First it was President Trump coming out in support of Senator Cory Gardner. Then Senator Bernie Sanders and Senate Minority Leader Chuck Schumer came out in support of rescheduling and decriminalising marijuana. Without a doubt, political support for legal cannabis is mounting, however none of this matters, as the biggest problem facing the industry is still not even close to being resolved: banking.
As it stands now, Federal prohibition is the biggest factor affecting banking regulations, but descheduling marijuana as a controlled substance could have the greatest impact on the ability of banks to lend money to marijuana enterprises. But even if the drug is descheduled, most experts expect cannabis companies will still face pricier banking fees and stricter reporting guidelines.
Many banks are largely relying on guidance and the positions of the Federal Reserve Bank that serves their district. The mixed messages give banks another reason to baulk at taking in cash from cannabis firms.
It gets worse
To make matters worse, on Tuesday the 1st of May 2018, the U.S. Small Business Administration tightened its lending rules to prohibit banks from using SBA-backed loans to finance any business that has direct interaction with the marijuana industry.
SBA rules already precluded lending to any business directly involved in the industry — "a business that grows, produces, processes, distributes, or sells marijuana or marijuana products, edibles, or derivatives, regardless of the amount of such activity. This applies to personal and medical use even if the business is legal under local or state law."
Regulators have long recommended banks avoid providing any services to businesses directly involved in the trade, so this is nothing new. However, the new SBA rule goes much further. The SBA now also precludes lending to any firm that is even indirectly doing business with a marijuana-related operation, significantly expanding the number of businesses no longer eligible for SBA-backed loans.
The rule defines such a business as one that "derived any of its gross revenue for the previous year (or, if a start-up, projects to derive any of its gross revenue for the next year) from sales to Direct Marijuana Businesses of products or services that could reasonably be determined to support the use, growth, enhancement or other development of marijuana." The policy document also specifies that SBA borrowers can't rent office space to marijuana-related businesses.
Banks offering SBA-backed loans will now have to require borrowers to attest that they are not engaging directly in the marijuana trade and that they do not derive any revenue from the marijuana industry to be clearly eligible.
This is a major blow and turn-a-round from President Trump's promises and commitments to Senator Cory Gardner on the 13th April. Trump promised to protect the states' rights to govern marijuana as they see fit, and that the federal government would neither interfere nor prosecute any state where marijuana is legal at the state level.
As much as this was a watershed moment for the booming marijuana industry, so is the latest SBA ruling a bucket of cold water on the fires of legislative change. Clearly, as we move towards the eventual legalisation of marijuana (the lifting of prohibition) there are many speed bumps and curveballs to be navigated. Banking is by far the biggest one.
Where there's a will
However, as with any "gap" in the market, the stringent banking regulations have opened the door for alternative payment solutions, and two companies are positioning themselves at the epicentre of this "problem".
Glance Technologies Inc.
Glance Technologies Inc. is a company that uses blockchain as a payment solution for the cannabis industry. The Vancouver based company is offering "another alternative approach to payment through its smartphone-based payment system."
The company is already making its mark in other industries with a system called Glance Pay. According to the company's website, "Glance Pay Mobile Payment App boasts state of the art capabilities and has been engineered with security and ease of usage in mind. Its accounting features are designed for easy record keeping for both restaurants and users." It looks like Glance will be applying its knowledge in the cannabis space.
Global Payout Inc.
Global Payout Inc. is "a processor of payments for corporate clients and their customers, members, employees, contractors, agents, and suppliers worldwide and has access to processing and payment delivery platforms and networks."
The San Diego based company is the majority owner of MoneyTrac Technologies, a company that aims to "revolutionise payment processes for businesses operating across a wide array of 'high-cost' and 'alternative' industries where traditional banking and payment processing services are difficult, or nearly impossible to acquire" according to the company's site.
Despite the above, the recent political momentum, and the changing attitudes of the American population (over 62% of Americans now want marijuana legalised at the federal level), major reforms for the industry – banking or otherwise – are likely several years away.