Legislation to loosen cannabis banking regulations would increase insured banking deposits by more than $3 billion by 2034, according to the Congressional Budget Office.
The CBO issued a cost estimate of S. 2860, known as the SAFER Banking Act, on Sept. 27. The bill, which would prohibit federal actions against state-sanctioned cannabis businesses and the institutions that bank them, was approved by the Senate Committee on Banking, Housing and Urban Affairs a year ago but has been languishing ever since.
The legislation is considered key to lightening the compliance load on national financial institutions, which would then potentially open up banking services and lower banking costs for cannabis businesses. For more than 10 years, industry-supporting politicians on both sides of the aisle have tried to pass banking reform to no avail.
Under the bill, officers, directors and employees of financial institutions would not be subject to federal liability. It would also eliminate penalties for investing income derived from marijuana-related services, and it would prohibit forfeiture of loan collateral.
By bolstering legal certainty for institutions, the CBO said it expects S. 2860, if passed in 2024, to increase insured bank deposits by about $1.5 billion in 2026, rising to $2.9 billion by 2034. Credit union deposits would grow by $125 million in 2026 and $475 million by 2034.
It’s unknown exactly what assumptions the CBO is using. The report said the estimates were based on “research on the cannabis industry” and data from the Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA).
“The limited data on the amount of marijuana-related deposits in financial institutions — including amounts from activity that may not be classified as such — could mean that new insured deposits could be larger or smaller than CBO estimated,” the report said.
Size of cannabis market varies
Estimates of the size of the legal cannabis industry in the U.S. vary widely, from approximately $16 billion to more than $33 billion in 2023. For 2024, the range has been estimated from more than $38 billion to approximately $43 billion. Precedence Research said the legal U.S. marijuana market is expected to reach nearly $151 billion by 2034.
Meanwhile, states such as Ohio, Kentucky and Minnesota are just getting their adult-use or medical cannabis market programs off the ground. In Ohio, where adult-use sales began Aug. 6, retailers have already sold more than $87 million of adult-use product as of Sept. 28, in addition to $1.97 billion in medical since 2019.
Adrian Snead, a partner at Porter Wright Morris & Arthur who helped to write a federal banking bill in 2015, said in an email the CBO deposits estimate is “dead wrong” and underestimates the positive value of SAFER.
He cited the Grand View Research report that estimated the 2023 market at $33.6 billion (including hemp) and growing at a 12.1% compound annual growth rate to 2030. “This would mean significantly more deposits flowing into banks and credit unions, but from workers, suppliers, and others up and downstream from the business who will be able to legally deposit money in federally insured financial institutions.”
He added that CBO didn’t account for increased tax revenue from businesses that won’t have to pay high costs for banking and could more easily transact business, resulting in increased profits.
The CBO said the additional deposits would increase direct spending by $7 million to resolve potential bank failures. But that would be offset by the more than $16 million to be collected in insurance premiums.
The bill would also require FinCEN and the office of Foreign Assets Control to issue new anti-money laundering guidance to banks and contribute to annual reporting by the Federal Financial Institutions Examination Council. CBO said those costs are estimated to be less than $500,000 over five years.
CBO noted that the new guidance “would directly affect the decisions of financial institutions and marijuana-related businesses offering or seeking financial services. Those decisions would affect the amount of new insured deposits.”
The Government Accountability Office would also have to issue reports on barriers to market entry and suspicious transactions, which would cost less than $500,000 annually, the CBO said.
Over five years, the bill would actually result in a total estimated net savings of $154 million. That’s mainly because mortgages guaranteed by the Federal Housing Administration, Government National Mortgage Association and Rural Housing Service would increase. Federal receipts from the loan guarantees exceed their costs, CBO says, offsetting collections that reduce spending subject to appropriations.
Over 10 years, the direct spending outlays are only $63 million.
Report hoped to move legislation along
The bipartisan bill has stalled mainly from a lack of support from enough Republicans to get it to pass the Senate. Some Democrats have also said the legislation doesn’t do enough in terms of social equity and minority access to banking.
The issuance of this report is seen to be a momentum builder among industry insiders on Capitol Hill.
When the SAFE Act was attached to the National Defense Authorization Act in the last Congress, it hadn’t been scored by the CBO, and there was opposition because it was not under “regular order,” said David Mangone, director of policy at the Cannabis Financial Industry Group. “Now, it’s really about policy rather than procedural points.”
He said it increases the probability the Senate will take it up when they get back from recess, but it’s no guarantee. With only five weeks left in this session, CFIG Director of Communication Erin Moffet added, “There’s a short window in this Congress, but people are still really engaged to get this over the finish line.”
Snead, however, was skeptical. “The issues are primarily political, not financial,” he said.
A spokesperson for Sen. Jeff Merkley, D-Ore., lead sponsor of the SAFER Banking Act, said in an email that getting the bill through the congressional committee was historic, and Merkley is working to build bipartisan momentum.
“Sen. Merkley looks forward to diving into the [CBO’s] findings and working with leadership and his colleagues to advance this common-sense bill to the president’s desk,” the spokesman said.
