California cannabis operators again await outcome of SAFE Banking Act

Banking amid cannabis legal limbo

The North Bay Credit Union’s “rebranded” Greenbax Marketplace service was launched last November, offering bank checking, savings and investment accounts as a national model.

The Santa Rosa-based credit union’s product has grown, with more than 300 accounts ― a fifth of them located in the North Bay ― as growers, dispensaries, manufacturers, producers, retail delivery companies and distributors managed by 17 employees doing business with a dozen states that recognize the legality of cannabis.

Greenbax Marketplace President Carole McCormick, a longtime North Bay Credit Union executive, supports the SAFE Banking Act as a means for other financial institutions to get on board the cannabis bandwagon.

“It hasn’t been easy for them,” she said.

One of the credit union’s vendors, NCS founder and CEO Adam Crabtree, agrees. As the first state to legalize cannabis, Colorado — where Crabtree is located — has experienced the struggles with getting lawmakers and local jurisdictions onboard.

“Right now, (McCormick’s) program is the gold standard. But the biggest thing with the Safe Banking Act is it would give the industry a normalized set of rules to operate. The lack of clarity is detrimental. Without a doubt, it would help,” he told the Business Journal.

Cannabis company operators hope federal legislation will finally allow them to do business with banks — and stem a counterculture label the $50 billion legal industry finds hard to shake.

The Secure and Fair Enforcement Banking Act making its way through Congress is intended to allow cannabis businesses to open bank accounts even though their product, while legal in California, is outlawed by the federal government. The dilemma has posed both safety and tax issues, which are seen by a collective of bipartisan lawmakers as unfair and unwarranted.

Cotati-based Mercy Wellness, for one, would welcome the SAFE Banking Act.

CEO Brandon Levine called the legislation introduced by Sen. Jeff Merkley, D-Oregon, on April 26 “a step in the right direction” and “the gateway to opening up traditional banking, funding and eventually tax reform” for cannabis operators.

“Over the past 13 years of Mercy being in business, we have been hit with every hurdle you could imagine, including two (Internal Revenue Service) 280e audits, and (we’re) adapting to ever-changing regulations,” Levine said. The 280e audit refers to a provision of the IRS code that prohibits tax deductions for illegal businesses.

Merkley has brought forward new versions of the legislation to make it easier for the traditionally cash-only industry to have bank accounts. The legislation protects banks from being penalized by federal regulators. In turn, the banks won’t penalize the businesses or charge exorbitant fees.

There’s also the safety of workers handling bags of cash to consider. Some have been the targets of robbery and money laundering schemes.

Merkley started this quest in May 2017 with the initial bill that failed, along with subsequent versions. For every congressional session’s version in between, the House of Representatives would pass it, only to have it die in the Senate.

Political and industry insiders say this just might be the one that gets approved.

“We are full steam ahead with the opportunity to get this bill passed in the Senate,” Merkley said.

“It’s not going to be easy, but with diligence and keeping our eye on the finish line, I’m confident and committed to making 2023 the year a bill that ensures all legal cannabis businesses have access to the financial services they need.”

“Cannabis is the fifth-largest cash crop in our state, and not having access to financial services is a serious missed economic opportunity,” said Rep. Mike Thompson, D-St. Helena.

The potential chain reaction

Beyond the safety and convenience issue, a bigger benefit of the SAFE Banking Act may revolve around eliminating the illicit pot market, which appears to be thriving in an all-out competitive war with the legal market.

Currently, 37 states allow for medicinal cannabis, while 21 are collecting taxes on adult recreational use. But that doesn’t mean all the local governments within the state’s and counties’ boundaries enable the businesses to operate. Only about one-third of these city and county jurisdictions in California provide sanctuary for companies to conduct cannabis sales.

In the North Bay, Sonoma and Mendocino counties have legalized cannabis distribution throughout the supply chain — with Santa Rosa listed as an early adopter at its infancy. Napa County has resisted a blanket adoption for legalization. But its county seat, Napa, allows for medicinal dispensaries.

The Perfect Union chain of dispensaries has operated a dispensary in northern Napa over the last few years — but the Sacramento-based company’s wish list doesn’t end there.

“We’re a big advocate for Safe banking, so we’ll be able to bank with any bank,” Director of Government Affairs Angelica Sanchez said, adding that gaining business tax deductions would be a nice bonus for an industry long considered overtaxed. “Then, I think a lot of the local jurisdictions will allow for it legally. Right now, they’re hesitant because it’s not recognized legally.”

