SAFE Act dumped from Defense Bill.
SAFE Act dumped from Defense Bill.
Lev, a commercial real estate (CRE) financing platform, said it completed more than $40 million in cannabis CRE loans across five different sponsors, with an additional $50 million in the pipeline.
The news comes as cannabis are increasingly struggling to find funds to back their ventures amid a tightening environment – stymied by a lack of federal banking regulation.
“We’ve worked hard to build our relationships with federal banks at Lev, and it’s paying off,” Lev CEO Yaakov Zar said in a news release. “The cannabis CRE market is notoriously tricky – different states have different regulations and closing a deal can be complicated.”
The company said that it “works with serious investors to navigate complex hurdles at the federal and state levels to close cannabis deals two times faster than traditional methods.”
A portion of the deal locations include Sacramento, California; Denver; Tempe, Arizona; and Lakeville, Massachusetts, including a loan of $16.8 million for the Massachusetts property.
Lev said it also aided in the closing of one national portfolio with properties in Arizona, California and Missouri, with proceeds of $15 million. Property types included cultivation facilities, commercial dispensaries or mixed-use retail property using nonrecourse loans for funding.
Bryan McLaren, CEO of Zoned Properties, the real estate development firm that closed a debt financing deal on its Tempe property, said that “By working with Lev, we were able to close quickly and secure an initial debt facility of up to $4.5 million. Lev was able to help us secure deal terms above and beyond the vast majority of cannabis deal structures we’ve seen over the past decade.”
In addition to a speedy loan close, Lev said it has managed to offer optimal pricing and the lowest interest rates, as low as 4.5%.
Companies also often need help navigating the complex regulations as the national landscape for cannabis legalization continues to shift rapidly.
Editors Note: This is an opinion piece.
Wednesday afternoon Senate Majority Leader Chuck Schumer (D-NY), Senate Finance Committee Chairman Ron Wyden (D-OR) and Sen. Cory Booker (D-NJ) unveiled the discussion draft of their long-awaited cannabis legalization bill, the Cannabis Administration and Opportunity Act.
The legislation would federally deschedule the plant, while allowing states to continue governing themselves with policies they deem appropriate. It also creates much needed social equity programs and creates a strategy for taxation. The two major surprises of the day were how middle of the road the legislation comes across and how fervently Booker is opposed to allowing the SAFE Banking Act to move forward.
“If somebody tries in the Senate to do just the banking bill, they are going to make all the wealth and all the money that is going out after this, already is a multi-billion-dollar industry, what could become a bigger industry just so some people could get rich…. I will lay myself down to do everything I can to stop an easy banking bill that’s gonna allow all these corporations to make a lot more money off of this — as opposed to focusing on the restorative justice aspect,” said Booker.
Unfortunately, Booker has been led astray if he genuinely believes that SAFE Banking will do nothing except make a few rich corporations richer. There are over 32,000 licensed adult-use cannabis businesses and an additional 31,000 hemp licenses in this country, the potential benefit of the SAFE banking Act extends well beyond the perceived benefits to larger corporations. Many of these small businesses struggle everyday with exorbitant banking fees and ungodly minimum balance requirements.
“The significant majority of cannabis businesses are small businesses, many of which are women or BIPOC operated. By not having access to traditional financial services such as bridge loans, insurance, or credit card services, these small business owners are disproportionately impacted by the lack of banking services and financing to keep their doors open. Then when they fail, they are again punished with personal wealth destruction due to the lack of bankruptcy protection,” said Beau Whitney, founder and Chief Economist of Whitney Economics.
It is understandable that Booker is concerned about groups that have been disproportionately harmed by the War on Drugs being left behind with just the passage of the SAFE Banking, but it’s shortsighted to not see the benefits that it would also provide to those communities, like access to loans, lower fees and the capital necessary to grow a business.
The SAFE Banking Act also addresses the lack of safety in the industry.
“Many businesses have to operate in cash only leaving them quite vulnerable to crime, along with their employees. They cannot pay their taxes electronically and half to travel with large amounts of cash and armed guards. The SAFE Banking Act is addressing a public safety crisis for small cannabis operators,” added Whitney.
