🔒Cannabis businesses and banks are stuck in limbo, but SAFE Act could change that

While Maine was among the first states to legalize medical cannabis in 1999, and later recreational use in 2016, cannabis still remains illegal at the federal level. The discrepancy creates a host of legal issues and financial hurdles for Maine’s cannabis industry, which has seen exponential growth since its first state-legal shop opened in 2020, puts banks in a tough position navigating murky waters, and creates a public safety concern.

A federal bill waiting in committee for approval, the SAFE Banking Act, would give banks safe haven to provide financial services to cannabis businesses. But is it enough?

A tangled web

While some banks initially courted the industry in the early days of legalization, most have backed off, fearing federal penalties and even jail time for bankers. Now the cannabis industry, legal in 18 states and the District of Columbia for recreational use and 38 states for medical use, is mostly shut out of the banking system.

In the first five months of 2022, sales of adult-use marijuana totaled $51.5 million, on pace to exceed last year’s total of $82 million for 12 months, excluding medical-use marijuana, according to the state Office of Cannabis Policy data. Adult-use marijuana shops were first opened in Maine in 2020, when $4.3 million in sales were recorded.

With the pace of sales, there’s a growing concern about where the money is being housed. In a day and age when debit and credit cards are taken at even the smallest businesses, most cannabis businesses still operate on a cash-only basis. Vendors and utility bills are frequently paid in cash. Large amounts of cash are often kept in safes or transported in personal cars.

“It becomes a safety issue,” says CEO Andrew Silsby of Kennebec Savings Bank. “The cash ends up being transported in trunks of cars. They need to be exceptionally careful about their routes because most folks now understand that it is a cash-centric industry and they’re very vulnerable to having too much cash onsite.”

Joy Cutrone, CEO of Moment’s Peace Craft Cannabis, a family-owned, York County cannabis farm in its first year of business, experienced first-hand the difficulties of working in a cash-only industry.

“It’s awkward,” she says. “You have utilities, you have legitimate business expenses.”

She also noted of the wholesale business she operates with her son and husband in Hollis Center that it was impossible to work with some retailers without a bank account, and safety was another a big concern.

“It’s absolutely a priority to us that we keep ourselves and our employees safe, and the community around us safe,” she says.

That’s why Cutrone ended up banking with a local financial institution willing to do business with the industry, putting up with monthly fees that she says are 50 times what it would normally be for a small business. But she still needs to pay some contractors in cash.

The ever-present concern is that cash-only businesses create an increased risk of money laundering and tax evasion.

Despite the risks, a few local financial institutions are doing deposit business with cannabis companies, but at a cost that can include steep monthly fees and percentage cuts. Those in the industry speculate the high charges go to covering the extra staffing costs that are required in investigating and reporting on these accounts.

Even if a bank has made the decision not to work directly with cannabis businesses, as the industry becomes a bigger and bigger piece of Maine’s revenue stream that money becomes more and more difficult to trace.

If a bank suspects any deposited money comes from the cannabis industry it is required to investigate and report it to federal regulators.

Even banks that are dealing with money from cannabis companies without knowing it and are still held responsible. For instance, if a landlord collects rent from a tenant selling cannabis products, and then makes a deposit, both the landlord and bank face risk of federal consequences. This puts banks on higher alert with its customers, stretching staffing resources to remain in compliance.

“In many respects,” Silsby says, “the federal government has deputized us in this effort and we don’t really want to be in this spot.”

Insurance is another sticking point. Most insurance companies won’t cover the cannabis industry. Ones that do, do so at high rates. Banks feel the insurance pinch as well, since insurance carriers won’t pay on a directors and officers claim related to cannabis, whether the bank was initially aware of it or not.

Shut out

Even with a bank account, a cannabis business may be unable to access credit or debit cards or the bank loans critical to most businesses in startup and growth phases, putting many small businesses at a huge disadvantage.

For Cutrone, who had a prior career in global business development with the tech industry and calls her and her husband serial entrepreneurs, this meant dipping into her own personal resources, including retirement savings. She says because they don’t have access to loans, they are not yet able to run at full capacity. She also points out that the cannabis industry doesn’t have access to Small Business Administration services, since it is a federal program, putting it at an even greater disadvantage.

