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for the Insurance Industry

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by KRM Research Staff

As highly regulated and technically sophisticated as the cannabis industry is today, it is still mired in the past when it comes to payments. Only a small handful of financial institutions will take on cannabis businesses, and federally-chartered banks are not allowed to open accounts for the industry. Cannabis retailers are also shut out from major credit card networks, as Visa. MasterCard, Discover and American Express still classify dispensaries as illegal businesses.

Unfortunately, being a cash-only business puts a giant bullseye on your door for criminals, looters and other bad actors. Dispensaries across America lost millions of dollars in cash during the rioting of the past months. Cash on premises puts employees and customers at risk, mandates expensive high-security equipment, and also leaves the business susceptible to internal theft.

While banking is possible, it currently presents risks. The banks that will work with cannabis businesses are often small community banks and credit unions, which may not have the proper safeguards. They may not be FDIC insured. There may be limits on deposits, transfers, and daily cash pick-ups. Or there may be deliberate workarounds that affect compliance and transparency, such as transactions taking place out of the ACH system.

In addition, when cannabis businesses are prohibited from doing business with the major banks, they are also unable to get loans, credit lines and other financial services. There is a relatively new crop of payment processors specializing in the industry, which are offering cashless solutions for on-site transactions, but there can be caveats — finances may not always be processed in the primary company name, or settlement may not occur promptly.

But there is a welcome solution at hand: passage of the SAFE (Secure and Fair Enforcement) Banking Act. This current legislation would open federal banking institutions to the global cannabis industry, and likely help the U.S. be more competitive in the space. According to the Congressional Budget Office, the bill would save $3 million in direct spending by the federal government over 5 years, and the magazine Reason estimates that more than $100 million in federal tax revenues could have been raised in 2019 if the bill had been enacted. Tens of millions more in revenues could have gone to various states and local governments directly if these companies could access a bank account to facilitate tax payments.

Although the Act was passed by the House, its continued movement has been off again on again. Right now, there is a push to enact these provisions as part of upcoming COVID-19 relief legislation, and numerous associations are backing the effort. Industry insiders expect a resolution by year’s end.