By Ed Smith
The legal marijuana business has exploded into a multibillion-dollar industry in the past several years and will grow even more once California and others states implement recreational sales.
Banking and insurance services, however, remain difficult for the industry to access because of conflict between state and federal laws. And with 29 states, the District of Columbia, Guam and Puerto Rico allowing for medical marijuana, recreational marijuana or both, and another 17 states allowing low THC, high cannabidiol products for medical reasons, the situation is reaching a tipping point.
That was the focus of discussion Sunday at a session on financial services for the industry at NCSL’s Legislative Summit in Boston.
“There are 40-45 states that are openly defying federal law now,” said Michael Correia, a lobbyist for the industry with the National Cannabis Industry Association in Washington, D.C. “It’s the fastest growing industry in America.”
He noted there are 120,000 jobs directly related to marijuana and many more in ancillary industries, all of them dealing in cash.
Financial institutions, he noted, “do not work in a gray area. They like black and white. Bankers want to make money. They don’t want to go to jail.”
Estimates are that of the more than 12,000 financial institutions in the country, only about 350 are dealing with marijuana-related businesses.
Since marijuana is listed by the federal law as a Schedule 1 drug, “large institutions do not want to deal with this and it’s mostly smaller banks and credit unions that get involved,” Correia said.
Jeffrey Gerard, a senior vice president at Greylock Federal Credit Union in western Massachusetts (pictured above), said institutions like his face quite a conundrum. On the one hand, they want to provide services to the dozen or so marijuana-related businesses they expect to see emerge in Berkshire County now that Massachusetts has approved legislation regulating the industry.
His organization, which is still studying the situation, sees its mission “to provide services to our community and alleviate them from the risky situation of dealing with cash.”
On the other hand, the conflict with federal law could put the credit union at risk, especially if there is a change in policy from the U.S. Department of Justice. While the federal position has been relatively hands off for businesses complying with state law, that could change under Attorney General Jeff Sessions.
But the problem is not just banking services. Insurance coverage for a wide range of issues also is difficult for marijuana-related businesses to obtain.
Brenda Wells, a professor at East Carolina University in Greenville, N.C., said the challenges are significant.
While marijuana businesses need the same sort of insurance as other companies—arson, flooding—they also have other challenges. Crop insurance, for example, is a standard type of coverage in agriculture. But when you consider that an acre of wheat is worth about $250 and an acre of marijuana is worth about $1.1 million, the scale of the problem is apparent.
"The companies often cannot get enough insurance to actually cover their exposure," she said, "and the premiums are extremely high."
While there is no apparent movement at the federal level to make things easier for the industry, Correia thinks things may shift soon.
“Colorado is a $1 billion market and California will probably be a $6 billion market,” he said. “I think once California goes online you will see more movement of Capitol Hill.”
Learn more about state actions related to marijuana on NCSL’s Marijuana Deep Dive webpage.
Ed Smith is NCSL’s director of digital communications.