“It’s important to me that we get this right and truly help historically excluded business owners not just in theory, but in reality.”
By Dasheeda Dawson, Cannabis Regulators of Color Coalition
Last month, congressional leaders eliminated cannabis banking provisions that had been attached to a large-scale defense bill by the House.
Supporters of the Secure and Fair Enforcement (SAFE) Banking Act in its current form were upset, with many insisting that SAFE would close the gap between the predominantly white-owned multistate operators (MSOs) and small minority entrepreneurs who lack access to private equity. They also argue that it would help prevent robberies of small cannabis businesses.
However, the language of the bill as currently drafted paints a different reality and stands to give more power to MSOs with little evidence it will deter crime. The good news is that with a new year and new congressional session, we can work together to push for a fresh start in Congress that makes the bill more equitable, enhances safety and positions disadvantaged small businesses to truly benefit from expanded banking services.
As a Black woman and chair of Cannabis Regulators of Color Coalition, it’s important to me that we get this right and truly help historically excluded business owners not just in theory, but in reality.
On the surface, it would seem that creating access to commercial lending, as SAFE promises to do, would benefit emerging Black, Indigenous and people of color (BIPOC)-owned businesses. After all, many have little-to-no access to private equity funding while MSOs are generally well-positioned to obtain capital. The rationale is that equity-designated businesses would gain access to funding under SAFE, serving to help level the playing field. But this superficial analysis does not examine the position banks are most likely to adopt, and whether banking rules will actually enable disadvantaged businesses to successfully compete alongside MSOs.
Under SAFE, marijuana would remain a Schedule I substance. The bill does not change the existing laws, instead creating a “safe harbor” for banks willing to work with marijuana businesses, despite the latter operating in clear violation of the Controlled Substances Act (CSA).
This distinction is important because the armies of lawyers employed by commercial lending institutions are fastidious about the amount of risk they are willing to accept in order to protect the entirety of the lending institution. As long as marijuana remains federally illegal and potential risks exist for banks working with businesses violating the CSA, the decision-makers at many banks will remain adverse to lending to all but the most well-established, “credit-worthy” marijuana businesses (in other words, the MSOs).
A commercial lending expert recently outlined the decision-making process that many banks would take under SAFE. Only cannabis businesses that meet steep requirements would likely get commercial loans under the bill. Judging by this criteria, most diversely-owned businesses are unlikely to meet those requirements. In 2021, the Federal Reserve released a report indicating that Black and Latino-owned non-cannabis businesses are half as likely to be approved for a loan compared to white-owned businesses. Black and Latino business owners with low risk (i.e. good credit) received approvals at the same rate as white business owners with medium-to-high risk (i.e. fair credit).
It’s fair to assume that increased access to banking services and capital for the cannabis industry will most likely not translate into the critical funding necessary for social equity operators to compete.
It’s undeniably tragic when businesses are robbed. Both merchandise and cash-on-hand appear to make cannabis businesses more vulnerable. However, there is little evidence that the ability to accept credit or debit card purchases deters crime. Notably, Apple and jewelry stores have been targets in a string of recent high-profile robberies despite having banking access and credit or debit card processing. Multiple studies have also shown that licensed marijuana businesses do not increase crime, making it clear that, in general, these businesses are not more likely to be targets of robberies merely because of the lack of banking or merchant processing.
Perhaps for some cannabis leaders or elected officials, the trade-off for transactional checking accounts with minimal fees for minority and women-owned businesses while granting access to eight-figure commercial loans to predominantly white, male-owned MSOs seems worthwhile. However, based on my experience at Fortune 100 corporations and now as a cannabis regulator, it is clear that if all of the MSOs are supercharged with additional banking services, including commercial lending resources, this exponential capital increase could drive small operators out of the industry.
Being forced to compete against MSOs that realize even greater competitive advantages under the current iteration of SAFE would be more devastating to the individual business and the community of entrepreneurs that social equity initiatives are intended to support.
By comparison, the Marijuana Opportunity Reinvestment and Expungement (MORE) Act would remove marijuana from the CSA, ending federal criminalization once and for all. That means banks could no longer be contentious about the cannabis risk-tolerance question.
However, in lieu of the supposed all-or-nothing approach, advocates should be aggressively pushing for improvements to ensure that historically excluded businesses are better able to obtain commercial loans under a safe harbor scenario. That starts with protections for Community Financial Depository Institutions (CFDIs) and Minority Depository Institutions (MDIs) as well as provisions to prevent discriminatory lending practices and incentivize loan availability for disadvantaged cannabis businesses.
There’s a significant chance that if the SAFE Banking Act is amended to include equitable banking provisions, it would lose much of its Republican support. The fact that Republicans could take over one or both chambers of Congress next year only underscores the need to add social equity to SAFE now while there is still political opportunity. We also must amplify viable solutions at the state and local levels currently addressing the challenges that SAFE is anticipated to resolve. This includes using cannabis tax revenue to provide low or no-cost capital as well as much-needed emergency relief to struggling cannabis businesses.
The removal of SAFE from the the National Defense Authorization Act gives us the opportunity to reset the discussion and to make this bill truly beneficial for those who need access to capital the most. While many criticized the efforts to hold the line in New York for equity-centered cannabis legalization, passage of the MRTA last year, one of the country’s most equitable approaches to legal cannabis, has rendered those criticisms a distant memory.
Here’s to SAFE banking undergoing a similar evolution in this new year.
Dasheeda Dawson serves as chair of the Cannabis Regulators of Color Coalition and is Portland, Oregon’s cannabis program supervisor overseeing all regulatory, licensing, compliance and equity initiatives for the city’s legal industry.