LOS ANGELES — The Biden administration’s move to reclassify marijuana as a less dangerous but still controlled drug was hailed as a monumental step in national policy reform. But it might do little to solve a long-standing problem in the cannabis industry: a lack of loans, checking accounts and banking services that other companies take for granted.
“As far as financial institutions go, I don’t necessarily think this will have a demonstrable effect” on how they interact with cannabis operators, said Morgan Fox, political director of the National Organization for the Reform of Marijuana Laws, or NORML.
Similarly, a banking trade group expected no change in the legal landscape with the proposed change.
“Any potential government decision to reclassify cannabis will not affect the legal issues surrounding cannabis banking,” said Blair Bernstein, a spokesperson for the American Bankers Association. “Cannabis would still be illegal under federal law, and that’s a line that a lot of people use. banks in this country will not cross the border.”
Most Americans live in states where marijuana is legally available in some form. But there’s an ongoing problem when it comes to banks: Many financial institutions don’t want anything to do with cannabis industry money, fearing it could expose them to legal trouble from the federal government, which still labels marijuana illegal.
That conflict has left many growers and sellers in the fast-growing sector in a legal conundrum in which they are locked out of everyday financial services such as opening a bank account or obtaining a credit card. It has also forced many businesses to operate solely with cash – sometimes in huge amounts – making them ripe targets for crime.
The U.S. Drug Enforcement Administration’s plan would shift marijuana from its current classification as a Schedule I drug, along with heroin and LSD, to a Schedule III drug, along with ketamine and some anabolic steroids. The plan, confirmed to The Associated Press on Tuesday by five people familiar with the matter who spoke on condition of anonymity to discuss the sensitive regulatory overhaul, follows a recommendation from the federal Department of Health and Human Services.
Schedule III drugs are subject to several regulations that allow certain medical uses, as well as federal criminal prosecution of anyone who deals in the drugs without authorization.
The proposal could take months to clear a series of regulatory hurdles in Washington. The election-year push could help stabilize Biden’s shaky popularity, especially among younger voters who tend to have a more welcoming view of marijuana use.
The lack of banking services has created a terrifying ritual for many operators, who are forced to travel with large sums of cash to make tax payments.
Proposals that would allow banks to manage marijuana funds without the risk of federal prosecution have been stalled in Congress for years.
Realignment could make some banks more willing to do business with cannabis companies, said Julie A. Hill, a professor at the University of Alabama School of Law. But even then, they would face costly legal requirements to investigate industry funds — because the federal government labels cannabis illegal, any marijuana-related transaction is considered suspicious, Hill said in an email.
“Cannabis is still an emerging market with a lot of credit risk,” Hill added. Even with a realignment, “cannabis companies can expect that banking services will still be expensive.”
That was echoed by Dotan Y. Melech, CEO of cannabis credit rating agency CTrust, who said: “The reality is that current lending practices are unlikely to change without a better understanding of cannabis risks.”
A Congressional Research Service report last year found that about 675 financial institutions — a fraction of the banking industry — do business with cannabis companies. The nonpartisan agency also noted that “the depth and breadth of financial services that depository institutions provide to marijuana businesses is unclear.”
Adam Goers, senior vice president of multi-state operator The Cannabist Company and chairman of the industry group Coalition for Cannabis Scheduling Reform, called the administration’s proposal a historic step that would open the way for research and much-needed tax changes that would benefit operators.
A perfect companion, he said, would be the latest version of a banking bill pending in Congress, the so-called SAFER Banking Act, which would allow banks to provide services to the cannabis industry in those states where it is legal.
Without the bill, it’s not clear whether more banks will enter the cannabis market, he said.
Morgan Paxhia, co-founder of Poseidon Investment Management, called the rescheduling “a critical step toward federal legalization” that would encourage investment.
“We expect an increase in liquidity as capital enters the market, attracted by the potential for legitimate businesses to flourish,” Paxhia said in a statement.