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The cannabis industry is, at present, chronically underbanked. Despite the legalization of recreational marijuana in 11 states (and Washington D.C.) including California, Massachusetts, and Nevada, the rules in place at the federal level make it risky for credit unions and financial institutions to lend money to the cannabis industry. 

The SAFE Banking Act

The lack of outside financing has been a drag on the industry. That could all be about to change if the Senate agrees to pass The SAFE Banking Act. 

Marijuana is still an illegal Schedule 1 drug at the federal level. Thus any bank that lends to a cannabis company risks federal penalties and prosecution in a federal court. 

House Democrats passed the first stage of the SAFE Banking Act in September 2019. It now awaits its fate in the Republican-controlled Senate, where the bill has a chance of becoming law. The new act will protect institutions that lend to cannabis companies in states where the sale of marijuana is legal, thus putting the industry on an even footing with other sectors of the economy. 

The momentum behind the bill is impressive. It is an unusual case of a bill that is supported by both the political elite, businesses, and the financial sector. The new law also comes at a convenient time in the history of the legalization of cannabis. While 11 states so far have made marijuana fully legal, many are likely to follow, meaning that the timing of the law is ideal. New cannabis business startups all over the country will soon need funding from creditors to make their operations possible, and that will only happen if this new law passes the Senate. 

The number of commercial banks and financial institutions offering financial services to cannabis companies has risen spectacularly over the last two years. Back in 2017, only 337 institutions were willing to lend out money to companies. By 2019, that figure had grown to more than 715, according to the Financial Crimes Enforcement Network. 

Will The New Bill Pass And Become Law? 

Many commentators are hopeful that the new bill will pass the Senate and become law. There was strong bipartisan support in the House, meaning ensuring the attention of the Senate. 229 Democrats supported the House bill, and a crucial 91 Republicans, as well as an independent. 

The fact that the House was able to work together on the bill suggests that it is likely to become law. Both congressmen, lobbyists, and law enforcement all appear to agree that the signing of the SAFE Banking Act would be a boon to the economy and make sense in the current climate of cannabis reform. 

While banks will not be able to lend to any cannabis business in the country, they will be allowed to extend credit to all those operating legally. The act will prevent the federal government from taking any action against lenders who lend to businesses that abide by state laws. 

Chairman of the Senate Banking Committee Senator Mark Crapo has stated that he is personally opposed to the legalization of marijuana but has indicated that he wants to get the bill fleshed out, ready for the Senate, preferably by the end of the year. 

Questions, however, remain, over the extent of GOP support. While House representatives might have lent their support to the bill for positive publicity, their votes didn’t carry any real weight. The real test will be in the Senate where every vote counts, and the bill can finally become law. The way the Republicans vote on that occasion will ultimately decide its fate. 

Thus far, Republican attendance at the hearings for the bill has been lackluster. In the July Banking panel meeting this year, only one of five Republican co-sponsors attended. It’s not clear at this time, therefore, how seriously the GOP takes the proposals of the House. While the bill is pro-business, it’s also pro-cannabis, putting many lawmakers in an uneasy position. 

The other issue is the role that President Trump might end up playing in the passage of the bill. So far, the president hasn’t addressed the problem, but many speculate that he might play a supporting role. 

Many commentators see GOP support for the bill as a kind of legal inevitability. The banks are currently in legal limbo at the moment, unable to lend to businesses that are legally operating in some parts of the United States. The new law, if nothing else, will end the confusion and the bizarre current state of legal affairs. Before long, credit markets could open up for cannabis businesses across Nevada. 

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