Financial & Banking

The Impact of Federal Legalization of Cannabis on Finance and Banking

Evan Clark
Written by Evan Clark

The cannabis industry is nothing if not volatile, from the recent surge and retreat of cannabis stocks to the ever changing rules and regulations that govern the industry. Things change fast and dramatically in the cannabis industry, in large part because the industry lacks a cohesive systematic governing body due to its legal status at the federal level. But what if cannabis was legalized at the federal level? The confused haze of cannabis compliance could become much clearer for bank compliance officials, government agencies, and businesses owners.

The finance and banking sector would be dramatically changed by the legalization of cannabis at the federal level. The Federal Credit Union Act and the Federal Deposit Insurance Act are the laws that enable banking to function as we know it but they also forbid banks from working with drug cartels, drug dealers, or anyone generating income from illegal narcotics. Today, bank officials fear they will run afoul of federal money laundering laws and other regulations if they touch money generated in the legal cannabis industry at the state level. A decision in January by Attorney General Jeff Sessions to revoke Obama-era guidance to the Justice Department protecting state cannabis laws did not breed confidence.

Technically, banks are allowed to work with cannabis operations. However, they’re faced with a burdensome set of regulations that requires them to file reports of suspicious activity. These reports are supposed to help the federal government uncover criminal operations but with cannabis illegal at the federal level and legal for many at the state level, what defines a criminal operation isn’t clear. Imagine the headache this will cause a bank’s compliance officer.

The nonsense regulations governing finance and banking in the cannabis industry harms everyone involved. The risk seeking banks that choose to do business with cannabis operations must file increasing numbers of suspicious activity reports, the federal government must waste resources reviewing these illegitimate reports. Banks must waste resources filing the reports, taking away resources that could spent investigating legitimate fraud. All of these costs at the institutional level are then based on to tax payers, cannabis businesses, and consumers.

The legalization of cannabis at the federal level would provide much needed clarity between state and federal banks. The result would be lowered costs of doing business for banks and dispensaries, less expensive products for consumers, and more efficient allocation of tax payer dollars.

About the author

Evan Clark

Evan Clark

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