When the law is the outlaw: Cannabis companies can’t access financial services because the banks fear federal prosecution. The culprit is the Controlled Substances Act

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Imagine for a moment that you have a new business growing the poppy plant so you can manufacture and sell heroin. Like any new business you’ll need start-up capital for land, buildings and equipment and you’ll need to pay suppliers, employeees, and overhead such as rent. To get these loans, pay these people, and get paid by your customers, you’ll have to figure out how to handle large amounts of cash because no finacial institution – bank, credit card or insurance company – will touch you. That’s because heroin is a Schedule 1 substance – the most dangerous category of drugs – under the federal Controlled Substances Act (CSA). Thus, and this is the point here, if Bank of America or Visa were caught providing you services, they’d be putting themselves in the crosshairs of federal prosecution under any number of fraud, bank secrecy, and money-laundering statutes.

What’s this got to do with CBD and other cannabinoids? They’re also captured by Schedule 1 of the CSA:

“Marihuana Extract–Meaning an extract containing one or more cannabinoids that has been derived from any plant [i.e. hemp or marijuana] of the genus Cannabis.” (My emphases.)

Remember, CBD is a cannabinoid. It’s derived from either of the two strains of the cannabis plant, hemp or marijuana.

This, then, lumps together the people who grow or sell cannabis and the people who grow or sell heroin – and, once more, exposes the financial folks to federal prosecution. Translation: banks handling the proceeds of cannabis could get raided by the DEA just as if they were handling the proceeds of heroin.

Never mind that the 2018 Farm Bill gave legal status to growers and sellers of hemp, from which CBD is most often derived; or that medical or recreational use of marijuana is now legal in 33 states. If the feds want to get the banks for trafficking in the proceeds of cannabis they have the power to do it – and this is enough to scare off these traditionally conservative financial players.

Just ask Brooke Alpert, founder of Daily Habit in NY City, which develops and sells CBD powder, who told NBC News:

We were very honest that we were working with CBD, and everybody turned us down … This is never something I thought would be the biggest challenge I would face. I didn’t think how challenging simply opening a bank account would be.

But there’s hope: Recognizing the cruel upshot of the CSA, the House of Representatives passed the Secure And Fair Enforcement (SAFE) Banking Act on Sept. 25, which prevents the feds from punishing financial institutions that provide services to legal cannabis businesses. Notice, though, the legislation does nothing to attack the problem directly – removing cannabis from Schedule 1 of the draconian CSA.

The SAFE Act is expected to go before the senate by the end of the year – assuming a certain front page matter doesn’t get in the way.

Meanwhile, cannabis companies remain the only business in the US without access to banks.

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