What credit unions need to know about cannabis banking during the COVID-19 crisis

I doubt whether it’s possible to find an industry that has not had to adjust in response to the COVID-19 crisis and that’s certainly the case with cannabis. With marijuana legal in some form (medical and/or adult-use) in 33 states and the District of Columbia, marijuana-related businesses (MRBs) play a significant role in local economies across the country, contributing tax revenue and offering employment in dispensaries, grow facilities and myriad ancillary businesses that support them. So, let’s look at how COVID-19 has affected MRBs, and why that’s potentially important to your credit union.

Business Impact

Most states that have legalized marijuana have designated MRBs essential during this crisis so many have remained open when other businesses have had to close their doors. They have had to adjust to accommodate public health and social distancing concerns, so their day-to-day operations have had to change accordingly, but their sales have remained strong and largely returned to pre-crisis levels following an initial spike. What we’ve seen in practice is that operating models that weren’t previously legal or common under state programs, like curb-side sales and home deliveries, are now the norm.

That’s not to say that marijuana-related businesses aren’t facing their own set of challenges. Notable among them is that they aren’t eligible to participate in any of the current federal stimulus programs, like SBA Loans or the Payroll Protection Program, because marijuana businesses remain federally illegal. However, the cannabis industry is pushing back hard against this restriction, citing their status as essential at the state level.

Why does this matter to credit unions?

If your credit union is already banking MRBs, you should reach out to them to understand how their operations have changed in response to public health concerns and check with your state cannabis authority to see how its program has been adjusted. For instance, medical marijuana businesses may be considered essential but adult-use ones may not.  Also, keep in mind that while these businesses have stayed strong during the crisis, should they find themselves struggling, they aren’t currently able to take advantage of federal stimulus programs.

If your credit union has yet to engage with the cannabis industry because of concerns that it would negatively affect your reputation, the fact that many states consider MRBs to be essential demonstrates that the industry is far less taboo than it once was. If the fear of being the “weed credit union” has kept you from offering accounts to MRBs it may be time to reconsider that risk.

State Legislative Impact

At the start of the year, there were 31 formal ballot initiatives on the books in 15 states related to the legalization or decriminalization of marijuana, and the odds were that several of them would pass. In the Northeast, common wisdom was that New York, New Jersey, and Connecticut would pass adult-use (recreational) marijuana programs this year, but that’s no longer the case. As legislators have had to understandably refocus their efforts on mitigating the devastating effects of the coronavirus, most if not all of these initiatives are in a sort of limbo, where they are not technically off the agenda but unlikely to come up to a vote before the end of the current session. This has even delayed the rollout of programs that have already been approved, as in the case of Maine where their adult-use program was expected to go live early this summer but has now been postponed.

Why does this matter to credit unions?

Credit unions that anticipated the opportunity to expand their membership and open new cannabis business accounts may be disappointed this year because it is unlikely that states will expand the scope of their programs.

Federal Legislative Impact

On the federal level, the SAFE Banking Act, legislation that would provide regulatory and law-enforcement protection for financial institutions that provide services to legal cannabis businesses, looks like it has stalled in committee and won’t come to a vote in the Senate during this session. Many credit unions that are interested in offering cannabis banking programs have been waiting for this to pass, but it’s highly unlikely to happen this year.

While the SAFE Banking Act isn’t going to pass, as mentioned previously some in Congress have called for state-legal cannabis businesses to be included in economic stimulus packages. To do so would require the federal government to afford protection for those credit unions that would process loan applications and disburse funds.

Why does this matter to credit unions?

While it is unlikely that the SAFE Banking Act will pass this year, if state-legal marijuana businesses become eligible for stimulus funding it would presumably require that the government extend protections to financial institutions that work with MRBs.

If your credit union needs expert guidance on building a cannabis banking program from the ground up, download Green Check Verified’s guide for building a business case here.