For the third fiscal quarter in a row, the number of financial institutions reporting that they service state-legal marijuana businesses has declined, new federal data shows.
As of September 30, there were 677 banks and credit unions that filed reports saying they were working with cannabis clients. That’s down from 695 in the last fiscal quarter ending in June and 711 for the quarter preceding that, according to a report published by the Financial Crimes Enforcement Network (FinCEN) late last week.
But the reasoning behind the trend appears to be multifaceted and not necessarily a reflection of an increasing unwillingness for banks to take on the marijuana industry.
One of the most significant factors is related to a change in Suspicious Activity Report (SAR) requirements for hemp firms. FinCEN, which is part of the Treasury Department, stopped including hemp-only businesses in their quarterly reports since the crop was federally legalized under the 2018 Farm Bill—which accounts for at least part of the dip as compared to prior figures that counted hemp-focused accounts.
The federal agency also said in its latest report that the “COVID-19 pandemic may be adding to this apparent decline for two reasons.”
Some marijuana-related businesses “have likely been closed during this time period due to government imposed Phase 1 quarantine restrictions,” FinCEN said, adding that the pandemic may have also led to staffing shortages among depository institutions, leaving fewer resources to process SARs.
That said, most states allowed cannabis companies to continue to operate as essential services during the pandemic, and states like Illinois continue to see record-breaking sales month-over-month.
Under FinCEN guidance issued by the Obama administration in 2014 that remains in effect, banks and credit unions are required to submit SARs if they elect to provide financial services to marijuana businesses. In the years since, the number of depositories taking on marijuana clients has gradually increased—until this more recent downward trend.
“Short-term declines in the number of depository institutions actively providing banking services to marijuana-related businesses (MRBs) may be explained by filers exceeding the 90 day follow-on Suspicious Activity Report (SAR) filing requirement,” FinCEN said. “Several filers take 180 days or more to file a continuing activity report. After 90 days, a depository institution is no longer counted as providing banking services until a new guidance-related SAR is received.”
As of the end of last quarter, there were 502 banks and 175 credit unions reporting active marijuana clients.
But while fewer banks and credit unions seem to be working with the cannabis market, that could change dramatically if congressional legislation to protect those institutions from being penalized by federal regulators is approved. And the chances of that happening are improving.
The House has passed the Secure and Fair Enforcement (SAFE) Banking Act three times over the past year—first as a standalone bill and then twice as part of COVID-19 relief legislation. Meanwhile, even if Republicans maintain control of the Senate—which has under its current leadership refused to take up cannabis reform—the would-be GOP chair of the Banking Committee recently indicated his panel would advance the proposal.
Senate Minority Leader Chuck Schumer (D-NY) also filed his own COVID-19 bill last month that contained the marijuana banking language, but that has not advanced.
When the House approved its coronavirus legislation with the SAFE Banking Act attached, it attracted controversy, with multiple Republican lawmakers and White House officials criticizing its inclusion and arguing that it is not germane to the issue at hand.
Senate Majority Leader Mitch McConnell (R-KY) in particular has been a vocal opponent of the measure, though he’s largely focused his criticism on certain provisions of the SAFE Banking Act that require industry diversity reporting.
Democratic leaders in both chambers, however, have made clear that they’re willing to keep up the fight, and the House even highlighted the diversity component in a summary of its legislation. House Speaker Nancy Pelosi (D-CA) said in July that she agrees that the banking measure is an appropriate component of the bill.
Also in July, bipartisan treasurers from 15 states and one territory sent a letter to congressional leadership, urging the inclusion of the SAFE Banking Act in any COVID-19 legislation that’s sent to the president’s desk. Following GOP attacks on the House proposal, a group of Democratic state treasurers renewed that call.