Earlier this year, the U.S. Department of Health and Human Services (HHS) made a landmark recommendation to move marijuana from a Schedule I to a Schedule III controlled substance. This recommendation did not equate to federal legalization, but the impacts to the cannabis industry were still significant. A few weeks later, momentum for marijuana reform continued to grow as the SAFER Banking Act was passed by the Senate Banking Committee. So what do these regulatory and legislative changes mean for cannabis businesses and cannabis banking?
Recommended Changes to Marijuana Drug Classification
The official recommendation from the U.S. Department of Health and Human Services (HHS) to change marijuana from a Schedule I to a Schedule III controlled substance caused a lot of excitement within the canabis industry. Currently, marijuana is heavily regulated by the Drug Enforcement Administration (DEA) a Schedule I drug, which is defined as “drugs with no currently accepted medical use and a high potential for abuse.” Other Schedule I drugs include heroin, LSD, and ecstasy, which puts marijuana in the company of extremely dangerous substances.
While Schedule III drugs are still considered to have a moderate to low potential for physical and psychological dependence, they also have less potential for abuse than Schedule I or II drugs. This change would open the door for marijuana to be considered for regulated medical use like some other Schedule III drugs (e.g. Tylenol with codeine, ketamine, and anabolic steroids).
What are the implications of rescheduling marijuana?
The DEA will still have to approve the HHS recommendation to reclassify marijuana as a Schedule III drug, but if approved, the change would have a big impact on how businesses and banks interact with the cannabis industry. The move to Schedule III would mean more opportunities for research on the medical uses of marijuana, as well as potential tax benefits for businesses.
This could mean big financial gains for cannabis businesses who would be able to write off more business expenses and pay less in federal taxes. However, the impact it will have on the industry’s ability to access banking and financial services is still uncertain.
It's crucial to note that this shift doesn't automatically decriminalize marijuana; its legality for personal use is still determined at the state level.
What is the cannabis banking bill?
Though the recreational use of marijuana is legal in several states, financial institutions still face a lot of risks when it comes to serving the cannabis industry. The disconnect between state and federal law causes a lot of compliance challenges for financial institutions, and guidance on the regulations is often confusing or even contradictory. Without federal legalization, many banks and financial institutions are hesitant to provide services to the marijuana industry.
Efforts to pass federal reforms to cannabis banking legislation have failed multiple times over the past several years, but recently, momentum has been growing. The Secure and Fair Enforcement Regulation (SAFER) Banking Act is a bill to create protections for financial institutions that provide services to state-sanctioned marijuana businesses. The SAFER Banking Act is a revised version of the SAFE Banking Act that was originally proposed in 2019 but failed to make it through the Senate.
The revised SAFER Banking Act was introduced in September 2023 and passed by the Senate Banking Committee with a bipartisan majority. It is now awaiting a vote on the Senate floor.
How will the SAFER Banking Act impact cannabis banks and financial services?
Because of strict federal regulations, even cannabis companies operating legally under state laws currently have restricted or no access to bank accounts, credit card processing and other financial services. This means many cannabis companies have to operate only in cash, which makes them more vulnerable to crime.
While the potential change in classification of marijuana to a Schedule III drug would likely have positive financial effects for cannabis businesses, the passage of the SAFER Banking Act would have a more direct and clearer impact for cannabis banking and payment processing services. Financial institutions would not be required to provide banking services to cannabis companies, but they would be able to do so with much less regulatory risk involved. The bill also provides more financial protections for state-legal cannabis businesses and their employees.
Cannabis Banking Solutions
Because the cannabis industry has unique requirements for accepting payments at dispensaries or online, many cannabis companies struggle to find safe payment processing options while trying to grow their businesses. Westmoreland Payment Services understands marijuana banking challenges and keeps up-to-date on the available solutions so we can help businesses in the cannabis industry to operate efficiently and safely. We’d love to partner with you too.