This article is excerpted from The SAFE Banking Act: Explained. Download the full white paper here.
The Secure and Fair Enforcement (SAFE) Banking Act is a law that would prevent regulators from penalizing banks simply for servicing legitimate cannabis businesses. In theory, the change would make it easier and safer to do business with the cannabis industry. This wouldn’t just make life more convenient for cannabis business owners, it would serve as a catalyst for development across the entire industry.
If the 2022 SAFE Banking Act or one like it is passed, we expect to see these key movements in the cannabis space.
Overall, expect the cannabis industry to continue growing as news of the SAFE Banking Act develops and watch dedicated cannabis partners step up to hold the industry to higher standards.
– Ross Sloan, SVP Hemp & Cannabis Banking, West Town Bank & Trust
Referral Networks Will Grow
With more ancillary businesses equipped to do more and better business within the cannabis industry, we expect to see growth in the number and quality of partners available to stakeholders. Supporting plant touching and non-plant touching businesses through financial services creates a strong web of referral
networks. This fosters growth at every stage of the industry, from industrial producers finding the right distributors at better prices to retailers selecting better marketing partners to connect with more consumers.
Banks can expect to see new customers, vendors can expect a stronger demand for their services, and cannabis business owners can anticipate wider access to a whole range of services, vendors, and support for their company. At the end of the day, the entire economy of cannabis businesses would grow in both size and strength.
Supply Chain Bottlenecks Could Loosen
Disruptions in the cannabis and hemp supply chains are not necessarily prompted by COVID, rather bottlenecks are exacerbated by current laws, lending practices, and market volatility. Secure, reliable financial services could offer much needed stability to support businesses at every stage of production, but especially to the farmers providing the raw materials that power the rest of the industry.
Many farmers planted hemp crops just a few years ago following the passage of the 2018 Farm Bill to start feeding the growing demand for hemp. The results: too much product and not enough demand from an industry which was slow to gain traction and not yet established enough to weather the fluctuations of supply and demand along the supply chain.
To make matters worse, the current laws prevent business owners from accessing capital through affordable channels. Businesses have a tough time securing the financing needed to get them through tight spots, which limits their abilities to regularly do business with their vendors and suppliers. The
lack of guaranteed business discourages farmers to return to a crop which has already disappointed them.
The SAFE Banking Act of 2022 mitigates risk for banks to lend to hemp and cannabis businesses. Banks may have more flexibility to offer loans to middle of the chain businesses, which could support farmers who need more reassurance to grow more hemp.
Financial Institutions Will Still Face Challenges from Local Governments
Even if cannabis is legalized at a federal level, it doesn’t solve the very real problem of getting local law enforcement on board. Financial institutions still face the risks of their state and local governments putting up barriers to serving cannabis-related businesses, regardless of what happens at the federal level.
Banks would still be exposed to potential risks if they are out of touch with the climate in their area and/or don’t have a program dedicated to understanding the nuances of this constantly evolving industry. What happens if the state enacts their own laws that don’t directly impact banking, but restricts your customers’ ability to make money on their product? What happens if local law enforcement doesn’t know your customer is a compliant company, and seizes their assets?
It will still take time to eliminate all the risk associated with banking cannabis. Unfortunately, this is not something any stakeholder can fully control. We can, however, combat these risks by educating each of our own stakeholders, vocalizing our support of the legal practices in the industry, and engaging in conversations with industry leaders to help break the stigmas associated with legitimate cannabis businesses.
The SAFE Banking Act’s Ripple Effect Will Be Felt Throughout Financial Services
We expect legislation like the SAFE Banking Act to create a ripple throughout the entire financial services industry. Banking is just the beginning. The law already makes stipulations for increased access to loans and insurance, it’s not too farfetched to expect that it also paves the way for more innovation in
payments, leading to a better experience for both a cannabis business’s clients and for the financial institutions who service them.
About West Town Bank & Trust | Our most important goal is to understand what’s important to you, what’s getting in your way, and what you hope to achieve, so we can help you get there. Since 1922, we’ve been creating long-lasting relationships with our customers based on old-fashioned values and future-thinking ideas. Whether solutions come from surprisingly innovative tools or trusted products you’re familiar with, our single-focused purpose is your financial well-being
About the Author: Ross Sloan is SVP of Hemp Banking for West Town Bank & Trust. He is a graduate of Davidson College, with a B.A. in History. Ross’ 36-year banking career has included roles in retail banking, business banking, commercial banking and middle market banking. In his current role, he works with others at the bank to serve hemp related businesses throughout the U.S. by providing deposit accounts, merchant services and other financial services solutions. Ross’ volunteer work includes serving as a member of the Cannabis Financial Institutions Group of the National Cannabis Roundtable, president-elect of the Asheville Rotary Club and as a board member of the Montreat Conference Center. Ross and his wife, Martha, live in the Asheville area with their brown dog, Scout.