Banking still a major hurdle for cannabis industry

Federal prohibition of marijuana prevents banks from lending to cannabis industry
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BUFFALO, N.Y. (WBEN) – While it could take several months or more than a year for marijuana and cannabis businesses to hit the ground running on sales of the product, there’s another challenge facing the industry that will take federal legislation to resolve.

Working with a bank remains one of the challenges for the industry.

“They are currently unable and unwilling to bank the marijuana industry,” Vishal Rungta, President and CFO of C3 Industries, a company that crafts, brands, and sells cannabis products in several states, said. “Basic services like checking accounts or online banking, ACH payments, all of that is off the table.”

Marijuana remains illegal to possess or sell under federal law and any contact banks have with money that can be traced back to state marijuana operations could technically be considered money laundering. Because most banks are backed by a federally backed agency, there is a serious risk.

“There could be a number of headaches that occur with some of these banking laws which would go a long way to allow the industry to operate correctly,” Rungta said. “Given the size of this industry, I would argue it’s well past due.”

The House of Representatives in 2019 passed the “Secure and Fair Enforcement (SAFE) Banking Act”. The bill prohibits regulators from penalizing a bank for providing services to a “legitimate marijuana or hemp-related business”. The U.S. Senate never took up the bill.

Senator Jeff Markey, a democrat from Oregon, on Tuesday introduced a bill to create similar protections. 29 other senators have cosponsored the legislation, though Senate Majority Leader Chuck Schumer is not among them.

Aleece Burgio, the chair of the New York State Bar Association’s Cannabis Committee and Cannabis Team Leader at Barclay Damon, said there are more banks in the east coast that are starting to take risks.

“What this bill would do is give the guidance necessary for banks to be comfortable in accepting marijuana money so there’s more protections in place for workers,” she said.

There are some banking options for marijuana industries.
Rungta said smaller regional banks and credit unions have offered services, but said there are limited options.

“(The legislation) would also potentially open up bank lending, which I think would be incredibly positive for the industry,” he said.
“Even for a business of our size, you have no ability to get a simple line of credit like you would generally see in a manufacturing-based business…On an individual level, it could be challenging to get approvals for a mortgage if your income comes from the cannabis industry. There can be a number of headaches that occur as a result of the banking laws.”

C3 Industries currently operates in Oregon and Michigan but also has plans to expand into Buffalo once state lawmakers cross the finish line on legalization and regulations are in place. The three co-founders, Vishal, his brother Ankur, and Joel Ruggiero, are all from the Buffalo region.

“The challenge to date has been the regulatory framework in New York,” Rungta said. “It’s currently a very limited licensed environment, with only ten medical licenses in New York State.”