Last month, a letter signed by 10 U.S. senators arrived on the desk of Jamal El-Hindi, the acting director of the Financial Crimes Enforcement Network (FinCEN), requesting guidance on how banking services might be offered to “indirect businesses” – such as SinglePoint, Inc. (OTC: SING), Medical Marijuana, Inc. (OTC: MJNA) and Cannabis Science, Inc. (OTC: CBIS) – that serve the state-sanctioned marijuana industry. The implications of such guidance also carry considerable potential for banking players ranging from small financial institutions to bellwether banks like Bank of America (NYSE: BAC) and Citigroup (NYSE: C).
The letter came at the prompting of U.S. Senator Elizabeth Warren, D-Mass, a member of the Senate Banking Committee that oversees federal monetary policy, banking regulation and issues affecting the U.S. currency. It’s a widely applauded push, and SinglePoint, Inc., for one, is banking on this initiative to clear the way for payment processing providers, such as its SingleSeed Payments subsidiary, to offer an array of payment and transaction services to marijuana shops and dispensaries.
According to a recent report in the Houston Chronicle (http://dtn.fm/XaD7j), this action is part of a wider effort by many policymakers to regularize the patchwork legal nature of the $7 billion marijuana industry, marked by a lack of banking options that forces marijuana businesses “to rely solely on cash, making them tempting targets for criminals.”
Although 28 states and the District of Columbia have now legalized either adult recreational or medical use of marijuana, the Drug Enforcement Administration (DEA) still classifies it as a Schedule I substance “with no currently accepted medical use and a high potential for abuse.” Yet, there is growing evidence in the medical profession and the general population that marijuana has beneficent therapeutic properties.
Companies like Cannabis Science, Inc. have set out to develop novel cannabinoid-based therapies for unmet medical needs, while others like Medical Marijuana, Inc. – the first publicly traded cannabis company – focuses on a variety of cannabinoid-based applications for consumer and medical markets.
In a collection of 60 peer-reviewed studies on medical marijuana (http://dtn.fm/yknX8) examining the employment of marijuana in the treatment of a long list of ailments – including amyotrophic lateral sclerosis (ALS), cancer and HIV/AIDS – 41 (68.3%) demonstrated positive results. Another 14 (23.3%) were inconclusive, and five (8.3%) of the trials reported negative outcomes.
Senator Warren has argued that loosening the restrictions that force marijuana businesses to transact in cash payments has a number of advantages.
“You make sure that people are really paying their taxes. You know that the money is not being diverted to some kind of criminal enterprise. And it’s just a plain old safety issue. You don’t want people walking in with guns and masks and saying, ‘Give me all your cash.’”
There is some hope that the barriers preventing payment services providers like SingleSeed from doing business with marijuana establishments will be removed. FinCEN previously lent a sympathetic ear to similar pleas. In February 2014, the bureau offered guidance on how financial institutions could provide services to marijuana-related businesses consistent with their Bank Secrecy Act obligations.
That earlier guidance appears to have been tailored to businesses that dealt directly in marijuana like pot shops and marijuana dispensaries. It did not address the plight of the indirect businesses that service the marijuana industry, leaving it up to individual financial institutions to determine how to classify and treat indirect businesses.
Tossing the buck to financial institutions has had paltry success: “the number of banks and credit unions willing to handle pot money rose from 51 in 2014 to 301 in 2016,” a figure that appears encouraging until placed in a wider context. There are 11,954 federally regulated banks and credit unions. In general, it’s still an area dominated by small state-chartered banks and credit unions. Supporters of a bankable marijuana industry, however, see an inevitable day when large banks like Bank of America and Citigroup will offer full banking services to the cannabis industry.
When that day comes, financial technology (fintech) companies will have the chance to capitalize on a monstrous opportunity. SinglePoint’s SingleSeed Payments subsidiary, for example, is already primed to offer ATM, Pay-by-Text™ and text message marketing to the cannabis industry. As it stands, progressive fintechs are in a similar quandary to their federally regulated counterparts and look forward to further guidance from FinCEN.
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