‘Debanking’ comes for cannabis? 👀

DEBANKING
Cannabis industry wants to be part of the ‘debanking’ conversation

What happened: The Senate Finance Committee on Wednesday held a hearing on debanking that was closely watched by the cannabis industry. 

Many Congressional Republicans, and their tech-right acolytes, assert that the Biden Administration “debanked” industries they were politically opposed to, like cryptocurrency. 

While the committee, led by Sen. Tim Scott (R-SC), was ostensibly focused on “federally legal” industries like cryptocurrency and firearms, the cannabis industry was in the room to have its say.

What they’re saying: “We’ve got the cannabis business. Well the last time I checked, the cannabis business is illegal at the federal level. I for one think we should re-examine that,” Sen. Thom Tillis (R-NC) said at the hearing. “But we damn sure shouldn’t do it by passing the Bank Secrecy Act which makes it default legal before we’ve taken any firm position here that provides the industry with clarity.”

Why it matters: The cannabis industry desperately wants the debanking conversation to apply to it.

Despite being legal in 24 states — including populous and economically powerful New York and California — cannabis is still illegal at the federal level. That means it’s a cash-intensive business, as few federally chartered banks are willing to work with the industry. 

Most consumers make their legal cannabis purchases in cash or via debit card, as big credit card companies won’t process the industry. That makes the basics of doing business, like paying vendors, making payroll, and doing taxes, difficult. 

The industry also suffers from an exceptionally high tax rate, thanks to 280E, a vestigial IRS code that prohibits companies that sell Schedule I or II controlled substances from regular business deductions.

The industry response: Kyle Sherman, the CEO of cannabis software firm Flowhub, provided written testimony to the committee and shared the text with me.

“Flowhub itself has been debanked multiple times, and in more than one instance suffered major business disruptions, including nearly missing payroll, as we scrambled to implement temporary stopgap solutions,” Sherman writes. 

You can read Sherman’s full testimony. 

What’s next: The industry has long pushed for legislation like the SAFER Banking Act — a limited cannabis banking bill — which passed the House multiple times but never received a full floor vote in the Senate. 

It hopes that with a new Republican Congress, and a renewed focus on politically-oriented debanking, the bill will get a fresh look. 

Editor’s note: This has been updated to clarify that Sherman’s testimony was written, not live.

-JB

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