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How federal banking regulations have slowed the Green Rush

On Behalf of | May 31, 2023 | Cannabis Law And Business

The law is a fluid, ever-changing reality. Lawmakers enact new statutes to impose restrictions on behavior as issues arise in society, and they sometimes take old statutes off the books when they are no longer relevant or effective.

One of the areas that has experienced the most reform in recent decades is society’s legal and medical approach to marijuana or cannabis. As many states have introduced first medical programs and then later recreational use laws, businesses have often been very eager to assert themselves in a new, potentially massive, market. However, especially for those who are hoping to directly interact with cannabis products as part of their business model, the inability to use traditional financial institutions often poses a major hurdle.

Federal banking and tax rules have not changed

Although state laws have adjusted how different jurisdictions handle cannabis users and businesses, federal law on this increasingly popular and lucrative crop remains unchanged. Despite lawsuits and bills that fail in the legislature, no major changes to policy have taken place at the federal level.

Banking institutions, therefore, continue to enforce a near-total blackout on working with certain businesses. Companies often can only accept cash as payment and have to come up with creative solutions for securely managing the money earned without being able to make deposits at a nearby financial institution.

The risk of outside theft and embezzlement is very serious when dealing with all cash transactions. Therefore, mainstream investors and existing companies are often reticent to experiment in the cannabis marketplace because of the perceived risk. Being unable to use financial institutions limits the growth of an organization and poses challenges for expansion and development. Tax laws also deter many would-be investors, as write-offs are often not available for any businesses involved in production or distribution efforts, even when they remain completely compliant with state law. Therefore, the tax burden on such businesses could be incredibly high.

Many companies have attempted to develop a niche in adjacent markets, including accessories and lifestyle products rather than getting involved with the plant and products that include it or any of its active constituent compounds. Although there is major opportunity for profit, there are also risks and drawbacks that investors and entrepreneurs have to consider carefully and plan for if they want to take advantage of the Green Rush while the market is still in its early developmental stage.