US Congress gives green light to new cannabis banking bill

Earlier this year, the 'Secure and Fair Enforcement (SAFE) Banking Act' was introduced into the US House of Representatives as a way of protecting financial institutions that wish to provide their services to marijuana businesses. It is the first proposed independent legislation by the US Congress regarding cannabis and, if finally passed, it will protect marijuana-related banking activity from federal investigation.

The bill was officially passed by the House of Representatives on Wednesday, September 25, under a procedure known as 'suspension of the rules', which is normally used to quickly pass a bill, and must be approved by at least two thirds of the House (290 votes or more, out of 435 votes.)

Even though it seemed unlikely, the House members voted overwhelmingly in favor (321 votes as opposed to 103 votes against), which exceeded all expectations and proved that the cannabis banking reform legislation has become a bipartisan issue.

There have already been other recent amendments regarding the cannabis industry. Last summer, for instance, an amendment was approved by the House to protect all cannabis state programs from federal intervention. But this is the first time that an independent bill directly related to marijuana has been approved. The bill will be ratified if the Senate also votes in favor, and the president then gives his consent.

A very much needed bill

The prospect of cannabis legalisation has led to an enormous growth of this industry over the last few years. By the end of next decade, worldwide cannabis sales are predicted to increase between 5 to 18 times over the sales registered in 2018, which are around ten billion dollars.

However, the main uncertainty surrounding this forecast is still the USA. Even though the US cannabis market is the most lucrative in the world, the US Federal Government stands firm on their classification of marijuana as a Schedule I controlled substance (the most tightly restricted category for drugs), together with heroin and LSD.

In addition, US marijuana businesses are subject to Section 280E of the Internal Revenue Service Tax Code, implemented in the early 1980s to prevent money laundering on the black market and to stop drug traffickers from taking tax deductions on 'business expenses' in their tax revenue.

In simple terms, cannabis companies are not allowed to take tax deductions on normal expenses, except for sales. This means that the effective federal tax rate can reach 70% to 90%, which leaves little income for reinvestment or staff recruitment.

And to make matters worse, US cannabis firms have minimum access to basic banking services (including loans, credit facilities, or even current accounts.) As banks and credit unions must report to the Federal Deposit Insurance Corporation (FDIC), they fear potential financial and criminal repercussions if they get involved with cannabis businesses.

This has left marijuana companies with extremely limited options, such as having to rely on few small, local financial institutions, or doing 'cash only' business transactions, which can lead to security issues and restrict business growth.

The big question is: and now what?

Now that the SAFE Banking Act has already been introduced in the House of Representatives, it needs to be referred to the Republican-controlled Senate. Republicans have historically had a more negative view of cannabis than Democrats; therefore it is unlikely that the bill will be approved.

So even though the Republicans in the Senate seem to be open to the banking reform bill approved by Congress, their vision might not necessarily be the same. Perhaps certain concessions need to be made in order to persuade Republicans to vote in the bill's favor. These could include protection for hemp and cannabidiol (CBD) businesses, and also for firearms dealers.

There is also a chance that some Democrats in the Senate reject the SAFE Banking Act, as they believe that more general reform bills on cannabis at federal level need to be addressed first. According to the Senate Banking Committee chairman Mike Crapo, a committee vote on a cannabis banking bill will be held before the end of the year.

So even though cannabis industry enthusiasts and investors continue being optimistic, it seems unlikely that there will be a short-term resolution regarding the Banking Act. Or perhaps we will have to wait until after the fast-approaching 2020 general election. For now, though, there is a sense of expectancy for this historical vote. For the first time, an independent cannabis reform bill has been approved that, if finally passed, will undoubtedly benefit all players in the marijuana industry.