Improving Fair Access to SAFE Banking

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Ask nearly any cannabis professional about what’s holding the industry back, and you’ll likely get three answers: cannabis’s status as a Schedule I drug, Section 280E of the Internal Revenue Code, and the lack of available financial services.

For years, Congress has debated the Secure and Fair Enforcement (SAFE) Banking Act in some form, passing in the House of Representatives seven times with bipartisan support and hundreds of co-sponsors—but the bill has never passed the Senate floor. With only a limited number of financial service providers and banks willing to work with cannabis businesses, most operators seeking a checking account or a line of credit continue to face denial.


The issue is even more severe for BIPOC-led companies, which have faced greater difficulty securing these crucial services and start-up funds. According to a Federal Reserve Bank of New York survey, “Black- and Latino-owned firms that applied for non-emergency financing were less than half as likely as white-owned firms to be fully approved.” In the cannabis industry, Black entrepreneurs account for less than two percent of the country’s business ownership, according to Leafly’s 2021 jobs report.

“Although there are some banks that are currently doing business with cannabis companies (despite SAFE not passing), it isn’t as if you can go into any bank off the street and start up a checking account for your cannabis business—you actually have to be in the know and sometimes have connections to get access to these basic business banking services,” said Kaliko Castille, president of the Minority Cannabis Business Association. “If you are a Black or Brown legacy operator, you probably don’t have those connections and know where to go without risking getting shut down.”

While many believe passing the SAFE Banking Act will improve the state of the industry, some say it doesn’t go far enough in terms of social equity, only seeking to benefit white-led MSOs while failing to create equal opportunity for communities of color.

High risk, low reward

Nike John, CEO and founder of The Heritage Club, Boston’s first Black woman-owned dispensary, struggled in the initial licensing phases due to the astronomical costs associated with launching a plant-touching business. She concedes that improvements have since come along, but not enough to make a lasting impact on other BIPOC entrepreneurs trying to start businesses in 2023.

“When I started in the application process in 2019, bank fees were $5,000 per month per account because there were so few banks and high perceived risk, whereas when I started my real estate business the fees were $0 to 30 per month,” John said. “Now, more than three years later, the fees for cannabis business accounts are $0 per month. So things are definitely changing.”

For entrepreneurs like John, securing a bank account is typically one of the first steps to building a new company, but the problem poses a catch-22: how can you successfully fundraise if you have nowhere to deposit the capital?

“Opening an account is a routine part of starting a business, but I avoided it the first couple of years simply because I could not afford it,” she said. “When you are raising funds, you need to open an account, so timing this out was important.”

Loriel Alegrete, CEO and co-founder of 40Tons, a California-based cannabis brand, has found a lack of banking access stunting her company’s growth.

“For us, access to initial upfront costs has been covered, thankfully. Still, once a milestone is reached, it becomes increasingly difficult to continue,” she said. “If safe banking were available to us, this may not be an issue.”

Does SAFE Banking do enough to support BIPOC entrepreneurs?

On the surface, the SAFE Banking Act appears to champion cannabis operators by allowing financial institutions to work with them without fear of retribution. However, many argue it does not go far enough to truly help level the playing field for BIPOC entrepreneurs.

The Cannabis Regulators of Color Coalition (CRCC), an organization of current and former government officials and regulatory leaders, believes the SAFE Banking Act fails to close the gap between well-funded corporations and small businesses. The group recently published a white paper titled “Not a SAFE Bet: Equitable Access to Cannabis Banking, An Analysis of the SAFE Banking Act.” The paper outlines the myriad reasons why the bill will likely fail to meet its intended goals, specifically calling out the financial services industry’s long history of racial disparity.

The CRCC paper makes several recommendations on improving the SAFE Banking Act, including directing a portion of 280E revenues toward a fund to support individuals most impacted by the war on drugs, and requiring financial institutions to demonstrate compliance with anti-discrimination laws.

“Successful BIPOC brands are not reliant on SAFE Banking passing,” said Amber Senter, CEO of MAKR House, and chairman of the board and executive director of Supernova Women, a nonprofit dedicated to empowering Black and Brown people to become self-sufficient shareholders.

Finding sufficient funding is a constant struggle for entrepreneurs of color regardless of the industry,” Senter added. “Still, there are alternatives like impact funds, which support investing in underrepresented business owners, as venture capital is frequently predatory.”

According to Castille, the SAFE Banking Act is a good start, but more work will be needed to create an equitable industry.

“Will SAFE Banking be a silver bullet for equitable outcomes in the cannabis industry? Absolutely not. However, passing it means that minority entrepreneurs can focus on growing their business rather than having to figure out how they are going to get paid and pay their teams,” he said.

“It also means that minority entrepreneurs who are running retail operations and delivery businesses across the country will be one step closer to accepting credit card payments so that they aren’t having to put themselves at risk making all-cash transactions while making their businesses far more efficient.”

Seeking solutions from within

While the industry awaits meaningful reform, what can we do to promote equity and inclusion from the inside?

John believes starting locally is key, noting how community regulators must take action to ensure BIPOC entrepreneurs have a fair chance at success.

“It is important that funding starts at the state and municipal levels or that certain costs be waived to lower the barriers to entry,” John said. “Some of the fees collected by the regulatory bodies are often set aside, but it takes some time for them to be distributed to the businesses that need them most.”

Since most cannabis businesses rely on outside investors (which can be exceedingly difficult for BIPOC individuals to secure), John believes programs designed to elevate social equity businesses need to do more to set their participants up for success.

“It is also important to help prepare entrepreneurs to be able to meet the expectations of the investors, so that the confidence can be there,” she said. “How can these programs and accelerators better prepare people to pitch, negotiate, and have successful conversations?”

Senter believes aligning with individuals who share in her vision is crucial, with proper vetting key to long-term prosperity.

“When I receive interest from funders, I ask if there is a true cultural fit,” she said. “Do the funders, for instance, have faith in me and my business, and are they aware of the obstacles BIPOC business owners may encounter when seeking funding? These are all important questions to consider when evaluating a potential investor.”

Senter adds that respect and acknowledgment go a long way in elevating BIPOC entrepreneurs like herself.

“Working with people who recognize me as a Black queer woman with a track record of success in cannabis has helped me raise money,” Senter said. “My investors believe in me and my business. They are aware of the obstacles I face, and they want to be part of the solution.”

As new markets come online, the emphasis on social equity and reducing barriers to entry is becoming more of a priority. States like New York and New Jersey are putting diversity and inclusion at the forefront while more mature markets work to ameliorate marginalized communities’ struggles.

While the SAFE Banking Act may be a step in the right direction, it’s clear federal officials will need to consider the nuanced challenges facing BIPOC entrepreneurs if the goal is to help all American business owners succeed.