The SAFE Banking Act will improve cannabis companies’ abilities to operate on a financial level. Currently, Democratic Senator of New York, Chuck Schumer, is trying to add the banking bill to the omnibus package debated in Senate.
What is the SAFE Banking Act?
The SAFE Banking Act was originally brought to the table in March of 2019. Provisions include the following:
- It prohibits federal banking regulators from penalizing depository institutions from providing banking services to cannabis related businesses.
- It means proceeds from a cannabis related transactions would not be considered proceeds from unlawful activity.
- It prohibits depository institutions from being subject to asset forfeiture for providing a loan to a cannabis-related business.
- It prohibits depository institutions from terminating a customer account unless it has valid reason to do so, and those reasons must not be reputation related.
- The SAFE Banking Act decreases the surplus funds of the Federal Reserve Bank.
Problems with the Passage of the SAFE Banking Act
The SAFE Banking Act should have passed in Congress a long time ago, but Congress missed out on getting it attached to last week’s defense budget during the lame duck session. Now they are trying to attach it to the omnibus funding package before the end of the year, when Republicans take over control of the house.
Senator Schumer is pushing the SAFE Banking Act bill which will not only be beneficial to cannabis-related industries, but it will also spell out changes for all small businesses at the federal level. It will increase liquidity by expanding federal pools.
Schumer is expected to enlist the help of three other House and Senate Leaders to get the bill passed. But he will need the help of Senate Minority Leader Mitch MicConnell (R-KY) to be successful. McConnell previously blocked the addition of cannabis reform from the National Defense Authorization Act stating that he was working to keep “unrelated language” out of the omnibus bill.
If the SAFE Banking Act passes, it will offer many benefits to cannabis business owners. However, many businesses will not survive this challenging period in the industry, regardless of whether the bill passes.
Cannabis Prices Decline
According to statistics, wholesale cannabis prices are down in many states. Farmers in California said they used to get $200 for a crop. Now that are “lucky to get $400”.
Experts had predicted that legalization would play a part in falling prices, but degradation is also responsible for the decline. As a result, many farms in Northern California’s Emerald Triangle growing region have closed.
Michigan farmers are also feeling the burn. The wholesale price of recreational weed in the state has fallen from $191 an ounce to $95.12 an ounce. Sellers feel the decline may be due to an increase in licenses issued in the state which has gone from 1200 to 1800 since 2021.
Lower prices are also leading to boosted sales with an average 38% increase each year.
How Taxes are Affecting the New York Cannabis Market
New York is also seeing challenges with its legalization endeavors. The stiff tax rate is causing licensed sellers to sell their cannabis at prices that are almost twice as high as what unlicensed sellers charge. A legal eighth of cannabis will likely cost close to $75 in the state.
Tax lawyer and author of the white paper on New York’s cannabis taxes, Jason Kilmex, points out that the high taxes are especially damaging to women and minority owned small businesses. “That’s really what it comes down to: allowing these entrepreneurs to compete against a very, very entrenched illicit market,” he says.
The upside to this is, states with high taxes, like New York, have set examples for what not to do for border states like Connecticut and New Jersey. They are benefiting from New York’s bad decisions when it comes to setting up their regulatory and tax structures.
New York Struggles with Its Decision to Regulate Cannabis Delivery
New York’s cannabis market is also feeling the burn due to its decision to legalize cannabis delivery. This would allow legal dealers to earn income while they are waiting for regulations to come through on opening their shops.
However, the move to proceed with legal delivery backfired as many sellers say it feels rushed. This may cause a long-lasting negative impact in the industry resulting in poor use of the capital being earned.
TerrAscend Enters Deal with Canopy USA to Reduce Debt
While we wait to for the SAFE Banking Act to pass, some companies are working out their own ways to improve their financial situations. One example Is the partnership marijuana stock TerrAscend (TRSSF) forged with Canopy USA, the U.S. holding company of Canopy Growth.
Canopy USA will convert CAD$125.5 million of TerrAscend’s debt into exchangeable shares at $5.10 per share. As a result, Terrascend has said goodbye to $120 million of debt in recent weeks.
They have been able to increase cash flow and reduce interest expenses which has brought great improvements to their balance sheet. This is especially noteworthy given the state of the current market.
The legalization of marijuana is a good thing in theory, but it has caused many businesses to stumble along. While the SAFE Banking Act will bring some changes for the better, the industry really needs to address its tax and regulatory structures across states to yield success. Good business management within a company (as evidenced by the TerrAscend-Canopy USA partnership) can also be helpful.