Congress Needs to Sync Banking Laws, Legal Pot Financing
If the issue of legalizing cannabis were on a national ballot, it would win in a landslide. So then why is Congress so tone-deaf?
More than 75% of Americans live in states where cannabis use is legal in some form. Thirty-two states have amended their constitutions or passed laws that allow for the cultivation, sale and use of medical cannabis. Eleven states have legalized it for adult use. Still in its infancy, this legal industry already generates nearly $12 billion in sales, more than $1 billion in state tax revenue, and employs more than 200,000 Americans.
Beyond the immediate economic impact, technology has put the industry on the cutting edge of innovative growing methods that can potentially transform indoor farms across America and around the world.
Despite these realities, Congress has largely behaved as if this industry does not exist. It’s time for change.
On Tuesday, the Senate Banking Committee is hearing testimony around the question of whether the federal government should give legally operating cannabis businesses access to the banking system. Because pot is still illegal at the federal level, most banks will not offer services to legitimate, professionally run companies that operate in compliance with state and local cannabis laws. As a result, most of these businesses operate on a cash-only basis, creating significant business challenges, public safety concerns and incentives to circumvent tax laws as well.
The company I’m privileged to lead, Ohio-based Scotts Miracle-Gro, has benefited from the cannabis revolution. We sell fertilizer and products that help people grow plants; that’s what we’ve done since we were founded by a Civil War veteran in 1868. We happen to sell indoor growing products that are used in professional horticulture, including the rapidly growing legal commercial cannabis industry. This segment will grow by about 20% this year, representing nearly 25% of our total revenue and an even higher percentage of our enterprise value.
We’ve enjoyed this success despite the inability in the United States to sell our products directly to the customers who use them. These growers are forced to purchase our products through a two-step distribution model. That’s because banks are forced under existing federal law to lump the legal cannabis industry into the same category as terrorists and criminal enterprises. So even though we operate one of the most recognized consumer products companies in America, our banks would not be able to process our transactions or offer us credit if we conducted business directly with cannabis growers.
Mind you, we don’t grow or sell pot. We sell fertilizer, soil, lighting and irrigation systems and other ancillary products. And these exact products are also used to grow flowers, tomatoes and lettuce. If this reality were not so ridiculous, it would be funny. Our challenge is not unique. Construction companies, accounting and law firms, and real estate agents -- just to name a few -- face the same problems if they directly service this industry.
Even in states where only a medical cannabis market exists – a clear societal benefit – banking is still prohibited. This means no lending is available to build a grow facility, a research program or a retail dispensary. The all-cash nature of the industry is starting to create victims. Indeed, the entrepreneurs who envisioned this industry, the very kind of people that Congress hails as being the backbone of our country and economy, are being snuffed out by deep-pocketed private equity firms that have the institutional money and patience to wait on Washington to get its act together.
Members of the Senate Banking Committee should follow the lead of their counterparts in the House of Representatives and acknowledge that legitimate businesses operating in states where cannabis is legal should, at a minimum, have the same freedom to operate as every other company, starting with having access to banks.
We’ve grown too accepting of a federal government that talks a good game, but repeatedly becomes paralyzed when it comes to taking action. On an issue like this, where Republican and Democratic voters overwhelmingly agree, how hard can it be for Congress to move the ball forward?