One area of certainty in the 2020 election is the momentum for legalizing cannabis, as a string of ballot box victories makes it harder for banks to avoid working with dispensaries and other legal marijuana businesses.
Five states — Arizona, Mississippi, Montana, New Jersey and South Dakota — passed some form of legalization, adding an additional $9 billion in potential revenue to an industry that’s already rapidly expanding. In addition, Oregon decriminalized small amounts of “hard” drugs such as cocaine, heroin and methamphetamine, suggesting political support for legalizing more controlled substances, at least in one blue state.
While payment companies probably won’t be lining up to provide technology for heroin immediately, cannabis clearly has momentum and thus far has been one of the
But until the U.S. starts to resemble Canada — where the likes of
"State-legal cannabis had a great night last night," said Dustin Eide, CEO of
The revenue makes weed attractive. The legal and recreational
Regardless of the outcome of the congressional and presidential elections, the size of that market will be hard for the new Congress to ignore. Among Tuesday’s declared winners in the
“Despite state-level changes, federally it remains as illegal as ever and banks technically shouldn’t be involved in these businesses at all,” said Gilles Ubaghs, a senior analyst at Aite Group, adding there are workarounds such as the Cole Memorandum, which advised against prosecution unless the business is breaking a series of laws.
The Financial Crimes Enforcement Network has also provided guidance that supports banking, but with close monitoring. “In practice, what this has meant is banking legal cannabis requires a lot of compliance considerations — and most banks which cross state borders have stayed away, as that gets messy,” Ubaghs said.
There is legislation in Congress, introduced in 2019 and tied to California Senator and Democratic vice presidential candidate Kamala Harris, to
But as legalization progresses slowly in Congress, more states are softening cannabis laws.
The five states that voted to legalize weed on Tuesday also differed in what they allowed. Arizona voted to allow recreational use with a tax, Mississippi will allow medicinal marijuana, and Montana, New Jersey and South Dakota will allow recreational use.
For financial services and payment companies, that adds a regulatory hurdle but does not necessarily make the industry less attractive. What’s still complicated is the lack of a federal law, creating complications for firms that sell across state lines or wish to process e-commerce transactions.
“The pressure on Congress to regularize banking for the cannabis industry is now being felt across the country,” said Steven Hawkins, executive director of the Marijuana Policy Project. “One-third of the national population now lives in jurisdictions that have fully [medicinal and recreational] legalized cannabis.”
The legal recognition of cannabis creates political cover for financial institutions and payment companies, as happened in Canada.
“Once Visa and Mastercard are in, a lot of these cannabis payment fintechs will have to pivot pretty quickly,” Ubaghs said.
