Cannabis Lending Levels Off, US Treasury Report Suggests
American financial institutions could be waiting for the U.S. Senate to pass its version of the Secure and Fair Enforcement (SAFE) Banking Act of 2019 before offering services to more cannabis businesses, recent federal data indicates.
According to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury that is tasked with analyzing information about financial transactions within the marijuana industry, the number of banks and credit unions that work with cannabis clients flattened during the fourth quarter of the 2019 fiscal year.
There were 723 Suspicious Activity Reports (SARs) filed with FinCEN for the three-month period ending September 30, 2019 (563 banks and 160 credit unions), just a 1% increase from the previous quarter.
Nevertheless, the 723 reports filed last quarter represents a nearly 50% increase from the comparable quarter in 2018 -- FinCEN counted a total of 486 SARs during Q4 of 2018. Over the last 12 months, the number of SARs submitted to the bureau sharply increased as financial institutions started working with more marijuana related businesses (MRBs) and as support for the SAFE Banking Act grew in Washington D.C.
However, passage of the Senate’s version of the SAFE Banking Act is still uncertain, especially as members of Congress focus much of their attention on a presidential impeachment probe.
The latest SAR statistics could signal that banks are pumping the brakes on lending to MRBs until federal protections for financial institutions that do business in the cannabis space are enacted.
American Bankers Association president and CEO Rob Nichols applauded the House’s passage of the SAFE Banking Act in September, saying that the bill would “help banks meet the needs of their communities."
"Allowing lawful cannabis companies to access commercial banking services and end their reliance on cash will greatly improve public safety, increase transparency, and promote regulatory compliance,” he said.
At the time, Nichols said the group would also begin ramping up its lobbying efforts in the Senate in a bid to help pass the measure.
It’s not clear when the Senate will take up the SAFE Banking Act, but Banking Committee chairman Mike Crapo has said a vote could happen before the end of the year. If the Senate does advance the measure, banks would have more confidence backing cannabis companies and the number of SAR filings could once again begin to rise.
Regardless of the bill’s outcome in Congress, cannabis will remain classified as a Schedule I drug under the Controlled Substances Act, and many financial institutions could still be deterred from entering the cannabis space as a result.
According to the FinCEN report, over 100,000 SARs have been submitted since 2014. Roughly 75 percent of those filers were logged in the “Marijuana Limited” category, which means the financial institutions performing due diligence did not identify any red flags that would cause the MRB to not be in compliance with respective state regulations.
The remaining filers were classified in the "marijuana priority" or "marijuana termination" groups. The latter indicates that the financial institution terminated its relationship with an MRB because it raised one or more red flags. Meanwhile, marijuana businesses with a "priority" designation may not be wholly compliant, but banking insitutions have provided services while they continue investigation.