You may have heard that banking is a problem when it comes to cannabis. With more states legalizing cannabis, including New York, entrepreneurs looking to enter the industry felt hope and excitement. However, once confronted with the many hurdles and risks of getting involved in the business, they were faced with a sobering reality: players in the cannabis industry are routinely denied access to capital and other basic banking services that most take for granted.
While states are taking the initiative to legalize cannabis without waiting for the federal government, there is a clear disparity between federal and state regulations. At the federal level, it is still an illegal substance. At many state levels it is now legal, and it is legal to bank it at the state level. Thus, banks find themselves caught between state and federal regulatory regimes. The SAFE Banking Act, combined with regulatory measures at the state level, can help remedy this situation and provide these companies with access to crucial financial assets.
However, the SAFE Banking Act has repeatedly stalled in the US Senate, having passed the House six times to date. Inaction has far-reaching consequences for business owners looking to enter the cannabis space in New York.
Without the protections for entrepreneurs included in the SAFE Banking Act, many financial institutions are unwilling to bank cannabis businesses. In most states, a handful of banks and credit unions handle all cannabis banking in a particular state. This forces many businesses to operate in cash only, which presents many security challenges for those who own, operate and work in the industry. In states like Washington, cannabis stores are often the target of violent crime, such as robbery. As we seek to grow and grow the cannabis industry in New York, the safety of business owners, employees and customers should be a top priority.
Lack of access to financial services, including the ability to take out loans or mortgages and use credit card schemes, also prevents cannabis entrepreneurs from effectively growing their businesses. As these businesses begin operating here in New York, they must be given every opportunity to succeed and contribute to their communities. In New York alone, the legalized cannabis business can generate over 60,000 jobs and over $350 million a year in its early years.
Pending federal action, the state Department of Financial Services can take immediate action to encourage state-chartered financial institutions to become cannabis bankers. In 2018, DFS issued a memo encouraging state-chartered financial institutions to bank the then newly formed medical cannabis space. At the time, there were only 10 licensees.
Today, we are preparing for the Office of Cannabis Management to issue hundreds of licenses. New York has one of the largest lists of state-chartered financial institutions. If even a quarter of them were willing to go into space, New York would lead the nation in cannabis banking.
New York is expected to be the second largest cannabis market in America. With access to essential financial and banking services, cannabis businesses in New York State will thrive. Senate Majority Leader Chuck Schumer and Congress must get there now by passing the SAFE Banking Act to ensure New York’s cannabis industry has a chance to succeed.
At the same time, New York regulators need to step up their efforts. The first step is easy, just a few open dialogs.
This guest essay reflects the perspective of Peter Su, Senior Vice President of Green Check Verified and Co-Chair of the Banking and Financial Services Committee of the New York City Cannabis Industry Association.