Legal cannabis banking in the US

Legal cannabis banking in the United States is still an open question after the midterms. Cannabis legalization became a reality in two more states last week, with the addition of Maryland and Missouri as new legal states.

Almost half of Americans now live in a legal cannabis jurisdiction. This is a significant step from fifteen years ago when no state had legal cannabis. (And only a handful of allowed medical exceptions.)

But what about the drive for federal legalization? And what about legal cannabis banking?

As of this writing, the Democrats have been declared victorious in the Senate. So what does this mean for the Cannabis SAFE Banking Act?

Currently, the government is preventing cannabis companies from using government-insured banks. They also cannot use credit cards or other financial services.

This is because cannabis remains illegal at the federal level. The Cannabis SAFE Banking Act would change all that.

“With nine Republican co-sponsors, there’s a reasonable chance the Safe Banking Act will be voted on and passed in its current form,” said Jason Wilson, ETFMG Cannabis Research and Banking Expert.

SAFE Banking Act When?

“Regardless of the possible change of control in Congress, President Biden’s recent direction to review the classification of cannabis under the Controlled Substances Act should ultimately give the industry a boost,” says Wilson.

Optimistic investors expect the legal cannabis banking bill to be on the president’s desk by the end of the year. While this would not legalize cannabis in the US, it would expose a lot of financial pressures on legal states. Including the two newcomers Maryland and Missouri.

“Assuming that the Biden administration’s review of cannabis results in a rescheduling to Schedule III or higher under the CSA, the issues surrounding 280E and business expense deductibility would be resolved,” Wilson says.

By this Wilson means Section 280E of the US Tax Code.

What is 280E?

A business takes its gross income and deducts operating expenses such as payroll to arrive at its net income, or operating profit. Companies have to pay taxes on this.

Under Section 280E of the Internal Revenue Code, a legal cannabis company cannot make these deductions.

280E means that a cannabis company must pay taxes on gross income. That’s often triple what they would pay if the government taxed their net income like any other company.

And this before the state governments cut their share.

Passing legal cannabis banking laws like the SAFE Banking Act would go a long way towards solving these problems. And without having to legalize cannabis nationwide.

This, according to Wilson, “would significantly improve the earnings quality of many cannabis companies operating in the US. And bring new investors to the table.”

How soon will we have legal cannabis banking in the US?

It is still too early to say how the next two years will develop. But investors are hoping that some form of Cannabis SAFE Banking Act will pass.

“Meanwhile, the size of the cannabis market continues to grow both domestically and internationally, as two more states yesterday voted to legalize recreational marijuana and recent legalization legislation was introduced in Germany,” Wilson says.