A congressional committee held a listening to on Thursday to handle the distinctive monetary challenges that small and minority-owned companies face because the financial system recovers from the COVID pandemic—with a specific give attention to how these struggles have performed out within the marijuana trade underneath federal prohibition.
The House Financial Services Subcommittee on Consumer Protection and Financial Institutions, chaired by Rep. Ed Perlmutter (D-CO), heard testimony from the Minority Cannabis Business Association (MCBA) on the financial obstacles federal coverage has created throughout the burgeoning market.
“States and territories continued to legalize medical and adult-use cannabis—Mississippi just passed legislation establishing a medical cannabis program this month,” Perlmutter mentioned in his opening remarks. “Yet we will not have even resolved the conflict between federal and state banking laws.”
“Not only must these businesses contend with the ongoing pandemic and other economic uncertainties without being eligible for any federal [Small Business Administration] aid, but they must do so while being shut out of the banking system,” he mentioned. “A public safety threat is forcing this industry to do business in all cash [and] is turning into a public safety nightmare.”
A possible answer to at the least a few of these challenges could possibly be passage of Perlmutter’s personal invoice, the Secure and Fair Enforcement (SAFE) Banking Act, which might shield monetary establishments that work with state-legal hashish companies. That piece of laws not too long ago cleared the House for a sixth time, nevertheless it’s continued to face resistance within the Senate underneath each Democratic and GOP management.
Senate management has argued that complete legalization should be enacted first, although Majority Leader Chuck Schumer (D-NY) has signaled that he’d be open to advancing SAFE Banking if sure amendments have been made. It’s doable the dialogue on the listening to might assist to tell these adjustments.
Watch the House Financial Services Subcommittee listening to within the video beneath:
Perlmutter started his questioning by addressing MCBA Executive Director Amber Littlejohn. He requested her to explain how the trade’s lack of entry to conventional strains of credit score and funding alternatives has contributed to small hashish companies “being pushed into predatory loans and business arrangements.”
“With federal law limiting access to traditional funding, many cannabis businesses are initially funded through friends and family and personal wealth—and, given the wealth disparities, especially among those most impacted by cannabis prohibition and the war on drugs, this is not an option,” Littlejohn mentioned. “Large operators have no issue accessing capital.”
Rep. Ayanna Pressley (D-MA) additionally addressed the difficulty on the listening to, noting that the trade’s particular exclusion from federal reduction through the COVID pandemic “added insult to injury” for small and minority-owned companies.
“Ensuring black and brown folks can start and sustain cannabis businesses is a matter of economic and racial justice,” the congresswoman mentioned. “There are many attempts to keep those that were disproportionately locked up because of this failed war on drugs, to keep them locked out from this multibillion dollar industry,” the congresswoman mentioned. “This need has become even more evident when compounded by the disparate impact COVID has had on communities of color and minority-owned businesses.”
Pressley requested Littlejohn how the pandemic has “exacerbated current racial inequities within the cannabis industry” and why it’s necessary to be “intentional in ensuring that minority- and women-owned cannabis businesses are not left behind in our recovery efforts.”
Littlejohn mentioned that “many people agree that ensuring that the people who’ve been most harmed by cannabis prohibition are participating is an important part of legalization—but the way the state laws are created right now, they are dealing with almost insurmountable barriers to entry and the challenge of competing when markets are captured by a handful of individuals.”
“It is really a dire situation, and if we don’t get the resources now, many minority businesses are just not going to make it to legalization,” she mentioned. “They won’t make it to the end of the year. And, as I mentioned earlier, there are some, unfortunately, that will not make it to the end of this week.”
The congresswoman added that she helps legislative efforts to repair these and different monetary points throughout the marijuana sector by passing laws like Perlmutter’s SAFE Banking Act. But she confused that “we also need comprehensive and systemic reforms to ensure that our communities are not left behind,” citing the Marijuana Opportunity, Reinvestment and Expungement (MORE) Act for example.
House Agriculture Committee Chairman David Scott (D-GA) additionally expressed curiosity within the hashish subject on the listening to, saying that hemp has “become our fastest growing product” within the U.S., and he’s keen on exploring methods to make sure that the trade is legitimized whereas conserving unhealthy actors out. He invited Littlejohn to achieve out to his workplace as lawmakers start engaged on the 2023 Farm Bill.
“I want to be certain that we can help our farmers,” the congressman mentioned, including that she has “a wealth of valuable information that will be very helpful to our farmers who are engaged in this and our agriculture industry”
With respect to SAFE Banking, Perlmutter has mentioned that he’s amenable to constructing upon his invoice to fulfill the Senate–however he additionally cautioned that making the measure too broad might compromise the bipartisan assist it has loved within the House. He additionally mentioned not too long ago that he’s “confident” that the Senate will lastly take his invoice up—one thing he’s dedicated to carrying out earlier than his retirement on the session’s finish.