Cannabis businesses need relief now and they need it from a piece of legislation that has already passed in the House and has bipartisan support in the Senate. The cannabis industry cannot continue to wait for a pie in the sky all-or-nothing bill that Democrats don’t even support, let alone the president. And let’s get real, can the Democrats retain power in both the Senate and the House through the midterms to find another day to fight for cannabis legalization?
The one sure way to keep small businesses from succeeding in this industry is by continuing the same banking policies that currently exist today. Senator Booker, SAFE Banking is not protecting large corporations. Frankly, they have banking already.
Cannabis legalization advocates must be feeling a sense a deja vu. Today, the House of Representatives approved legislation (again) that would provide safe harbor for financial service providers to work with cannabis businesses that are in compliance with state laws. Called the SAFE ACT, (Secure and Fair Enforcement) Banking Act, or H.R. 1996, was reintroduced in March by Reps. Ed Perlmutter (D-CO), Steve Stivers (R-OH), Nydia Velazquez (D-NY), and Warren Davidson (R-OH), and had 177 total cosponsors by the time of the vote. The legislation was approved by a vote of 321-101, including a majority of voting Republicans.
Steve Hawkins, executive director at the Marijuana Policy Project said, “This vote marks a meaningful first step in establishing a more equitable cannabis industry and improves the likelihood that other cannabis legislation will advance at the federal level. Restricting cannabis businesses from accessing financial services creates an unnecessary burden for the industry and limits economic growth. If enacted into law, the SAFE Banking Act would strengthen efforts to increase the diversity of the cannabis industry by providing resources for those with limited access to capital and increasing the chances of success for state-level social equity initiatives. Further, it would protect the 321,000 employees directly affected by the cannabis industry’s lack of access to financial services.”
The SAFE Banking Act previously cleared the House in 2019. The language of the bill was also included in two rounds of COVID-19 relief packages that were approved by the House. This is the fourth time that the House has approved the language of the SAFE Banking Act, initially as the first standalone cannabis policy reform bill ever passed by either chamber of Congress in 2019 and two more times last year as part of pandemic relief packages that were not approved in the Senate.
“We are incredibly grateful to the bill sponsors who have been working with us for the last eight years to make this sensible legislation become law and have shepherded it through the House time and again,” said Aaron Smith, co-founder and chief executive officer of the National Cannabis Industry Association. “The SAFE Banking Act is vital for improving public safety and transparency and will improve the lives of the more than 300,000 people who work in the state-legal cannabis industry. It will also help level the playing field for small businesses and communities with limited access to capital. It is time for the Senate to start considering the companion legislation without delay.”
Advocates are hopeful that Senate Banking Committee Chair Sherrod Brown (D-OH) will take up the bill in the near future so that it can begin to move through the upper chamber as soon as possible and become law before the end of the year. The SAFE Banking Act would protect financial institutions from federal prosecution for providing banking and other services to cannabis businesses that are in compliance with state law, as well as help address serious public health and safety concerns caused by operating in predominantly cash-only environments. The legislation would improve the operational viability of small businesses by helping them reduce costs associated with lack of access to banking and increasing options for traditional lending that many small businesses in other fields rely upon. It would also mandate a study on diversity in the cannabis industry.
“For the first time since Joe Biden assumed the presidency, a supermajority of the House has voted affirmatively to recognize that the legalization and regulation of marijuana is a superior public policy to prohibition and criminalization,” said NORML Political Director Justin Strekal. “However, the SAFE Banking Act is only a first step at making sure that these state-legal markets operate safely and efficiently. The sad reality is that those who own or patronize the unbanked businesses are themselves criminals in the eyes of the federal government, which can only be addressed by removing marijuana from the list of controlled substances.”
