“Without improvements to the bill, SAFE will likely widen the gap between the already successful white-owned MSOs and upstart entrepreneurs from the communities that suffered the most under racist marijuana law enforcement.”
By Amber E. Senter
With the reports of Senate Majority Leader Chuck Schumer (D-NY) negotiating with Republicans to pass a package of limited marijuana reforms with banking access as a central focus—known as “SAFE Plus”— before the end of the year, it is worth examining whether the details of the bill actually match the rhetoric of its supporters.
Many in the marijuana and banking industries have touted the SAFE Banking Act as legislation that would promote social equity and minority-owned companies in the marijuana industry. However, upon closer examination, the current form of SAFE highlights the distinct difference between merely creating access and truly establishing equity. In plain language, that means increased access to cannabis banking via SAFE would primarily benefit large, predominantly white-owned marijuana corporations, while Black, Brown and Indigenous-led cannabis companies will likely receive little, if any, benefit because of ongoing and pervasive inequity in banking for these communities.
Currently, due to marijuana being federally criminalized, financial institutions are restricted in the types of services they can offer to this industry. Among the services they can’t provide are commercial loans. This means that marijuana businesses are limited to private investment. Unsurprisingly, hardly any of this private investment flows into Black, Brown and Indigenous entrepreneurs trying to launch or scale a company in the industry. On the rare occasions that minority-owned businesses do receive private funding, it often comes with so many strings that the profits flow to investors rather than those putting in the work to launch the business.
While SAFE would not change the legal status of marijuana, it would create a “safe harbor” for banks to provide commercial loans without being subject to federal penalties. On the surface, it would seem that allowing the banking industry to offer commercial loans to marijuana businesses would be a victory for all cannabis companies. Unfortunately, this superficial analysis fails to take into account the current challenges in banking for historically-excluded entrepreneurs and its impact to a post-SAFE landscape.
First, it’s worth reviewing what commercial lending would look like in a “safe harbor” scenario. Because marijuana would still remain federally illegal, banks would have a much higher level of scrutiny in determining creditworthiness for commercial loans to cannabis businesses. This means that banks will require marijuana businesses seeking commercial loans to have features such as significant cash and asset reserves and a lengthy track record of success in order for the loan to be worth the risk while marijuana remains federally criminalized.
Large multistate operators (MSOs) in the marijuana space will likely meet these criteria, while small and upstart cannabis entrepreneurs, including the overwhelming bulk of minority-owned companies, will have trouble meeting these standards even though they technically will have access to loans.
Unfortunately, it gets worse from here.
The reality is that the banking system, much like the criminal justice system, suffers from significant racial injustice. Historically, banks have been notorious for denying commercial lending to Black, Brown and Indigenous businesses, even outside of the marijuana industry. A 2017 study from the Federal Reserve Banks of Cleveland and Atlanta found that 40 percent of Black-owned businesses were discouraged from completing loan applications compared to just 14 percent of white-owned businesses. The same study found that minority-owned businesses that did get approved received only 40 percent of the amount requested compared to 67 percent for white-owned applicants.
More recently, a 2020 Federal Reserve report found that Black and Brown-owned businesses were approved at half the rate of white-owned businesses. Digging deeper, the study noted that Black and Brown-owned businesses with good credit were approved at about the same rate as white-owned businesses with fair credit.
The combination of marijuana’s federally illegal status and the historic racism in the banking industry show why simply creating access to banking services without banking-specific equity provisions would worsen the gap between the MSOs and minority entrepreneurs.
The good news is that SAFE can be fixed. The Cannabis Regulators of Color Coalition (CRCC) published a report examining the flaws of SAFE and how it could be improved to match the rhetoric of those seeking to pass the bill. Among the recommendations is providing a pool of funds for Minority Deposit Institutions (MDIs) and Community Development Financial Institutions (CDFIs), the types of lenders who traditionally have been most likely to offer commercial loans to minority-owned businesses. Another recommendation is to stipulate that banks must proactively demonstrate non-discriminatory lending practices in order to receive the bill’s “safe harbor” protection.
These common-sense fixes could go a long way to ensuring that SAFE fulfills the promises being made by its supporters. Given that MDIs and CDFIs have strong bipartisan support, this should be an easy addition to the final bill—that is, if the supporters of SAFE rally behind it. But without improvements to the bill, SAFE will likely widen the gap between the already successful white-owned MSOs and upstart entrepreneurs from the communities that suffered the most under racist marijuana law enforcement.
Some have suggested that adding criminal justice reform to the so-called “SAFE Plus” package would remedy its lack of equity provisions. While marijuana-related criminal justice reform is urgently needed, this reform would not remedy, and should not be accepted as a political trade for, the potential harms of inequitable banking via SAFE, especially, considering that the criminal justice reform that some have suggested is limited to a small fund to facilitate state-level expungements. Instead, each component of federal marijuana policy reform must stand on its own as a good policy regardless of whether the issue is criminal justice reform, banking or otherwise.
In order for minority-owned businesses to thrive in the cannabis space, it is simply not enough to pass a bill to create access to commerce. Schumer could easily fix SAFE to be an equitable lending bill but as CRCC said, in its present form, the SAFE Banking Act is anything but a safe bet for Black, Brown and Indigenous marijuana businesses.
Amber E. Senter is the Executive Director of Supernova Women, a 501(c)3 nonprofit organization founded in 2015 by Black and Brown women that works to empower Black and Brown people to become self-sufficient shareholders in the cannabis and natural plant medicine space through education, advocacy and network building