Cannabis businesses have had a complicated relationship with banking institutions for quite a while. Although most states allow cannabis in some form, federal law still classifies the plant as a controlled substance, and this difference in legislation has made financial dealings difficult for the cannabis businesses. Most of them have trouble finding financial institutions that are willing to transact with them, let alone offer them loan and financing services.
However, federal data shows that this trend may be coming to an end. For a couple of reasons, the number of banks and credit unions working with cannabis institutions consistently declined for three quarters straight. The coronavirus pandemic was partly to blame, coupled with revised reporting requirements issued by the Financial Crimes Enforcement Network (FinCEN). Based on data from FinCEN’s latest report, this decline seems to be coming to a halt.
Almost 700 banks and credit unions filed reports as of December 31, 2020, stating that they had cannabis businesses as clients. Although these numbers were only a slight increase from the previous quarter, they were significantly lower than the 747 financial institutions reported to be working with cannabis businesses in late 2019. According to FinCEN, which is a bureau of the U.S. Department of Treasury, the number of banks that work with cannabis businesses seems to be leveling off from a decline.
Ever since the 2018 Farm Bill legalized the cultivation and sale of industrial hemp and hemp extracts, FinCEN stopped including hemp-only businesses in quarterly reports. This report was partly to blame for the decline compared to previous figures, which included hemp-only businesses. A report from FinCEN states that the decline coincided with the issuance of guidance it had released together with financial regulators to institutions providing financial services to hemp-only businesses.
The coronavirus pandemic may also be to blame for the decline, with COVID-19 health restrictions forcing many cannabis businesses to close their doors. Additionally, the filing of Suspicious Activity Reports (“SAR”) may have been affected by a reduced workforce at financial institutions. FinCEN guidance requires credit unions and banks to submit SARs if they provide financial services to cannabis businesses. Since the Obama administration issued the guidance in 2014, the number of companies filing SARs report steadily increased until recently.
Filers taking longer than the 90-day follow on requirement to file a continuing activity report may also be to blame for short-term declines in companies working with cannabis institutions, FinCEN says. Now that that decline has stabilized, there may even be an increase in such financial institutions as the Democrats in charge of both the Senate and the House may soon pass cannabis legislation, whether it’s the Secure and Fair Enforcement (“SAFE”) Banking Act or a bill to federally legalize cannabis.
Speaking of access to banking services, lots of companies are doing work that makes them deserving of support and access to banking services so they can continue to do what they do best. An example is XPhyto Therapeutics Corp. (CSE: XPHY) (OTCQB: XPHYF) (FSE: 4XT), which is in the advanced stages of bringing to market several cannabis-based drug formulations, including a THC sublingual and oral strip targeting nausea and anorexia.
NOTE TO INVESTORS: The latest news and updates relating to XPhyto Therapeutics Corp. (CSE: XPHY) (OTCQB: XPHYF) (FSE: 4XT) are available in the company’s newsroom at https://cnw.fm/XPHYF
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