Congress, Cannabis, and Covid-19 Put Banks in the Weeds.

With the arrival of Covid-19, there’s been quite a bit more discussion about marijuana.  Not just its use, not just the trend toward legalization at the state level, but its potential ability to actually help stem the coronavirus tide.

Back in the early fall, Forbes reported that “cannabis may help in severe Covid-19 cases.”  Since the first outbreaks, cannabis consumers have been wondering whether cannabis use will hurt or help. Over the last months, research has been pouring in.  Unfortunately, like lots of research and data interpretation, the available facts seem to point to two very different conclusions:  Yes, it can help and no, it is in fact, a contributory factor.

The main body of research suggesting cannabis might help those with Covid-19 points to cannabis derived chemical, CBD, as a potential treatment during severe cases of Covid-19.  Researchers from the University of Nebraska and the Texas Biomedical Research Institute first flagged the possibility, pointing out that CBD may be helpful for fighting the Covid-19 inflammation that is often fatal. Unfortunately, some research has pointed in the other direction. A recent study conducted by researchers at the University of Western Australia compared cannabis use in the US with Covid-19 infection rates and found that the two were correlated - with cannabis use tied to an increased risk of the disease.

An industry that’s growing like a weed. (Sorry!)

This is a growing industry that’s comprised of an increasing number of businesses; growers/suppliers and retailers, just for a start. How big a business is it? The pot industry, comprised of MRBs or marijuana-related businesses, is a $50-some-odd billion industry. According to Marijuana Business Daily – I kid you not – the economic impact of the marijuana industry is predicted to reach $130 billion by 2024, exceeding the GDP of 9 US states. Currently, the industry employs more American workers than coal.

Where does this leave banks?

Banks, of course, want to stay in the good graces of regulators, shareholders, insurance carriers and the courts. Visit the American Bankers Association website today and read the ABA Positionon cannabis and you’ll see that the financial industry could really use some guidance. The site points out that there are at this moment thirty-three states that have enacted laws that legalized the use and distribution and manufacturing of medical marijuana along with 10 states plus DC, where legalized recreational marijuana is now the law. Here’s the rub; “the possession, distribution or sale of marijuana remains illegal under federal law, which means any contact with money that can be traced back to state marijuana operations could be considered money laundering and expose a bank to significant legal, operational and regulatory risk.”

So, again, where does this leave banks? In a bit of a marijuana induced fog, unfortunately. There is currently a tremendous legal risk for banks serving cannabis industry entities and individuals, “as indirect connections to marijuana revenues are hard, if not impossible, for banks to identify and avoid.” Banks are, as a result, hamstrung by a rift between federal and state laws, making it difficult to balance their desire to serve the financial needs of their local communities with the threat of federal enforcement action.

According to the ABA, “(we) take no position on the moral issues raised by legalizing marijuana, but the growing number of states that allow its sale and use raises practical issues that must be addressed. ABA believes the time has come for Congress and the regulatory agencies to provide greater legal clarity to banks operating in states where marijuana has been legalized for medical or adult use. We look forward to working with policymakers of both parties to find solutions that provide the legal and regulatory certainty banks need to best serve their communities.”

In the meantime, ABA Insurance Services, has created a “Cannabis National Bank” webinar that does a phenomenal job of talking through the issues of serving marijuana-related businesses. I highly recommend it.

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