By Sahar Ayinehsazian, Hon. Ed Perlmutter and J. Devoy Dubuque

Prior to its sudden shutdown, Silicon Valley Bank had a reputation for serving start-ups and entrepreneurs. Amongst its lesser-known clientele were cannabis-related businesses, which have long struggled with access to depository and lending services.

Banking continues to be a constant pain point for the state-legal cannabis industry, despite its steady expansion across 39 states and multiple U.S. territories.  As a Schedule I substance under the Controlled Substances Act, cannabis is subject to a federal money-laundering statute that makes banking them largely unlawful.

In 2014, the Department of Treasury released a memorandum explaining the federal government’s enforcement priorities and offering guidance to financial institutions that sought to serve cannabis businesses (the “FinCEN Guidance”).  It also listed “red flags” for cannabis-related clients and established three associated levels of Suspicious Activity Report filings (“SARs”).

The FinCEN Guidance has been a cornerstone of cannabis banking for nearly a decade but has not opened the floodgates. Based on its review of SARs filed as of 4Q2022, FinCEN estimated just 773 financial institutions served the entire cannabis industry last year. Historically, most have been smaller community banks and credit unions, as larger institutions remain hesitant. This is great news for cannabis payment solutions companies but bad news for the cannabis industry.

While cannabis businesses can put their money into banks and credit unions, it remains to be determined whether their deposits will be insured by the Federal Deposit Insurance Corporation (due to federal prohibition), and access to lending remains limited.

For an industry with tenuous access to banking, at best, the recent shutdown of SVB has left many businesses asking, “What happens to us now?”  The answer is, “It’s going to be okay,” with the caveat that passage of the SAFE Banking Act (“SAFE”) is imperative.

Despite banks’ risk aversion in the current environment, …

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