The push to stop "
The Brookings Institution's Aaron Klein says that despite cannabis being one of the largest sectors where companies have been denied banking access, the administration's push to end what the White House views as prohibitive regulation hasn't benefitted cannabis firms by design. Klein argues that cannabis continues to be underbanked today due to excessive anti-money laundering compliance hurdles banks face if they choose to extend their services.
"When I talk to small and community banks, the regulatory burdens they describe to me are heavily centered around AML and [know-your-customer]...rarely do small community banks mention stress tests, Basel 3 endgame, supplementary leverage ratios, but frequently you'll find massive compliance costs for AML," Klein said. "Nobody knows for certain if you own a strip mall and you rent to a cannabis store, does the bank have to file SARS on the landlord?.. None of the bank regulators have put out clear and simple guidance."
According to Klein, cannabis banking today may ultimately be more held back by status quo bias than political disfavor.
"One theory is there's a massive desire to bring sanity to the [anti-money laundering] regulatory space by the financial regulators, but there's fear from law enforcement and FinCEN who liked the status quo," Klein said. "Theory two is 'deregulation' is the code used to reduce capital and enhance risk taking for large financial institutions as a way to provide short term juice to the economy, by a president who campaigned on running a faster, hotter economy."
Tyler Beuerlein, chief strategic business development officer at Safe Harbor Financial, a firm that assists cannabis businesses in finding banking solutions, says cannabis companies may not have needed to push for greater banking access. He says cannabis is actually overbanked in some ways.
"The industry is so banked that many of the institutions that are trying to bank it now can't get enough business to justify keeping their programs or the compliance burden, and so they're dropping their programs," Beuerlein said. "So the notion that there's an issue getting banking in the cannabis industry, that sailed years ago; it has gotten so highly competitive that only the banks that have the ability to lend to the industry are the ones that are going to survive."
While cannabis firms have been working with banks for some time. Klein says the high costs built into America's anti–money laundering framework are the biggest hurdles to banking for cannabis companies. Under federal law, cannabis is illegal, so banks that serve state-licensed cannabis firms are required to file onerous reports such as Suspicious Activity Reports and Currency Transaction Reports to service cannabis transactions. These compliance obligations can be costly, requiring hours of staff time and risking regulatory penalties if done incorrectly, making cannabis customers "high-risk" and often unprofitable. As a result, many banks choose to avoid them entirely. Klein has pointed out in congressional
"There's been state licensed cannabis now for a long time, and if anybody wanted to solve the problem, they could have taken many steps to reform the insanity of this current system," Klein said. "If you have a state licensed cannabis business, regulators could treat them like any other business for SARs and CTR filing… the bank regulators have tremendous freedom and flexibility when it comes to a lot of these things but they don't want to touch cannabis with a 10 foot pole."
Financial institutions tolerate, but don't truly serve, the cannabis industry, said Javier Hasse, editor-in-chief of High Times, a publication covering the sector. While he notes a recent
"I think that that is kind of the sense that is most common is that operators feel like they're not prioritized or treated with the same level of attention that most other clients are," Hasse said. "The topic of debanking relates more to arbitrary criteria, but here the reality is banks are actually adhering to something that, while an ongoing debate, is legally valid, which is cannabis is federally illegal. Ultimately, it is not up to banks, but up to Congress…to change the status of cannabis, make it legal or criminalize it or reschedule it to a category that allows banks to service cannabis businesses without the increased risk exposure."
Recent proposals would have addressed specific legal consequences of marijuana's Schedule I status. For example, the SAFE Banking Act, a version of which has passed in the House several times,
"I don't think that was a terribly effective bill…[it] had more lobbying support because it got tied to how Wall Street traders traded cannabis stocks but the SAFE or SAFER acts would have provided relatively little relief," Klein said. "I think the cannabis industry was sold a bill of goods by their lobbyists that those bills would solve their banking problems. Now we'll never know whether that was true or not."
Like Klein, Beuerlein is skeptical whether legislation will ultimately be a silver bullet for cannabis banking. Another reform in train right now, reclassifying cannabis for drug enforcement purposes, could be more impactful, he says.
"The jury's still out on what impact [banking legislation] would really have," Beuerlein said. "Tthe biggest challenge for the industry is still lending capacity and I would argue that rescheduling would impact that more than a SAFE and the reason I say that is because the net cash flows will increase to the point where much more of the industry will qualify for good lending products from banks."
In May 2024, the Biden Justice Department
Shifting marijuana from Schedule I to Schedule III wouldn't automatically align state-legal medical or recreational marijuana with federal law under the Controlled Substances Act of 1970. The primary distinction between its current Schedule I status and Schedule III placement is that Schedule III substances are recognized for medical use and can be legally prescribed, unlike Schedule I substances, which cannot be. That said, for any prescription drug to be legal, it must receive FDA approval, and while the FDA has approved certain cannabis-derived medications, marijuana itself remains unapproved by the agency.
One effect of moving cannabis to Schedule III would be exempting such businesses from Section 280E of the Internal Revenue Code, which presently bars deductions for businesses engaged in trafficking controlled substances under federal or state law. Section 280E applies only to Schedule I and II substances, meaning rescheduling would allow businesses to deduct expenses on federal tax filings. Additionally, the DEA would no longer need to set annual marijuana production quotas, as the CSA doesn't mandate quotas for Schedule III substances.
While Trump's pick for DEA administrator, the recently sworn in Terrance Cole, has called considering the rescheduling proposal one of his "first priorities," he has, however, expressed concerns about cannabis' health effects and at his confirmation hearing stopped short of committing explicitly to changing the schedule.
Some cannabis banking providers like Kevin Hart, CEO of Green Check, which connects operators to banking solutions, expressed measured optimism about the new DEA chief.
"We don't yet know what changes Administrator Cole might make in this new role. Whichever way this goes doesn't change the core reality: the cannabis industry isn't waiting around for Washington to make up its mind; it's already operational, generating billions in revenue, and moving forward in states across the country," Hart said. "If rescheduling happens, it won't be a greenlight, but a gear shift…if history is any guide, we can count on more rules, more reporting, and more pressure to track every dollar tied to legal cannabis sales. This is not a flip-the-switch moment, but a 'get your infrastructure ready' moment."
Jaret Seiberg, a policy analyst with TD Cowen, says the future of cannabis under the administration remains murky, given that Trump's stance towards the issue is unclear.
"We see no signs that the President is trying to influence his cabinet or Congress on cannabis…we do not believe Trump picked advisers because they were against cannabis…he picked MAGA supporters who were tough on immigration and crime," Seiberg wrote in a note. "It is why we see no prospect in the short-term for cannabis legalization [a]nd we believe the door has likely closed on efforts to move cannabis to Schedule 3 on the List of Controlled Substances even though that rescheduling process remains pending."
