Last week federal lawmakers introduced the Capital Lending and Investment for Marijuana Businesses (CLIMB) Act, meant to give cannabis businesses access to traditional banking loans and allow their stocks to be traded on U.S. securities exchanges.
The bill was introduced by bipartisan sponsors and would amend the Securities Exchange Act to create a safe harbor for legitimately legal cannabis businesses and service providers, making it legal for securities exchanges to list these entities—an effect that would bring drastic changes to national cannabis policy by bolstering the industry with cash. The bill would also give cannabis companies access to services that are currently off-limits due to the drug’s federal legal status.
“The bipartisan CLIMB Act is a huge opportunity to bring equity and equal opportunity into our nation’s burgeoning cannabis industry,” said Rep. Troy Carter (D-LA), co-sponsor of the bill.“From my work on the Small Business Committee and by working directly with small, minority, and veteran-owned cannabis businesses, it’s clear that access to capital remains one of the biggest barriers to entry and to success in the industry.”
Business Assistance
The bill would give small cannabis businesses access to the same government loans and grants available to other businesses with a special focus on equity and supporting communities that have been disproportionately affected by the War on Drugs.
If made law, the CLIMB Act would give cannabis businesses access to “community development, small business, minority development and any other public or private financial capital sources for investment in and financing of cannabis-related legitimate businesses.” Federal agencies would be barred from blocking companies’ access to government assistance based on their involvement with the cannabis industry.
Marijuana operations would also have access to traditional financial services that many other industries take for granted, like the use of money transfers, accounting services and credit card services. If signed into law, the bill would solve many issues related to the cash-only business model that cannabis companies are forced to adopt because of federal prohibition.
“American cannabis companies are currently restricted from receiving traditional lending and financing, making it difficult to compete with larger, global competitors,” said the bill’s co-sponsor Rep. Guy Reschenthaler (R-PA). “The CLIMB Act will eliminate these barriers to entry, and provide state legal American cannabis companies, including small, minority and veteran-owned businesses, with access to the financial tools necessary for success.”
Safe Harbor
One of the biggest hurdles to gaining capital in the cannabis industry is that companies are not allowed to list on U.S. stock exchanges. Due to federal prohibition of marijuana, cannabis stocks can only be listed on the Canadian Securities Exchange or traded via over-the-counter (OTC) markets. This means cannabis companies are cut off from potential investments and investors who are interested in putting money into marijuana are at the mercy of individual sellers.
The most significant portion of the CLIMB Act would amend the Securities Exchange Act of 1934 to allow these companies to trade on U.S. exchanges like the New York Stock Exchange and Nasdaq.
This could lead to a serious shift in how cannabis is treated by lawmakers. By giving the cannabis industry an entryway to Wall Street, the bill would make cannabis reform more profitable for those operating in the financial sector. The more profitable it becomes, the easier it will be for cannabis reform to garner political support.
It’s no secret that well-funded giants of industry have a big say in how U.S. policy is formed. If cannabis has solid financial legs, advocates’ voices will ultimately become amplified.
SAFE Banking
The introduction of the CLIMB Act coincides with yet another failure for the SAFE Banking Act. This bipartisan supported bill has passed in the House six times since it was first introduced by Rep. Ed Perlmutter (D–CO) in March 2019, but it has been dropped each time by the Senate. The bill would protect banks and credit unions from federal prosecution should they choose to do business with cannabis companies. Federal anti-money laundering laws forbid financial institutions from working with criminal enterprises. Since cannabis is still illegal at the federal level, this includes state-legal marijuana businesses.
Last week the Senate once again killed the bill before giving it a vote by removing it from the America COMPETES Act, where House Democrats had added language from the bill in a last-ditch effort to see it passed this year. Senate Democrats have stood in opposition of the bill—not because they oppose the spirit of the proposed law, however. Senate Majority Leader Chuck Schumer (D-NY) has been seeking support for his cannabis legalization bill and has said that he would keep SAFE Banking from passing as long as his bill was still in play. According to Schumer and his colleagues, passing the SAFE Banking bill would relieve the pressure that has been placed on legislators to legalize cannabis at the federal level and could set the movement back years.
While the CLIMB Act covers similar ground that the SAFE Banking Act covers, the two bills compliment rather than compete with each other. The SAFE Banking Act protects banks and the CLIMB Act protects businesses and investors. Together, these two bills could have far-reaching effects that would likely start an inevitable slide toward legalization. Congressional leaders have clearly rejected SAFE Banking for now. The question remains: Will the CLIMB Act suffer the same fate?
Advocates would do well to pay close attention to this bill’s progress, as it stands to make an even greater wave in the political world than SAFE Banking. If investors with big pockets start throwing money at the industry, the reformation of current federal cannabis policies will become a priority for our lawmakers.