Why Marijuana Markets Will Change

Businesses could need fewer armored cars if marijuana regulations change.

Let’s take a look.

Marijuana Regulations

The Marijuana Schedule

With last year’s addition of Ohio, Delaware, and Minnesota, now we have 24 states that have legalized recreational marijuana:

Somewhat of a contradiction, while marijuana is legal in 24 states, federally it is a Schedule 1 substance. With Schedule 1 substances like marijuana and heroin, the federal government assumes they will be abused and will have no medical value. Now though, President Biden initiated a review that led to an August recommendation from the Department of Health and Human Services to the DEA (Drug Enforcement Administration). The result could be a move to Schedule 3, less stringent oversight, and more favorable tax treatment. Most crucially, cannabis businesses could then take normal tax deductions on their federal returns. The new status would also mean physicians could prescribe medical marijuana after FDA approval.

Marijuana Banking

For now though big banks refuse to deal with an illegal industry. As one California cannabis CEO explains, there is considerable hassle when you have limited banking resources. Because his $2 million in monthly sales revenue is mainly  $20 dollar bills–no checks, no Apple pay–he needs an arsenal of armored cars and armed guards to transport the money to a secret safe place. His employees spend hours counting and recounting all of the twenties. When his hydroponic marijuana crop got a disease, he had no crop insurance to cover the $600,000 loss. His loan for a new piece of equipment cost triple the normal interest rate. And imagine paying your employees and taxes with bags of cash.

However, it all could change. For more than at four years, Congress has been considering the Secure and Fair Enforcement Regulation Banking Act (SAFER). Appropriately named the SAFER Act, it would make big banks safe when providing banking services to pot businesses in states where it is legal. It also would make the recipients of all of that cash much safer because of the non-cash transactions that would proliferate and the insurance it would permit. While the House passed earlier versions of the Act seven times, the Senate refused to vote on it. Reversing, in 2024, the Senate could pass SAFER.

Our Bottom Line: Financial Intermediaries

Financial institutions play a hidden role in our everyday lives. Called intermediaries by economists, they link the people with money to those who need it. They eliminate the need to find an individual who will pay for your house, your car, or your new factory. Banks are the go-to places for storing your money, paying your bills, and funding your business ventures.

Financial intermediaries have been compared to a beating heart. Like a heart keeps nutrient-laden blood flowing around our bodies, banks pump money around our economy. Whether talking about a healthy body or a healthy economy, a heartbeat and a financial intermediary are crucial.

So yes, the marijuana industry would function much more efficiently with a network of financial intermediaries.

My sources and more: My map and marijuana regulations are from mjbizdaily.com. This story from NPR perfectly summed up marijuana’s banking problems. Then, for the SAFER facts, Reuters and the Congress had some details. Please note that as an update, parts from today post were in a previous econlife post.