Marijuana companies have struggled to get financial support in the US. Currently, marijuana is still classified as an illegal drug under federal law. As a result, banks and financial corporations hesitate to provide any loans or financial support. The firms are concerned about any action the federal government might take against them. Recently, the House approved the SAFE Banking Act to make the process of getting financial support easier for cannabis companies. However, the act still requires approval in the Senate. The U.S. Treasury said that it can’t the marijuana banking problem.
U.S. Treasury can’t fix marijuana banking problem
The cannabis industry’s struggle isn’t a secret. Many smaller cannabis companies are heading towards bankruptcy. Meanwhile, the more prominent players are adopting cost-cutting strategies, scaling down operations, and cutting their workforce to survive and keep their business afloat. For a new industry like cannabis, surviving just on cash isn’t possible. As the sector evolves, companies need to expand to meet consumers’ demands. The companies need funding in order to expand. However, US federal law prohibits banks and financial corporations from supporting marijuana companies.
Recently, a Marijuana Moment article discussed how the U.S. Treasury said that it can’t provide a solution to the marijuana banking problem.
At a recent hearing, Representative Charlie Crist told U.S. Treasury Secretary Steven Mnuchin to use his authority to protect banks that support the cannabis business. However, Mnuchin said that he doesn’t have the power to provide that kind of support. He said, “We have limited abilities [under existing guidance] to direct this issue.” Instead, he said that it’s Congress’ responsibility to deal with the issue. Despite being a prohibition, some banks support marijuana businesses. The banks would need help so that the federal law doesn’t penalize them. This is one of the reasons why the banking bill was issued.
Some representatives also asked the U.S. Treasury to keep Congress in the loop when it involves any marijuana businesses under federal prohibition. However, Mnuchin stated that the ongoing problems between state and federal laws are already creating problems for the IRS. Since most marijuana businesses don’t have any financial services available to them, the IRS is responsible for storing cash deposits from these companies. As a result, Mnuchin wants Congress to look into this matter as well.
House passed the banking marijuana bill, but it isn’t enough!
In September 2019, the House successfully passed the SAFE (Secure and Fair Enforcement) Banking Act of 2019 with 321 to 103 votes in favor of the bill. The bill could solve many of the issues that lawmakers discussed with Mnuchin. First, cash transactions for legal cannabis businesses will reduce. Transparency in the marijuana business could help reduce drug cartel activity. Banks providing financial support and services to legitimate marijuana businesses can’t be penalized by federal law.
However, the problem is that many marijuana bills pass the House and get stuck in the Senate. Republicans oppose marijuana legalization. As a result, the chances look low for a bill to get approval in the Senate, which is more Republican-controlled. Also, the Trump administration thinks that marijuana should still be illegal.
However, some banks still support cannabis businesses. The federal law isn’t penalizing these banks because hemp is legal under the 2018 Farm Bill. As a result, helping hemp companies can’t be questioned.
Cannabis companies’ dilemma
Imagine cannabis companies’ dilemma. They struggle to get financial support despite running a legal business. Losing out on revenue to the illicit market is painful to watch. The financial struggle is real. Federal prohibition forces some US cannabis companies to seek bankruptcy protection from Canada.
Aurora Cannabis (NYSE:ACB) and Canopy Growth (NYSE:CGC)(TSE:WEED) face financial struggles. They have fewer legal stores, which impacts revenue growth. Recently, Canopy Growth announced that it closed two of its cultivation facilities and reduced its workforce. MedMen (OTCMKTS:MMNFF) also cut its workforce, paid its suppliers with cash, and saw its CEO step down amid the cash crunch. MedMen closed with a loss of 13.2% on March 6, while Canopy Growth and Aurora Cannabis stock closed with losses of 9.0% and 10.6%.
Without support from the Trump administration or the U.S. Treasury, how will the banking bill see daylight? The coronavirus outbreak is another challenge for the marijuana industry. Read Will Coronavirus Target the Marijuana Industry Next? to learn more.
Despite the problems, US states can make their own cannabis-related decisions. As a result, the states have moved ahead with their stance on marijuana legalization.
Stay with us for the latest updates on the cannabis sector.