With the economy in turmoil due to COVID-19, the issue of New Jersey cannabis banking has become even more relevant since the congressional passage of the SAFE Banking Act would boost the economy.
A bipartisan coalition of bankers and state officials favors protecting banks from penalties for doing business with cannabis companies to stimulate the economy.
In fact, language nearly identical to the SAFE Banking Act was included in a second major stimulus proposed by the House Democrats. They want to address unemployment which has skyrocketed to a level not seen since the Great Depression.
However, Senate Republicans have balked at the measure.
Senate Major Leader Mitch McConnell (R-KY) is enamored with hemp, which grows well in his native Kentucky. But he remains an ardent foe of marijuana. The federal government defines “marijuana” as cannabis with more than 0.3 percent THC. The terms are used to avoid confusion.
“I haven’t heard an intelligent objection to the Act itself, just moral puritanical prohibition language,” said Charles Gormally, Co-Chair of the Cannabis Law Practice at the Brach Eichler law firm.
Gormally said even U.S. Treasury Secretary Steve Mnuchin is tuned in and sees the loss of capital due to prohibitions against cannabis banking which has led to such an inefficient market.
Unfortunately, cannabis banking is not likely to pass until Democrats control the Senate again.
Lack of Cannabis Banking Hindering Progress
Because cannabis is a prohibited drug, it makes banks are very reluctant to work with the industry. Many agree that it is hindering the development of the industry to its full potential.
“For a business that has the potential to be the largest business ever seen or built in this country, we’re overdue,” Gormally said about the SAFE Act.
“You can have the best location, the best idea, personnel, plan. But it’s not bankable, and that’s a tremendous handicap in any business,” said Gormally.
Gormally said that the lack of cannabis banking is being felt here especially.
New Jersey seeks to catch up with the rest of the country on cannabis reform and developing an industry after eight years of a prohibitionist Governor.
“We’re poised on the edge of a phenomenally large market. I hope we don’t blow our chance in New Jersey,” Gormally said.
Finding Capital and Operating
He added that the cannabis business can find a couple of banks that will accept their money. However, they are charged exorbitant fees due to the risk. The lack of proper cannabis banking, including access to capital, is also hindering the development of cannabis products.
Gormally explained that if you want to start a business and find a location, customers, and the knowledge to run, you will still have money issues. You can’t take a business plan to a bank, show a track record, start a business line of credit, or get a mortgage for a facility. They say you have no credit and can’t get a loan.
If you lie and they find out, the loan documents are void. You’re in default and have committed fraud.
Technically the whole industry is in violation of the law against Organized Crime known as RICO. Gangsters on the Sopranos lived in fear of that. The SAFE Banking Act would address that.
Even if you find the capital to launch a business, things are difficult.
“If you have a lot of money behind you, you can open a successful business. Then all your transactions have to be in cash. This applies to many purely hemp and CBD businesses as well.
Cash-strapped states and municipalities need the tax revenue from cannabis companies to help their budgets, Gormally noted.
Gormally is sensitive to the issue of social justice when it comes to cannabis reform in general.
“It’s very important to essentially free everyone imprisoned for cannabis,” Gormally said. “I don’t think the industry is ever going to feel good about until it comes to grips with that.”