Perhaps you’ve heard — banking is an issue in cannabis. With more states legalizing cannabis, including New York, entrepreneurs seeking entry into the industry felt hope and excitement. However, once they faced the many obstacles and risks of being involved in the business, they were hit with a sobering reality: Those in the cannabis industry are routinely denied access to capital and other basic banking services that most take for granted.
As states take the lead in legalizing 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’s now legal, and it’s legal to bank it at a state level. So, banks find themselves caught between state and federal regulatory regimes. The SAFE Banking Act, combined with regulatory action at the state level, can help rectify this and allow these businesses to access crucial financial assets.
However, the SAFE Banking Act has repeatedly been held up in the U.S. Senate, having passed the House six times to date. The inaction has far-reaching consequences for business owners looking to enter the cannabis space in New York.
Without 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 as cash-only operations, presenting numerous safety challenges to those who own, operate, and work in the industry. In states like Washington, cannabis stores are frequently the target of violent crimes, such as robberies. As we look to develop and grow the cannabis industry in New York, the safety of business owners, employees, and customers should be a top priority.
The lack of access to financial services, including the ability to take out loans or mortgages and use credit card systems, also prevents cannabis entrepreneurs from effectively growing their businesses. As these businesses begin to operate here in New York, they must be given every opportunity to succeed in and contribute to their communities. In New York alone, the legalized cannabis business can generate over 60,000 jobs and over $350 million per year in its starting years.
While we wait for 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 license holders.
Today, we are preparing for the Office of Cannabis Management to issue hundreds of licenses. New York has one of the largest rosters of state-chartered financial institutions. If even a quarter of them were willing to enter the space, New York would lead the nation in cannabis banking.
New York is projected to be the second-largest cannabis market in America. With access to essential financial and banking services, cannabis businesses across New York state will flourish. Senate Majority Leader Chuck Schumer and Congress must get this done now by passing the SAFE Banking Act to ensure that New York’s cannabis industry has a chance to succeed.
At the same time, New York’s regulators need to step up. The first step is easy, just some open dialogues.
This guest essay reflects the views of Peter Su, senior vice president of Green Check Verified and co-chair of the New York City Cannabis Industry Association's Banking & Financial Services Committee.