a headache to marijuana market participants. “The biggest risk the cannabis industry faces is uncertainty. Not only around regulation but around the nature of the lawsuits that could arise,” an authoritative report about the industry, compiled by New Dawn Risk consultancy, states.

Marijuana companies in the US incur millions of dollars in consulting lawyers to weave through a maze of intimidating, non-uniform state laws that can change from state to county. For example in Pennsylvania, a web of rules means marijuana traders have to part ways with up to $2 million upfront in paperwork and proof of assets alone. 

So the re-introduction of the SAFE Act is a very important opening for marijuana companies to lobby for a law that gives blanket federal protection. That way, American marijuana corporations get a competitive footing and don’t have to coy around the rules, and list on indexes in nearby liberal jurisdictions like the Toronto Stocks Exchange in Canada.

We spoke to Andrew Bowden, CEO of Item 9 Labs Corp, who had this to say:

“We believe the passing of the SAFE Banking Act will advantage all U.S. cannabis operators. For Item 9 Labs, we’ll see direct benefit in access to further financing our Arizona cultivation site buildout and cannabis products to fulfill our customer demand. With our upcoming merger with OCG, Inc. and their Unity Rd. franchise, the robust pipeline of prospective franchise partners will gain additional access to financing – much like SBA loans assist other franchise concepts. We also expect the passing will open the broader exchanges, like NASDAQ and NYSE, with investment banking and institutional investors able to participate, and make it easier for U.S. citizens to purchase shares.”

Don´t forget insurance

The re-introduced bill mandates that federal banking regulators cannot “terminate or limit the deposit insurance or share insurance” or “take any other adverse action against a depository institution” just because it provides banking services to licensed cannabis corporations. 

Cannabis companies must not fall into the trap of focusing their lobbying too heavily on retail banking whilst overlooking insurance. As cannabis cultivation, harvesting and trade heat up in the US domestic market, don’t forget that marijuana is a business that´s galloping beyond our shores. China, as bullish as ever, already plants 50% of the total area of cannabis grown in the world today. The World Intellectual Property Organization, states that 306 of the 606 patents involving cannabis today are in the hands of Chinese corporations and individuals. 

It is almost given that US marijuana businesses will venture abroad to pick virgin markets or diversify harvests, and this is where insurance shines. Global and domestic US marijuana logistics are complex and fraught with risks of shipping, fire, or climate change disrupting harvests. The legalized cannabis industry in the US would pay $1 billion in annual insurance premiums if the trade was insured to levels offered for other sectors. 

Lobbying must intensify to make it easier for cannabis corporations to obtain legal insurance at competitive rates thus they can safely hire more workers and expand operations. As a National Association of Insurance Commission report stated in 2018: “Lack of insurance for the industry adds layers of unnecessary risk and exposure for all market participants.”

Data is savior

The re-introduction of the SAFE Act bill could unleash an avalanche of pent-up data that will enrich both cannabis traders, healthcare agencies, users, and bankers. 

Right now due to patchwork of mysterious rules, the cannabis sector runs by word-of-mouth figures, and insider chats (not structured data). “Thousands of employees and businesses across this country have been forced to deal in piles of cash for far too long,” Rep. Perlmutter, the pusher of the re-introduced bills said via a news release

Without a modern, high-quality data registry on the marijuana market, it is double difficult for retail insurance companies to fairly price packages, or for cannabis traders to haggle for competitive interest rates. Without data, insurers are piloting in the dark. Cannabis growers lose, and health agencies can´t track the impact on consumers.

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