The Napa Valley Cannabis Association Board President Stephanie Honig wants to do something about that. A winemaker by trade, Honig hopes this is the year when federal lawmakers assist the industry in finding a safe haven to bank like other businesses. Then perhaps, more local governments will be open to the idea of cashing in on its potential through a local tax structure.

“People are smoking it and using it anyway. If (local governments are) against crime, if they’re against chemicals in the soil, then they should be for legalization and legitimizing it,” she said. Otherwise, the illicit market will continue to thrive, she surmised.

Many insiders agree that, in order to help the industry profit, it needs more places to sell the glut of product that has oversaturated the market, legal or not.

“Anything the federal government does to offer legitimacy and pull these companies into the modern era (of banking) will help. There’s no silver bullet, but the stigma still exists,” said National Cannabis Industry Association CEO Aaron Smith, a Sonoma County transplant who now lives in the Washington, D.C., area.

Smith believes cannabis businesses face a bigotry stemming from a product still considered as a symbol of the 1960s counterculture movement.

Nonetheless, Smith remains optimistic in the bill’s passage.

“We’re in a better position than we’ve ever been,” he said, adding the proponents have learned a lot. For example, a previous version of the bill took on too many riders that sunk it, Smith insisted.

This time, the national advocacy organization came armed to the Senate Banking, Housing and Urban Affairs Committee on May 11 with a letter touting the critical nature of the problem and laying out the importance of assisting an industry that supports more than 500,000 full-time jobs across the nation.

“Without equal access to traditional financial institutions, a majority of cannabis businesses are left to seek capital through private sources with limited funding opportunities,” Smith wrote to the committee. As of May 16, the committee had not voted on the measure.

The American Bankers Association has issued a statement applauding the bill.

“This common sense, bipartisan bill, which has already cleared the House multiple times (when it was controlled by Democrats), would resolve the ongoing conflict between state and federal law, so that banks can serve state-authorized cannabis-related businesses,” banking association President and CEO Rob Nichols stated.

The debate about its merits even ensued in what appeared to be initially a cannabis-friendly hearing, as movement toward legitimizing cannabis was met with some opposition from the committee’s own members as well as experts who testified.

Kevin Sabet, a former White House adviser from Indiana, said he was “surprised” the push for legal federal cannabis banking was happening now with the nation “in danger” of defaulting on its debt, the banking industry tanking and a looming opioid epidemic.

“This (opposition) is not about Woodstock (New York) weed. It’s about the edibles,” Sabet said, listing off cereals and other foods youth tend to consume. “Why should we normalize the supercharged state of marijuana and fan the flames on an addiction crisis staring us in the face?”

Sen. Elizabeth Warren, D-Massachusetts, called for the federal de-scheduling of the drug, which has come up in legislation that has also failed. Cannabis is considered a Schedule 1 drug by the federal government and is therefore illegal.

With a nod from the vice chairwoman of the Cannabis Regulators of Color Coalition and former Los Angeles cannabis czar Cat Parker who cited legalization as an “equity” issue, Warren simplified the matter.

“No one should be criminalized because they’re caught with a joint,” she said.

Susan Wood covers law, cannabis, production, tech, energy, transportation, agriculture as well as banking and finance. She can be reached at 530-545-8662 or susan.wood@busjrnl.com

Banking amid cannabis legal limbo

The North Bay Credit Union’s “rebranded” Greenbax Marketplace service was launched last November, offering bank checking, savings and investment accounts as a national model.

The Santa Rosa-based credit union’s product has grown, with more than 300 accounts ― a fifth of them located in the North Bay ― as growers, dispensaries, manufacturers, producers, retail delivery companies and distributors managed by 17 employees doing business with a dozen states that recognize the legality of cannabis.

Greenbax Marketplace President Carole McCormick, a longtime North Bay Credit Union executive, supports the SAFE Banking Act as a means for other financial institutions to get on board the cannabis bandwagon.

“It hasn’t been easy for them,” she said.

One of the credit union’s vendors, NCS founder and CEO Adam Crabtree, agrees. As the first state to legalize cannabis, Colorado — where Crabtree is located — has experienced the struggles with getting lawmakers and local jurisdictions onboard.

“Right now, (McCormick’s) program is the gold standard. But the biggest thing with the Safe Banking Act is it would give the industry a normalized set of rules to operate. The lack of clarity is detrimental. Without a doubt, it would help,” he told the Business Journal.

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