Cannabis Financing Could Get Easier With New Bill

The SAFE Act passed its first hurdle in the House of Representatives, but the race is far from over.

Federal legalization of cannabis is probably years away from becoming a reality, but the growing number of states that have legalized either medical or recreational pot markets, or both, means that there need to be reforms on the table. 

A key measure in those efforts move a step further recently.

Cannabis businesses that operate in states with legal recreation markets typically operate as all-cash businesses because big banks don’t want to provide services due to the federal illegality of the drug. 

Those businesses usually rely on state-charted banks or credit unions for their financial services. 

Current laws are also designed to place a larger tax burden on the cannabis industry. 

Section 280E of the internal revenue code bars any business, or portion of its business, dealing in Schedule I or II controlled substances (cannabis is Schedule I) from deducting non-COGS (costs of goods and services) expenses or credits for tax purposes. 

The SAFE Banking Act was drafted to alleviate those industry hurdles by prohibiting federal banking regulators from penalizing a bank for providing banking services to legitimate cannabis businesses. 

Despite being passed in the House of Representatives, the bill has a long way to go before reaching President Biden’s desk as it has had little movement through a nearly evenly split Senate. 

The Path Forward 

There are multiple paths forward for the SAFE Act, but none are a slam dunk. 

In May, the Conference for State Bank Supervisors advocated for the SAFE Act to be included in the America Competes omnibus bill that was originally drafted to address the semiconductor shortage in the U.S. 

For obvious reasons, the cannabis industry is in favor of this approach. 

“For the safety of the cannabis community, we are in support of Congress including the SAFE Banking Act language in the America COMPETES Act as long as it does not take away from the bill’s original intent,” Bryan Murray, EVP of government relations for cannabis company Acreage Holdings told TheStreet. 

But as with most things in Washington, the politics could easily get in the way of any progress. And a watered down version of the SAFE Act is a real concern across the industry. 

“There is significant political posturing happening around SAFE banking. Whether the legislation is part of the America COMPETES Act, or Sen. Schumer and his Democratic colleagues decide to reintroduce SAFE+ as part of a later bill with additional focus on social equity – these inroads are positive developments as long as it doesn’t dilute the original intent of SAFE,” Matt Hawkins, managing partner of Entourage Effect Capital told TheStreet. 

The Hurdles That Remain

In politics you have to give a little to get, and compromise may be the best way to clear some of the hurdles that remain as the industry waits for the Senate. 

Tim Seymour, the portfolio manager of the Amplify Seymour Cannabis ETF  (CNBS) – Get Amplify Seymour Cannabis ETF Report believes the best path forward features compromise. 

“The approach to a pared down Safe or Hope act makes more sense than the comprehensive bill. Schumer now realizes the practical reality of passing legislation,” Seymour told TheStreet. “If anything look for a stripped down SAFE Act from what was passed in the House.”

Trent Woloveck, chief commercial director for high-end cannabis retailer Jushi Holdings also believes the SAFE Act would be tough to add to the Competes Act. 

“Wrapping cannabis-related reforms into a large omnibus bill like the America Competes Act will likely be difficult. Because it would touch every committee in the Senate, looking to all-encompassing cannabis legislation will likely be as or more difficult,” Woloveck said. 

“Historically, when our country addresses large and impactful issues legislatively, we’ve done so incrementally – and have always tried to do so on a bipartisan basis.”

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