State-licensed marijuana businesses and their suppliers have difficulty getting access to basic financial services because federal law discourages banks from providing these services. This is counter to the explicit intention of key federal banking regulators, who have developed guidance for banks and voiced support for financial institutions to be able to serve marijuana businesses.
Compliance with these guidelines is time-consuming and costly for financial institutions to complete, discouraging many banks from servicing marijuana-related businesses as compliance costs threaten to outweigh potential revenues. Frustrated with this scenario, policymakers at the state level have sought to facilitate financial services for the marijuana industry through proposals to create entirely new financial institutions. Those attempts have all faced major obstacles, such as the Federal Reserve’s refusal to grant these entities a master account to participate in the interbank payment portals it administers. New financial institutions chartered to service marijuana businesses may also have difficulty acquiring federal deposit insurance.
Excluding marijuana-related businesses from basic financial services creates significant downsides. It forces marijuana businesses to transact mainly in cash, and to store and transport large volumes of physical cash. As a result, the potential for robbery risks public safety. Many marijuana companies also remit tax payments in cash, which exposes government employees to similar risks.
Beyond these direct risks to physical safety, cash-intensive businesses are difficult to audit for compliance or tax purposes because there are no bank records to review. Thus, denying marijuana-related businesses the legitimate financial services available to other businesses prevents oversight, facilitates illegal sales, and may allow these businesses to conceal tax liabilities. These effects directly contravene three explicit goals of legalization: generating new tax revenue, discouraging the black market, and managing access to marijuana products.
Congress can ameliorate these problems by passing legislation to allow marijuana businesses to access the banking system like any other business. Alternatively, states and private entrepreneurs can facilitate financial services for the marijuana industry. Chiefly, states can ease the reporting requirements imposed on existing financial institutions by sharing data on licensees and individual marijuana transactions with financial institutions through a data-sharing portal. Likewise, private entrepreneurs can design a cryptocurrency.based solution to offer a compliant alternative to marijuana businesses.