By Kevin Hart, CEO of Green Check Verified
With consumers becoming more accepting of cannabis and social stigmas continuing to soften, political headwinds indicate that federal legalization could be on the horizon in the not-too-distant future. One bill, the SAFE Banking Act, offers a monumental opportunity for both the cannabis and financial services industries, but Senate approval has yet to come to fruition.
The SAFE Banking Act continues to have success in the House but not the Senate. Earlier this year it was added to the House's version of the National Defense Authorization Act but ultimately removed from the final version of the omnibus spending bill. Undeterred, Representative Perlmutter (D-CO) pushed to attach it to the America COMPETES Act where it was approved by the House. However, it's yet to be seen whether it will face the same fate as it did when attached to the NDAA. And some top lawmakers have wanted to hold off on the banking provision until a broader marijuana bill can be passed, indicating the importance of making sure eventual marijuana policy addresses restorative justice issues like decriminalization and expungement.
While legislative gains appear to be closer than ever, it could still be a long way to go. Emerging CRBs and cannabis entrepreneurs can’t afford to wait for DC to get its act together. They must execute growth plans now in anticipation of new legislation passing, and start to develop relationships with reputable financial institutions (FI). Here are three key growth tips for CRBs to consider:
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Find a banking relationship that goes beyond simple depository services. It's hard to grow when your bank is just a place to store your cash. But as more and more banks and credit unions today expand their services to the industry, they are starting to go above and beyond to give CRBs the tools needed to grow like any other small business - lending, a business credit card, ACH transactions and wires, payroll services, cash transportation, etc.
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Prepare for the tidal wave of interstate commerce. Once interstate (and international) commerce opens up, there will be a huge amount of consolidation. Right now the growth of multi-state operators is strong but relatively constrained considering a company essentially has to start again and get accustomed to the rules and regulations every time they move to a new state. Those constraints are going to disappear overnight, so consider building partnerships outside of your state now to get ready.
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Invest in your brand now to stay relevant. Once a customer truly has choice they’re going to be far more price-conscious then they can be today, considering the relative lack of options. The industry is evolving quickly and attracting a new swath of consumers and demographics, and to stay in business CRBs can either be a bargain basement retailer or maintain healthy margins by becoming a household name. Think of a company like Cookies that’s already well known even outside of states where they can legally sell cannabis-related products.
How to prepare for the coming legislative shift
If approved in the future, the number of FIs that service CRBs will dramatically increase. Therefore, it will be critical for small business owners and entrepreneurs to be properly equipped to handle the evolving requirements necessary for working in an expanded regulatory environment, as complex compliance and regulatory challenges will certainly remain in place.
According to research firms Headset.io and New Frontier Research, cannabis businesses had to handle about $10 billion in cash in 2020, which is a management nightmare and security risk. CRBs are searching for methods to move away from ‘cash-based’ models and, generally, starting to get more comfortable working with banks and credit unions. In turn, we will also see larger FIs beginning to bank cannabis as more states legalize or decriminalize.
Knowing how to maintain ongoing compliance will continue to be critical. While the The States Reform Act or the SAFE Banking Act will provide more banking options, it won’t solve everything and will likely create even more rules and regulations. There will still be a need for tech solutions that can streamline compliance to continually adhere to evolving state-by-state cannabis regulation patchworks.
Moving into a Post-Prohibition World
In a scenario where cannabis is decriminalized on a national level, there will still be many details to hash out as part of any roll-out. Complex topics like how much to charge in federal, state and excise taxes, interstate commerce restrictions down to minute details like how late cannabis businesses can stay open will be part of the larger discussion. And again, if they aren’t already, CRBs and cannabis entrepreneurs should focus on building relationships with each other and local officials who can advocate for their interests in the future.
As several new states expand their legalization programs, each will face a wide range of new regulatory challenges based on various levels of decriminalization. The industry will need the right types of tech-supported/analytics driven solutions to help facilitate broad growth. Even a state like Colorado, a pioneer in the space, has had its challenges and continues to face difficulties around available banking options besides basic checking accounts.
The environment around legalization is ever-changing, but banks and credit unions are starting to realize they risk losing valuable customers (and new revenue opportunities) by not establishing cannabis banking programs. To ensure success, CRBs must act as if legislative changes are already underway to effectively grow and scale the business, maintain compliance, and meet the increased consumer demand once the floodgates open.
