Banks will not be allowed to take money from cannabis-related businesses until federal guidelines regarding the matter have been put in place, U.S. Federal Reserve Chairman Jerome Powell says.
This means bad news for states that have already legalized medical and recreational cannabis, such as Colorado, California, and Washington.
In a press conference, Powell said that the issue of allowing federal banks to handle financial transactions with and offer banking services to cannabis businesses is a “very difficult area” because while there are already many state laws that permit the use of cannabis, federal law still does not. This, he explained, puts federally chartered banks in a difficult situation.
Federal laws in the U.S. still prohibit banking institutions from taking money from legal cannabis businesses, which are still considered to be in violation of federal drug laws. Smaller banks without federal charters, however, are free to do business and enter into financial transactions in states where cannabis is legal.
Powell clarified that their mandate has nothing to do with cannabis and that they would love to see it clarified soon.
The press conference was held by the Federal Reserve following its policy meeting on Wednesday.
Financial institutions are still waiting for guidelines from the U.S. central bank regarding how to deal with cannabis businesses that are in dire need of a bank to handle their money.
A challenge for the cannabis industry
Despite the growing number of states that are legalizing cannabis, whether for medical or recreational purposes, many financial institutions remain reluctant to work with “cannabusinesses” for fear of violating money laundering laws under federal prohibition.
There are thousands of regulated and licensed cannabis businesses that are unable to write checks for payroll and accept credit cards for payment. And because they could not access these credit and debit card services, they are forced to operate traditionally on cash. All the cash on hand entails not just logistical problems but also security threat.
Needless to say, the shortage of banking services for the emerging cannabis industry in the U.S. is considered to be a major challenge in developing a regulated and thriving marketplace. In fact, this inability to access basic banking services is the cannabis industry’s biggest hurdle, next only to legislation.
Without luck, companies have complained that they are facing security as well as practical difficulties because of the banks’ refusal to do business with them. This despite cannabis being a multi-billion-dollar industry.
There’s still hope
There is still hope, though, with the introduction of a new bipartisan bill that would allow states the freedom to legalize cannabis and implement their own cannabis laws with interference from the federal government.
The bill, called the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act, was presented by Senators Cory Gardner and Elizabeth Warren.
Both senators believe that the federal government needs to stop outlawing cannabis. They are also hitting current financial institutions for continuously making it difficult for cannabis businesses.
The STATES Act has a provision that would allow cannabis businesses to take advantage of banking services and do transactions with financial institutions.
Since 2016, Warren has been working toward reforming the federal banking regulations in order to allow major banks and financial institutions to transact with and conduct business with those in the cannabis industry without having to violate federal laws.
President Donald Trump has earlier promised that he would leave state cannabis laws alone and that he would support Gardner’s efforts to protect those states that have already legalized cannabis.
Cannabis advocates are hoping that Trump’s pledge will materialize through the passing of the STATE Act, which will ultimately extend to banking.