Separate from advocacy groups, corporate cannabis was encouraged as well. Medical Marijuana, Inc. (MJNA) CEO Dr. Stuart Titus said, “Though the cannabis industry has been deemed ‘essential’ during the pandemic, it still mainly operates as a high-liability, cash-only business. We’ve been looking forward to the passage of the SAFE Banking Act for nearly a year but with Democrats now in control of the House, Senate and White House, it’s finally happened. While we have generally resolved the majority of our banking and merchant processing issues that we saw when we began selling CBD throughout the US in 2012, we have done so at tremendous ongoing legal expenses and efforts. We hope that this bill can help other leaders in the overall cannabis industry avoid such hurdles and that it leads to expanded access to cannabis, hemp and CBD across the nation. We’ve seen that the number of banks servicing cannabis businesses has decreased over the past few months and we hope that this bill encourages banks to rethink that decision.”
Green Market Report’s special correspondent Emerson Brown gives his take on banking legislation for the cannabis industry.
In a showing of bipartisan support, the House of Congress voted 321 to 103 to pass the SAFE Banking Act. Of those voting yes, 229 were Democrats and 91 were Republicans. Unity amongst Democrats was particularly strong with only one Democrat vote being in opposition. Going forward, this overwhelming amount of party support should help assuage any fears as to whether the Democrats will continue to back the bill as it moves to Senate.
Currently, banks that provide services to the cannabis industry are at risk of being prosecuted under federal law. The risk is the same for insurance companies and landlords that operate in, or provide services to, the cannabis industry. Consequently, cannabis companies are often forced to horde cash and jump through hoops to make payment for items as simple as a utility bill; proper insurance coverage is often difficult to obtain; and options are limited for cannabis companies seeking to rent facilities for their operations. The lack of federal legalization has not only created several operational obstacles and inefficiencies for companies involved in the cannabis ecosystem, but by forcing cannabis companies to operate only in cash it has created safety issues for employees by making them, and their places of work, targets of robbery.
Although approval of the SAFE Banking Act would not fully legalize cannabis, it would prevent the federal government from taking action against banks, insurers and landlords that provide services to cannabis companies that are operating in compliance with applicable state laws. Not only would such legislation go a long way towards normalizing the industry, moving from a cash-only environment would significantly enhance public safety.
It should be noted that the bill does not contain provisions relating to capital markets access for cannabis companies. Accordingly, approval of the SAFE Banking Act would not provide cannabis companies with access to the U.S. capital markets or exchanges.
The next step is for the Senate to consider and vote on the SAFE Banking Act. This process is expected to occur later this year. While some are skeptical of the SAFE Banking Act’s chances of receiving approval from a Republican-controlled Senate, there are provisions in the bill that should appeal to Republicans. One provision addresses Operation Choke Point, a program put in place by the Obama administration that investigated banks for doing business with payday lenders, firearms dealers and other companies at higher risk for fraud and anti-money laundering. Another provision addresses access to banking services for the hemp industry, which should be of particular importance to Senate Majority Leader Mitch McConnell and his home state of Kentucky. If the bill is passed by Senate, it would then be submitted for Presidential approval.
Approval of the SAFE Banking Act will not fully legalize cannabis, but it would represent a significant milestone for the cannabis industry by providing access to banking services, and it could also lead to the approval of other cannabis-focused policies, and possibly, full federal legalization.
Global Cannabis Industry Expert with over 15 years of experience in the asset management, finance, and structured product space, Jason has a track record of bringing hard-to-access asset classes to market. Recently, Jason was Senior Vice President at INFOR Financial Inc., a boutique investment bank that acted as advisor to Canopy Growth Corporation in connection with entering into its strategic relationship with Constellation Brands.
Evan Eneman, CEO of the MGO | ELLO National Cannabis Alliance said, “Many of our cannabis clients openly struggle to establish banking relationships, with many of their accounts previously being closed due to the stigma of prohibition. Passage of SAFE Banking in the House is a major step toward ensuring that banks can operate hand-in-hand with cannabis companies out in the open versus previous ‘behind closed door’ interactions.”
