In the boldest step to date of any of the 16 states to legalize recreational cannabis use, Gov. Kathy Hochul announced New York will create a $200 million Social Equity Fund to address the lack of access to capital that is one of the most significant barriers to entry into the cannabis industry for communities harmed by the war on drugs. While Hochul proclaimed that “New York will lead where many other states have fallen short,” unfortunately that is hardly within New York’s control.
According to recent reports, only two banks are willing to service the Social Equity Fund. The state extended the request-for-proposals period in hope of generating additional interest, but chances are most banks aren’t going to want to touch the fund with a ten-foot pole.
This is because federal law prohibits financial institutions from providing banking services to cannabis businesses — even ones that are state-licensed. Most banks are hesitant to risk federal prosecution, which could shut smaller financial institutions down completely.
Every problem has a solution, though, and thankfully, the federal government holds the key to solving this predicament through a commonsense piece of bipartisan legislation called the SAFE Banking Act.
The bill would lift the federal ban that prohibits financial institutions from servicing cannabis businesses. Specifically, it would prohibit a federal banking regulator from penalizing a depository institution for providing banking services to a legitimate cannabis-related business. Additionally, proceeds from transactions involving a cannabis-related business would be considered lawful activity and no longer subject to anti-money laundering regulations.
If it passes, New York will almost certainly see a significant uptick in banks that won’t just be willing – but eager – to service the state’s Social Equity Fund.
That wouldn’t be the only benefit New Yorkers have to gain from the SAFE Banking Act.
The recent spate of robberies in New York City tobacco shops, along with the surge in violent cannabis store robberies in states with legal cannabis markets, are the consequences of conducting an all-cash business and signal a looming security risk on New York’s horizon, unless SAFE Banking passes. The legislation would help ensure that cannabis would no longer be a vulnerable, cash-based industry. It would save lives by making the industry safer for workers, operators, and the community at large.
Passing the SAFE Banking Act would also give New York a shot at actually fulfilling the Social Equity Fund’s stated goal of helping communities most impacted by cannabis prohibition gainfully participate in the burgeoning cannabis industry. Everyone in the cannabis industry stands to gain, but small, minority-owned operators would benefit the most from finally getting access to loans and no longer having an all-cash target on their backs.
A lot is riding on New York’s plans to leverage cannabis legalization to advance social equity. Aspiring cannabis entrepreneurs submitted more than 900 applications for the 150 available social equity license spots during the application period that recently closed at the end of September. These applications demonstrate enthusiasm to participate in the new cannabis market and will help New York reach its goal of having 50 percent of all recreational licenses awarded to social equity candidates.
But, unfortunately, without the SAFE Banking Act, the New Yorkers who unfairly bore the brunt of cannabis prohibition will have licenses to operate a business they don’t have the capital to build or maintain. The Social Equity Fund will languish. Those depending on it will be left behind and the program that was meant to be a model of social equity will just be further collateral damage of the War on Drugs.
It’s a terrible catch-22. But it doesn’t have to be. Congress can resolve it.
The SAFE Banking Act has garnered the support of 180 members of the House of Representatives — 154 Democrats and 26 Republicans. In the Senate, the bill is co-sponsored by 42 senators — 31 Democrats, nine Republicans, and two independents.
If Senate Majority Leader Charles Schumer puts the SAFE Banking Act up for a vote, it will pass. As the Majority Leader, he has the power to bring the bill to the Senate floor. As the senior senator of New York, he has a moral obligation to do so before cannabis sales begin next year.
Bryan Murray is the executive vice president of government relations at Acreage Holdings, a multi-state operator of cannabis cultivation and retailing facilities and a member of the U.S. Cannabis Council.
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