Ben Samuelson, owner of Monroe-based Seed & Soil, which sells cannabis seeds and plants, points to the credit access challenge as an equity issue.

“We’re pretty privileged that we had access to personal loans through friends and family, which gave us an advantage, but others who have the same skills or even more but don’t have the family and social capital couldn’t do this,” says Samuelson who co-owns the business with wife Betsy. “It’s unequitable in my opinion.”

Jim Henry, CEO of Sweet Dirt, a cannabis farm and retailer with three locations around the state and 130 employees, agrees. He characterizes the industry as highly capital-intensive due to the nature of regulation requirements like outfitting facilities with hundreds of cameras, and expressed deep frustration with the current credit dilemma the industry faces and Congress’ lack of action to fix it.

“It becomes a situation where the small business gets pushed out,” says Henry, who also retails Moment’s Peace products. “If you’re a small grow or small retail outlet and you want to live your dream of being a part of this industry, but the requirements are such that you have to come up with a considerable amount of capital … It puts the small player out of business.”

Henry notes that while there are some lenders out there willing to loan to the industry, they do so under often prohibitively steep terms.

The SAFE Banking Act

Enter the Secure and Fair Enforcement (SAFE) Banking Act, first brought to congress in 2013 by U.S. Rep. Ed Perlmutter, D-Colo. It passed six times in the House of Representatives, most recently in 2019 with a wide bipartisan majority.

It is supported by all of Maine’s congressional delegation.

The SAFE Act would prohibit federal banking regulators from penalizing a bank or credit union for providing banking services to state-legal cannabis-related businesses, essentially eliminating the cash-only aspect of the industry and giving cannabis businesses access to loans and potentially affordable insurance and credit and debit cards.

Supported by the American Bankers Association, all 50 state banking associations, and the Credit Union National Association, the bill has been stalled in the Senate by its leadership since 2019.

Proponents are hopeful it has a fighting chance this legislative session as it was folded into the House’s version of the America Competes Act, which is now in committee working on rectifying discrepancies between it and the Senate’s version, which did not include it.

“Enacting the SAFE Banking Act via the jobs and competitiveness legislation before us would support a rapidly growing industry that creates jobs, fosters innovation, supports small businesses, and raises revenue in states that have chosen to legalize cannabis, while reducing safety risks to industry employees and the public alike,” stated a recent letter written by 23 bipartisan senators, including U.S. Sen. Angus King, I-Maine, who co-sponsored the Senate’s version of the SAFE Act, to congressional leadership urging its inclusion in the final version of America Competes, which congress is trying to pass before the August recess.

In opposition to the SAFE Banking Act is Smart Approaches to Marijuana, an alliance advocating for cannabis policy that seeks a middle road between incarceration and legalization.

“I’m a firm believer in incremental legislation,” says Silsby, who visits Washington three times a year to lobby Maine’s delegation, and thinks the SAFE Act has a shot this time. “I know this is not perfect, but let’s get here and let’s get the cash out of the system.”

David Cyr, president and CEO of Skowhegan Savings Bank, agrees.

“It’s a real challenge to navigate federal regulations without clearer guidance from the federal government,” he says. “We are in favor of the SAFE Banking Act as it would give financial institutions a clear and safe path to providing traditional banking services to the industry.”

Many in the industry are frustrated this legislation has taken so long and some fear that, while protecting banks, it may still not do enough for the industry that Cutrone characterizes as built on the backs of small businesses.

“I think Maine’s industry in particular is built on craftsmanship, cottage industry and quality, and it’s vital that the small businesses that built it are protected as the industry grows,” she says. “While cannabis is the most productive industry in the state, those of us who want to operate legally need manageable ways to do so.”

Cutrone is in favor of the bill, but worries that it could still lead to a future of inequity without adding specific protections for small businesses, like those given to minority- and women-owned businesses in the current bill.

“We’re not asking for anything special here,” says Henry. “Just a level playing field.”