The US House just voted to pass the marijuana banking reform bill, commonly known as the SAFE Banking Act. This news has been welcomed with great applause by the vast majority of participants in the cannabis industry. If you have been reading our blog posts, you will know that we have been keenly awaiting this announcement as well. Other than the legalization of recreational cannabis that’s happening around the country, this might be the single most significant legislation to pass regarding the cannabis industry. As the US House passes SAFE Banking Act with a substantial majority, what’s next?
What is the SAFE Banking Act?
The US House recently voted in a bipartisan vote (321-101) to move the Secure and Fair Enforcement (SAFE) Banking Act of 2021 onto the US Senate for consideration. This historic vote which saw over one hundred Republics vote with Democrats to see it pass, will finally give legitimate cannabis businesses fair access to financial services that are mainstream in all other industries.
The SAFE Banking Act was co-sponsored by Rep. Ed Perlmutter (D) of Colorado, who, along with others in the House, has been fighting to get it passed since 2019.
“After years of bringing up this issue, I’m thrilled to see overwhelming support for this bipartisan, commonsense legislation in the US House once again. I feel optimistic about the path forward for the SAFE Banking Act and, more broadly, reforms to our federal cannabis laws,” Perlmutter said in a statement.
The SAFE Banking Act will make it easier for financial institutions to service legal cannabis businesses without breaking federal law, which prohibits them from providing financial services to any illegal entities. This lack of overt federal guidance on conducting business with cannabis businesses made it difficult for financial institutions to extend standard financial services like credit, bond issues, brokerage services, and many others out of fear of the federal government imposing fines and other penalties on them.
This lack of financial support from banks left many cannabis startups dead on arrival, with only the ones that can generate equity fast enough to cover their burn rates managing to survive. Consequently, many cannabis startups are heavily diluted as the businesses have to keep taking on more investors to stay afloat.
Furthermore, not only did the banks refuse to provide financial services to the cannabis industry but they were also prohibited from providing financial services to service providers of the cannabis industry. This is a double-edged sword for the cannabis industry. It also limits the number of businesses willing to work with them out of fear of being blacklisted by financial institutions, which are essential for business.
What does the SAFE Banking Act mean for the cannabis industry?
In short, the passing of this Act means that the cannabis industry can finally operate on level terms with all the other legitimate industries. Cannabis entrepreneurs have been operating with one arm tied behind their backs. Not only have they been unable to access financial services, but they have also been unable to attract big money investors. Most cannabis stocks are penny stocks for a reason.
So while it is exciting that cannabis businesses are going to be able to access financial services and use leverage, what is even more exciting is that they now have more legitimacy when in front of investors. It is not going to be long before Wall Street starts making significant investments into the industry. It won’t be long before financial institutions have unique structured debt products custom designed for the cannabis industry. Then we will see what the industry can really do and how far it can go.
However, before you all ring up your brokers to make moves, it is worth remembering that the SAFE Banking Act still has to get through the Senate before it can officially become law. While many are optimistic that the Senate will pass it, it is unlikely to pass without any alterations being made. We will keep you posted as the events unfold.
US House Passes SAFE Banking Act with a Substantial Majority
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