Federal legislation could remove a big barrier for fledgling cannabis businesses by allowing the nation’s banks to legally serve the industry.
Even as more than 30 states have legalized medical marijuana and 10 now allow its recreational use — including Michigan, on both counts — marijuana remains illegal under federal law.
That status essentially leaves the industry off limits for bankers. Bipartisan legislation in Congress would change that by allowing banks in states where marijuana is legal to do business with related companies without fear of facing penalties.
The legislation, if enacted by Congress, would provide the clarity that bankers say can only come at the federal level.
“What I’m looking for is clarity on how we’re going to solve this problem with the states legalizing it and the federal government saying it’s illegal. We’re kind of caught in the middle of that,” Fifth Third Bancorp Inc. Chairman, President and CEO Greg Carmichael told MiBiz in a recent interview. “Our elected officials have to solve that. It creates a lot of complexity for us and it creates a lot of challenges if you think of all of the entities that support that industry or can support that industry. We want clarity here.”
Carmichael emphasized that neither he nor Fifth Third hold a view of the proposed SAFE Banking Act, which would prevent federal regulators from penalizing financial institutions that serve marijuana-related businesses in states where it’s legal.
“We’re not opining on it, we’re not lobbying. What we are going to do is adhere to whatever the laws our elected officials agree to from a federal perspective,” he said.
Proposed in March and passed by the House Financial Services Committee on a bipartisan vote, the SAFE Banking Act has the support of industry advocates in Washington, D.C. The American Bankers Association, Independent Community Bankers of America, and the Credit Union National Association all back the legislation.
Most of the nation’s attorneys general also support the SAFE Banking Act, including Michigan Attorney General Dana Nessel. She was among 39 attorneys general who signed a May 8 letter to congressional leaders that urges Congress, where states and territories have legalized marijuana, “to bring that commerce into the banking system.”
“All legal and legitimate businesses should have a safe place to put their revenue and not have to rely on under-the-floorboard safes to store their legally earned money,” Nessel said. “Michigan expanding its market to include legal recreational sales of marijuana this year compels us to join this effort to ensure we protect Michigan businesses from becoming unnecessary targets of bad actors, keeping everyone safe in the process.”
The letter from the National Association of Attorneys General cited one estimate that projects legal marijuana sales in the U.S. to grow to more than $25 billion by 2025, up from $8.3 billion in 2017.
“Yet those revenues are handled outside of the regulated banking system. Businesses are forced to operate on a cash basis,” according to the letter. “The resulting grey market makes it more difficult to track revenues for taxation and regulatory compliance purposes, contributes to a public safety threat as cash-intensive businesses are often targets for criminal activity, and prevents proper tracking of billions in finances across the nation.”
Two weeks ago, a group of state lawmakers joined the chorus calling for passage of the federal legislation. State Reps. Yousef Rabhi, an Ann Arbor Democrat, and Jim Lilley, a Republican from the Holland area, introduced a resolution urging Congress to pass the SAFE Banking Act. The resolution passed the state House last week on a 45-15 vote. Sen. Curtis Hertel Jr., a Democrat from East Lansing, introduced a concurrent resolution in the state Senate.
The Michigan Bankers Association also has voiced support for the bill.
In Michigan, the East Lansing-based Anderson Economic Group LLC estimated last fall that the marijuana industry could grow to $1.4 billion in the years ahead.
The analysis, prepared just prior to a November vote to legalize recreational marijuana in the state, estimated that recreational marijuana use would generate $492 million to $640 million in sales in the first year. The industry would grow to sales of $767 million to $1.4 billion annually “once the market reaches maturity,” according to the Anderson Economic Group report that estimated low- and high-growth scenarios for the industry.
When revenue from the sale of currently legal medical marijuana is added in, the industry could reach $1.6 billion to $2.2 billion in sales. The estimate includes a decline in medical marijuana sales with the legalization of recreational use, according to the analysis.
Josh Hovey, communications director for the Michigan Cannabis Industry Association, hopes the SAFE Banking Act will gain the support needed to pass the House and the Senate. Banks in the state want to begin banking marijuana-related businesses, but are wary of the potential penalties they could face under existing federal law.
“Most banks want to be able to do business with the cannabis industry. It’s just the compliance issue and the risks are more than any of them are willing to take,” Hovey said. “From our perspective, businesses working in the cannabis industry should be treated just like any other, and that includes banks, credit unions and other services. Anything a legal company has access to, we should have access to. We want the same rights as other businesses.”
Passage of the SAFE Banking Act also could bring financial service providers into the industry beyond banks and credit unions, Hovey said, citing companies that process credit card transactions or accountants and insurance carriers.
“It opens the market opportunity for the entire industry,” Hovey said. “It really is time for Congress to take its head out of the sand and address this issue head on.”
The SAFE Banking Act has the support of 178 co-sponsors in the U.S. House: 158 Democrats and 20 Republicans, including U.S. Rep. Fred Upton of St. Joseph.
At Cincinnati, Ohio-based Fifth Third, a market leader in West Michigan, Carmichael said the bank would provide service to cannabis-related businesses if Congress were to enact the SAFE Banking Act and clarify the issue.
“If these are legal businesses, we’ll bank those businesses,” he said. “As long as they’re legal and law-abiding companies, we’ll support their requests to service them.”
One indicator of how quickly times are changing and driving business opportunity in the cannabis industry comes via Allegan-based Perrigo Co. plc’s decision to enter the market for cannabis-infused products.
As part of a sweeping plan to transform the company, Perrigo this month said it was “actively pursuing” a role in the market for CBD, or cannabidiol, from cannabis plants. Perrigo is in “active discussions with several leading CBD companies to identify the best partner to create high-quality, reliable CBD products” and enter a market that’s growing 50 percent annually and is expected to reach $2 billion by 2020.
In a presentation to investors on the broader transformation plan, Perrigo cited recent announcements by major national retailers CVS Pharmacy, Walgreens and Rite Aid about their intent to begin selling CBD products. All are Perrigo clients for over-the-counter store-brand medications.
Getting into the CBD market meets consumer demand and “aligns very well with Perrigo’s strengths,” said Jim Dillard, executive vice president and chief scientific officer at Perrigo. Perrigo can offer CBD products under its own brand or as store brands, he said.
“We want to be the high quality, natural, respected and trusted name of CBD on the market, and we know how to do it,” Dillard said. “And it doesn’t hurt that the fact is that environment seems to be getting a little bit better. We have our major retailers (and) we have some international retailers that have now said, ‘We’re willing to start taking CBD products.’ Now it’s time for Perrigo to do it in a Perrigo way.”
MiBiz finance news coverage is supported by Chemical Bank, the largest banking company headquartered and operating branch offices in Michigan. Visit chemicalbank.com for information. (This sponsorship is advertising. It has no effect on editorial consideration in MiBiz.)