The cannabis banking crisis

The cannabis banking crisis

The cannabis
and CBD market has exploded in the past few years, with regulators and
lawmakers all shifting towards a positive stance for the medicine. However,
banks have struggled to keep up the pace.

CBD entrepreneurs and shop owners in the US are reporting of having their personal and business bank accounts closed for good, in some cases including their relatives and spouses. There are also reports from business owners in Europe stating that their PayPal accounts have been closed down.

Why are banks
penalising CBD entrepreneurs?

70% of the cannabis industry within the US doesn’t have a bank account according to a startling report by inc.com.

With the
federal government overseeing all US banking establishments and credit unions,
they are extremely hesitant to offer cannabis businesses accounts as a result
of the current legal status of the compound.

US banks are
required to file costly reports to the government about suspected suspicious or
illegal activity being committed by customers, which can subject banks to
potential seizure and large fines from the FDIC if they incorrectly report on the
illicit transactions. These reports are often subject to intense scrutiny as
they can be extensive and one single incorrect statement can bring the hammer
of blame down onto the bank.

With the
majority of cannabis businesses currently not holding bank accounts and
operating on a cash basis, this becomes a challenging job for law enforcement
and officials to impose the law as there is less evidence available about the
how companies operate. Therefore, a solution needs to be a priority to enable
the industry to continue its vital innovation.

US Senate hearing – challenges for cannabis and banking

Highlighted in
last week’s live-streamed senate hearing on the topic of banking and
cannabis led by elected government officials, who consulted with business
owners to see what issues they currently experience, witnesses attested to the
challenges some face in states where cannabis is currently legal.

It appears to be becoming a huge challenge considering cannabis is still federally illegal nationwide, however lawmakers are being urged to update the federal laws to give the sprouting industry access to financial services and thus room for expansion expand.

So far it seems doubtful that the chamber will approve any major reform anytime soon. Director of Ohio state University’s Drug Enforcement and Policy Center, Douglas Berman, said: “I remain pessimistic unless and until somebody signals to me that either Sen. McConnell, as the leader of the Senate, or his caucus is strongly supportive” on the subject of possible reform.

Optimistically
however, a main focus of the conversation was the Secure and Fair Enforcement
Banking Act (SAFE), a legislation that could allow banking establishments to
serve authorised cannabis-related companies without fear of federal
prosecution.

A widely held
concern of both businesses and numerous lawmakers is the fact that the often
cash-exclusive cannabis industry would lead to public safety risks and the
potential of the industry returning to the hands of criminal groups.

Senator Sherrod Brown said at the opening of the hearing that “the legal cannabis industry is one of the fastest growing in the United States and employs hundreds of thousands of people. No matter how you feel about marijuana itself, we have a duty to look about for the workers who work in this industry and the communities they represent”.

Market
traders hit it big from CBD stocks

Despite being seen as a
kick in the teeth to nervous cannabis business leaders, many leading cannabis
stocks experiences gains as high as 2% following the weighty senate hearing, as
reported by Markets Insider. 

Tilray, Canopy
Growth and Aurora all traded higher after the hearing was released after
initially falling pre-hearing, the suggestions of positive news seemed to
provide a boost to top industry conglomerates.

Industries
face similar issues

While CBD is
struggling to deal with the ongoing banking issues, it isn’t the first industry
to experience such problems. Gambling companies have also faced similar issues
in the past, leading to many being forced out of the US and several other major
European countries as a result of strict regulations. These strict laws
eventually see companies seeking refuge in places like Malta, Gibraltar and
Isle of Man, all of which have a light approach to gambling
establishments. 

More recently,
the developing cryptocurrency industry has had several leading exchanges face
struggles in gaining a banking arrangement. Namely Bitfinex, currently one of
the largest cryptocurrency exchanges, had their bank account with HSBC closed
before switching to Bahama-based bank, Deltec, although concerns about their
banking arrangements continue to persist.

Common banks
could see their long term successes start to dwindle as the rise of FinTech
companies such as Kind Financial and Tokken are beginning to develop software
to allow for cannabis businesses to track transactions and move away from
solely utilising cash.

Arizona-based
FinTech start-up Hypur has created a software platform that can audit a
cannabis company entirely to ensure its legality and whether it is running in
compliance to present regulations. This innovative solution has enabled a
number of undisclosed banks to become convinced to take on clients within the
cannabis industry.

The cannabis
industry may feel encouraged to see the senate discussing the crucial banking
issues, however more still needs to be done to prevent a drive away from
innovation in the emerging field.

Could
the cannabis industry be driven back underground?

Continued
uncertainty surrounding the regulatory status of cannabis andCBD could drive
the industry underground once again, back to an unregulated environment with
untested products resulting in potential harm to consumers.

Cannabis
entrepreneurs have been striving towards a legal and regulatory sound
environment, but while banks continue to close down bank accounts, the
foreseeable future remains clouded. Businesses will be forced to take a step
back and use untraceable cash, ending in an increased risk of robbery and also
enabling an environment rich for criminal taking.

In light of the FDA receiving comments, this major stumbling block for the industry must be tackled and banks must innovate before an inevitable descent back underground, which would see halt of innovation and loss of national profits and jobs.


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