Commenting on next steps, NORML Political Director Justin Strekal said: “Today’s vote is a significant first step, but it must not be the last. Much more action will still need to be taken by lawmakers. In the Senate, we demand that lawmakers in the Senate Banking Committee hold true to their commitment to move expeditiously in support of similar federal reforms. And in the House, we anticipate additional efforts to move forward and pass comprehensive reform legislation like The MORE Act — which is sponsored by the Chairman of the House Judiciary Committee — in order to ultimately comport federal law with the new political and cultural realities surrounding marijuana.”
Next week, the Senate will be holding a hearing on July 23 by the Committee on Banking, Housing and Urban Affairs. The Senate is making a move following a House cannabis banking bill that cleared that chamber’s Financial Services Committee with a bipartisan vote in March. Readers can follow the action on that bill for free on the Green Market Report under the Legislation tab.
That piece of legislation now has 206 cosponsors, almost half of the House while the Senate legislation has only 32 out of 100 senators signed on. The conservative politicians would prefer to stand down while cannabis is still federally illegal, but supporters of the legislation argue that forcing the industry to a cash system encourages theft and diversion.
Although many cannabis businesses continue to suffer from account closures and difficulty processing credit card transactions, there has been some advancement with regards to the banks and the industry. “We’ve seen incredible changes in the cannabis banking space in the last 2 years,” said Todd Kleparis, CEO of California-based Hardcar. The company is a leader in Cash-In-Transit (CIT), cannabis banking and vaulting, and cannabis financing. They currently operate out of 11 states, plus Washington D.C., and have plans to expand into 3 more states by the end of 2019
He added, “Our first banks were only in the hundreds of millions of dollars and our banks now are in the billions of dollars. Banks are becoming more open to cannabis, but the market demand still outweighs the number of banks legally banking this industry.”
Hardcar also announced that it can now safely transport and bank any amount of cash for any company in the United States. In an effort to secure the nation’s largest secured network of banks, the company has been able to establish routes for any CBD and Hemp company, anywhere in the country.
Last week the company said that it had secured a multi-billion dollar bank and now has the ability to offer cannabis loans and financing options for businesses looking to expand their operations.
“In the beginning, cannabis banking was only for high revenue cannabis businesses because banks could justify the larger expense to monitor and process all transactions. Nowadays, banks are accepting smaller businesses and the pace of adoption has radically increased. These new loan services bring a whole new dynamic to the cannabis industry and we’re proud to lead the industry with the largest collection of financial options. Now any CBD or Hemp location can apply for traditional land loans, and very shortly, THC locations will be able to do so as well. ”
“We believe banking still to be a critical part of the cannabis industry that needs more attention,” said Kleparis. While moving money is a critical part of the system credit card transactions are the piece of the puzzle holding many businesses back. This type of legislation would remove those barriers and help companies to behave like other more traditional businesses.
Credit unions seem to be the most favorable financial institutions for cannabis businesses that touch the plant, but even ancillary companies are experiencing difficulties. One accounting and bookkeeping firm that works with cannabis companies was closed by Chase. Others tell of being able to get accounts, but then get charged exorbitant fees by the financial institution
The challenge for the Senate is resolving the banking issue while cannabis remains federally illegal. This is the barrier to entry for the banks and they see anything else as a nonstarter.
The CBD industry has been moving full steam ahead in 2019, bolstered by the 2018 Farm Bill and advancements on the federal level to ensure cannabis banking services, but that progress hasn’t been enough for some financial services institutions to continue working with the industry.
On March 14, 2019, Elavon, a payment processing subsidiary of U.S. Bank, notified its hemp and CBD clients that it had recategorized hemp and cannabidiol-based merchants as a prohibited business type and that accounts for such merchants would be closed within 45 days.
“After several months supporting this merchant segment, it has become clear that the pace of an evolving Federal and State regulatory framework makes it extremely difficult to validate the qualifications required to operate within this industry,” said Elavon in an email to its hemp and CBD clients.
As an Elavon partner, FINCANN, a cannabis banking financial network, received Elavon’s notice and began sourcing solutions for its clients at once.