“Small businesses in the cannabis industry also face additional challenges when seeking credit or other financial services,” a committee memo on the listening to says. “For example, people of color operating in the cannabis industry must overcome barriers like trying to break into an industry that lacks diversity, especially among larger cannabis companies.”
“Additionally, most cannabis businesses are also unbanked or underbanked because most financial institutions are unwilling to open even basic bank accounts for cannabis businesses due to cannabis being federally illegal,” it continues. “This forces cannabis business owners to operate their state-regulated businesses primarily using cash, which has increasingly made them targets for burglaries, robberies, and other crimes.”
The SAFE Banking Act “would provide a safe harbor for financial institutions that choose to serve state-legal cannabis businesses and would require a GAO study and annual regulator reports to Congress to monitor that there is equal access to credit and to reduce barriers to marketplace entry for minority-owned and women-owned cannabis-related businesses,” the memo says.
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Littlejohn, who was one in all 5 witnesses to testify earlier than the panel, mentioned in her written testimony submitted forward of the listening to that the trade has witnessed a “common tale of small businesses struggling to enter and sustain themselves because of extraordinary barriers to entry and limited access to capital.”
“We see a common cycle of minority entrepreneurs seeking to shake the economic consequences of systemic inequities, only to suffer at the hands predatory investors and partners who seek to profit from injustice,” she mentioned.
Littlejohn listed 4 major challenges that small marijuana companies face underneath the present federal coverage and financial local weather.
“First, the COVID-19 pandemic and resulting economic uncertainty have been particularly difficult for small businesses, but especially for minority-owned and operated cannabis businesses, because minority-owned and operated cannabis businesses were shut out from the federal government’s pandemic relief programs,” she mentioned.
Also, federal prohibition has resulted in a scarcity of entry to capital for small and minority-owned marijuana companies, and that’s translated into low illustration of communities most impacted by criminalization inside authorized marijuana markets.
“In competitive markets, the pre-application and application costs for small cannabis businesses commonly exceed millions of dollars, especially in states that require hopeful licensees to secure a ‘green zone’ premise or show proof of capital in order to apply,” she mentioned. “Obtaining adequate capital is quite difficult and often forces entrepreneurs to accept exploitive contracts from private investors.”
Additionally, Littlejohn addressed state-level coverage makes an attempt to advertise minority participation within the authorized market. She mentioned whereas which may be the design of fairness applications, they’re largely “failing to adequately support small and minority-owned cannabis businesses.”
She additionally mentioned that “small and minority-owned cannabis businesses cannot access the traditional financial services they need to survive, let alone thrive.”
“Until small and minority-owned and operated cannabis businesses can access financial services on a fair, competitive basis, they will continue to be left behind as other sectors of our economy recover. Thus, they will continue to fall behind much larger competitors who do not face these challenges to a similar extent,” the MCBA testimony says.
Littlejohn concluded the written testimony by calling for congressional reform, which ought to embrace passage of the SAFE Banking Act this session.
She additionally mentioned the protections included within the marijuana banking invoice may be helpfully prolonged to non-bank neighborhood growth monetary establishments (CDFIs) and minority depository establishments (MDIs) underneath the Federal Deposit Insurance Corporation (FDIC).
“Supporting small minority cannabis businesses is not just moral imperative, it makes good economic sense. Despite their struggles, cannabis social equity businesses contribute $1.2 in social good for every $1 invested into social equity programs,” Littlejohn mentioned.
“If we believe the cannabis industry should have a place for small businesses, especially those who bore the brunt of enforcement while building the culture, the market, and the political force behind an industry from which others profit, we have to help minority cannabis businesses now,” she mentioned.
Meanwhile, some Republicans are scratching their heads about how Democrats have to this point did not move the modest banking reform with majorities in each chambers and management of the White House, too. For instance, Rep. Rand Paul (R-KY) criticized his Democratic colleagues over the difficulty in December.
In the interim, federal monetary regulator Rodney Hood—a board member and former chairman of the federal National Credit Union Administration (NCUA)—not too long ago mentioned that marijuana legalization is just not a query of “if” however “when,” and he’s once more providing recommendation on the right way to navigate the federal-state battle that has left many banks reluctant to work with hashish companies.
Hawaii Senate Committee Approves Bill To Legalize Marijuana For Senior Citizens 65 And Older
Image component courtesy of Tim Evanson.