The latest data from the federal government shows that in the last fiscal quarter, few financial institutions are servicing firms in the cannabis industry. In fact, the number is said to have declined.
Last week, a report released by the Financial Crimes Enforcement Network showed that 695 credit unions and banks were working with legal marijuana businesses at June’s end. However, in the previous quarter, the number was 710, showing a clear decline.
What then, is behind the apparent decline?
COVID-19 is one of the culprits. The coronavirus pandemic has affected many economies globally, with most businesses either going bankrupt or closing down. It is no wonder that some cannabis firms may have closed down as well during this period, given that most government restrictions require only essential businesses and services to be in operation during the pandemic period.
However, most states which have legalized cannabis are allowing marijuana firms to operate as essential services during this pandemic period, with states such as Illinois recording growth in cannabis sales in the past few months.
Another possible reason for the decrease in support from financial institutions could be banks being understaffed. Understaffing causes delays in filing suspicious activity reports (“SAR”) for cannabis businesses. All credit unions and banks that provide financial services to cannabis businesses are required, by law, to file and submit suspicious activity reports.
Filers that exceed the 90-day SAR filing requirement may explain the short-term decline in the number of financial institutions that are offering services to marijuana businesses. This is because, after the 90-day period has elapsed, the depository institution is deemed to not be providing financial services.
The decline might also be a result of Congress calling for cannabis law reform.
On a lighter note though, the Marijuana Opportunity, Reinvestment and Expungement (“MORE”) Act is scheduled to be introduced to the floor later in September. It seeks to remove cannabis from the Controlled Substances Act, which would resolve any uncertainty revolving around financial institutions working with cannabis businesses in the banking sector.
This would open up more avenues for financial institutions to provide services to marijuana firms in the future.
Furthermore, earlier in June, the National Credit Union Administration released a memo that explained the issues that are identified with banking institutions offering their services to cannabis businesses and explained that offering services is legal, as marijuana has been legalized in most states.
It would be interesting to get the perspective of industry players like Pac Roots Cannabis Corp. (CSE: PACR) regarding what could be behind the reduced collaboration between banks and cannabis companies.
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