“We immediately reviewed remaining available options and within 24 hours had viable USA-based excellent alternatives available,” said Nathaniel Gurien, founder and CEO of FINCANN. “Since Elavon is not terminating their existing portfolio of CBD merchants until May 15, some merchants opted to immediately apply to one of our alternatives, others decided to wait and see until at least mid-April.”
Elavon isn’t the only merchant services provider rethinking its hemp and CBD clients. On March 19, Cannovia, a maker of CBD-infused products, was notified by Stripe that its account would be terminated. Having just launched its online storefront on March 14, Cannovia attempted to appeal Stripe’s decision but was denied.
“Prior to the notification of the merchant services cancellation, we were not fully aware of the limitations of the banking industry to support the needs of the CBD industry,” said Brian Baum, the CEO of Cannovia.
With both Stripe and Elavon out of the picture, Cannovia soon learned that finding a merchant services provider on its own wouldn’t be easy.
According to Baum, “What became clear was that the options were limited and any banks willing to consider supporting the industry were beginning to utilize the services of intermediaries such as FINCANN to assist them in managing the sheer volume of entities looking for merchant services solutions.”
Linking up with FINCANN to secure a new merchant services provider allowed Cannovia to remain operational and avoid any major interruptions.
Meanwhile, both financial institutions and industry stakeholders continue to keep an eye on the SAFE Banking Act, which would provide certain protections for depository institutions that work with cannabis-related businesses as well as the businesses themselves. The House Committee on Financial Services is currently drafting a report on the act to present to the House of Representatives. If the full House approves the bill, the Senate will vote on it.
“If the SAFE Banking Act overcomes its estimated 40% likelihood of passing the Senate, it will only encourage banks currently contemplating ‘dipping their feet into the water’ to ‘take the plunge,’” Gurien said. Once financial institutions take the plunge, legal cannabis-related businesses will be able to bank just like any other legal business.
The House Financial Services Committee voted 45 to 15 to advance the Secure and Fair Enforcement (SAFE) Banking Act. Currently, Federal law prohibits banks from providing banking services to cannabis companies since cannabis is illegal despite some states legalizing cannabis.
Today’s legislation would keep regulators from taking punitive action against a bank that works with a cannabis business like limiting their charter or deposit insurance when the state has legalized cannabis. In addition to protecting banks in legal states, the legislation seeks to promote diversity by making bank regulators to make annual reports on the availability of banking services to minority and women-owned cannabis companies. The legislation was sponsored by Rep. Ed Perlmutter D-Colo.
While the vote is considered to be a huge step and a sign of progress, it would still need to pass a full House vote and then move to the Senate to be approved.
“It’s clear that the SAFE Banking Act has a high likelihood of passing in the house,” said Kyle Sherman, CEO of cannabis tech company Flowhub. “With limited bipartisan support, however, it’s unlikely to pass the Senate. Either way, it’s imperative that cannabis companies get better access to banking like any other developed industry. I’m cautiously optimistic about SAFE.”
Manny Perez, who is the Vice President of Marketing at the cannabis data company Headset said, “Allowing banks to service cannabis businesses in legal states will help bring the industry forward. Providing access to bank accounts, transfer services, and debt financing, just to name a few, will be key to lower cost of capital; not to mention the end of the over-risky cash-only business practice.”
Not only would the effects be felt at the transactional level and on the capital raising end as Perez noted, but it will also have an effect on research funding. “This will open the door to more funding for medical marijuana companies that are developing first-in-class therapies for auto-immune diseases like rheumatoid arthritis, multiple sclerosis and more,” said Alex Somjen, the CEO of Resinco Capital Partners.
R.J. Lehman, the director of finance, insurance, and trade policy at R Street also pointed out that a 2017 report from the Wharton Public Policy found that half of all cannabis dispensaries had been robbed or burglarized. “Extending credit to an indirect affiliate of a legitimate cannabis business or even counting the income of an employee as collateral for a home or auto loan could potentially trigger sanctions,” Lehmann said. “The SAFE Banking ACT would provide predictability and transparency to the lending market in an era of shifting and sometimes contradictory legal norms around cannabis.”
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