Economic Development Now

The House last week passed legislation which addresses one of the biggest challenges facing the cannabis industry — access to capital — and also promotes inclusive entrepreneurship.

The Secure and Fair Enforcement (SAFE) Banking Act, which would provide protections to financial institutions that work with cannabis businesses, passed the House on a bipartisan basis and represented the first-ever vote on a stand-alone cannabis bill. The measure still faces an uncertain future in the Senate, however.

Only about one in 30 banks or credit unions currently does business with a cannabis company. Many are so concerned about risk and reputation they won’t even work with those tangentially related to the cannabis industry. This leaves businesses to deal only in cash, which is costlier and riskier.

Beyond unlocking access to banks for the cannabis industry as a whole, the SAFE Banking Act promises to expand opportunities in the industry for minorities and women, mitigating the “war on drugs” on communities of color, according to a commentary in Politico. Restricting access to traditional financial options disproportionately harms women and minorities who are limited by their personal wealth. As a result, the cannabis industry largely has been dominated by wealthy, white males with access to capital through personal networks.

The measure also would benefit minority depository institutions (MDIs), financial institutions which predominantly serve minority communities. Most small business credit for minorities goes through MDIs, which have relationships with local businesses and understand local communities.

While the SAFE Banking Act would expand access to banks for cannabis businesses, further policy changes are needed to open up Small Business Administration programs to the industry. Such a change would increase opportunities for minority entrepreneurs as SBA loans make up a significant portion of community banks’ small-business lending portfolios and are a key source of funding for minority-owned businesses.

Additionally, the bill would require annual federal reporting on diversity and inclusion in cannabis banking services. Passing the bill would be a big step toward fostering inclusion for this rapidly growing industry, according to the Politico commentary.