SAFE Banking in Stimulus Could Put Cannabis Industry on Steroids

By | May 14, 2020

A big and long-awaited boost for cannabis – and those who offer financial products to cannabis businesses – now in the hands of Congress may not only help usher the industry through the coming pandemic-ridden economic slump, it could have an impact akin to putting the sector on steroids.

The leadership of the U.S. House has included wording from the SAFE Banking Act in the latest proposed coronavirus economic relief package. A House vote on the COVID-19 package, a relief bill with a potential $3 trillion price tag that is being met with considerable political headwind, is expected as early as Friday.

The proposed Health and Economic Recovery Omnibus Emergency Solutions Act, or the HEROES Act, includes more stimulus checks, moratoriums on evictions, pandemic pay for essential workers, and SAFE Banking provisions. The SAFE Banking bill had bipartisan momentum in the House until it stalled in committee last fall.

If the SAFE Banking language remains the relief bill, and that bill is passed, it will pave the way for several large commercial carriers to get right into the cannabis market, as well as reinvigorate reinsurance interest, enable much-needed banking services, and bring in more capital, said Ian Stewart, a partner in Wilson Elser Moskowitz Edelman & Dicker LLP.

“If it stays in there, it will put the cannabis industry on steroids,” Stewart said.

In conversations he says he’s had with executives and board members at publicly traded carriers, Stewart has heard that the big issue with getting into the business is that cannabis continues to be considered a controlled substance at the federal level.

“They want to avoid their own D&O problems,” Stewart said. “Within weeks of SAFE Banking passing, you’ll see large household-name commercial carriers jumping into cannabis.”

The National Organization for the Reform of Marijuana Laws applauded the inclusion of SAFE Banking, but also encouraged Congress to include separate provisions in the act to enable cannabis businesses to be eligible to receive loans and other types of financial assistance via the Small Business Administration, which they were left out of in the last round of relief.

“In the majority of states, these cannabis businesses have been deemed essential during this pandemic. But at the federal level, they are being cast aside by Congress,” NORML Political Director Justin Strekal said in a statement. “Those small cannabis businesses facing tough economic times are essentially being told by Congress to shutter their doors and fire their employees.”

One provisions in the relief bill declares that an insurer, as well as the officers, directors, and employees of that insurer, engaging in business with a lawfully operating cannabis-related business or service provider may not be held liable pursuant to any Federal law or regulation. Another provision states that the proceeds from a transaction involving activities of a cannabis-related business or service provider shall not be considered proceeds from an unlawful activity.

Stephanie Bozzuto, co-founder and president of marketing for Cannabis Connect Insurance Services, believes such provisions would make life much better for many of her clients.

“If banking opens up, that’s huge for the industry,” Bozzuto said.

In one of numerous similar examples she has to offer, Bozzuto described a mom and pop cannabis shop client that was recently paid out on a $20,000 claim for theft and property damages in form of a check which they have nowhere to cash.

The business finally turned to a credit union, and were quoted a minimum monthly fee of $1,000 for banking type services, rising up to $4,500 depending on transaction amounts.

“They cannot afford that,” she said.

Without banking, cannabis business, dispensaries in particular, must do business in cash, keeping large amounts of it in the place of operation, necessitating extra insurance and more premium dollars, Bozzuto said.

“They can spend up to $30,000 a year in covering a million dollars in cash,” she said. “That’s a huge problem.”

In the midst of the COVID-19 pandemic, during which numerous states have declared cannabis businesses as essential, there’s also a health risk to handling cash to be considered.

“You’re forcing essential workers in the cannabis industry to handle cash,” Bozzuto said. “Contracting the virus because of dirty money, that’s a huge risk.”

These are among the reason the National Cannabis Industry Association has been backing the SAFE Banking Act, and why the NCIA and other supporters have higher hopes for its passage now.

“We’ve been long-time supporters of the SAFE Banking act,” said Morgan Fox, the group’s spokesman. “It’s taken on significant public health and safety importance during the age of coronavirus.”

Listen to an extensive interview with Fox on this and other related topic in the latest Insuring Cannabis podcast.

If the Senate does agree to consider the package, Fox believes the SAFE Banking provisions will be – well – relatively safe.

“They’ve got a lot of other things to worry about,” he said. “This doesn’t cost the government any money whatsoever, and this would be a boon for public safety and public health.”

Stewart also has hopes that the provisions are left in the relief package.

However, he more optimistic before the Senate Republican Conference tweeted out a post on Tuesday that characterized a SAFE Banking provision of the new coronavirus relief as a “political-pipe-dream” along with other items in the legislation that it said Speaker Nancy Pelosi had inserted as a way of taking “advantage of a crisis.”

The tweet was later deleted.

“SAFE Banking is still somewhat controversial among some Republicans,” Stewart said, noting that it did have bipartisan support in the House last time it was taken up. “It’s not like it doesn’t have any support in the Senate. I think there’s a realistic chance that it could be in there, but I won’t hold my breath.”

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