Throughout the decades of prohibition it has been impossible to truly understand just how much money was funneled into the black market each year through illicit sales of cannabis on the streets.

While it is certainly possible to make estimations, the true value of this lucrative market is widely considered to be hugely underestimated.

Now that we have begun to reap the rewards of changes to medical legalization, and even full-blown legalization, there are a number of indicators emerging that hint towards the first shockwaves of an emerging cann-economy, as it were. Over the coming years it is likely that we will see an exponential increase in the amount of money spent across America and the wider world, but how will the systems in place adapt to meet the needs of something so new and exciting?

One of the most complicated aspects of this gradual shift in perception across the numerous states is linked to how state law conflicts with certain aspects of Federal law. As cannabis remains listed as a controlled substance at a Federal level, it automatically places restrictions on how businesses can be financed.

Currently, it is illegal for a bank or credit union  to lend a person or company money for the purposes of investing in anything linked to a federally controlled substance meaning that you can't apply for a business loan or take out a credit card with the express intention of using it to attain funds or pay for business expenses.

Many see this as a potential hindrance to independent business owners who attempt to compete with established dispensaries or people with their own money to invest but it seems like some states are starting to buck the trend.A recent study found an apparent connection between the move towards legalization and the amount of banking activity that took place within each state.

With many banks apprehensive about loaning money to businesses linked to cannabis, the findings are intriguing to say the least and while there is no absolutely conclusive evidence to categorically state that the two phenomena are intrinsically linked, it certainly makes for some interesting reading.

By analyzing bank regulatory filings with the FDIC* evidence came to light that a range of banking activities including loans and deposits significantly increase in size and regularity when compared to states who have not yet made similar changes. Banks tend to exhibit cautious behavior when considering customers (it's why we have credit checks) and this means that sometimes banking institutions can "hinder economic activity" for fear of repercussions.

 While official positions do not seem to have changed, it is hypothesized that some banks may be turning a blind eye to the exact nature of their clients' business interests in order to both support the industry and, in turn, make good profits for their shareholders.In the study it explains that while "uncertainty can result in overly cautious behavior" there is no "evidence of this with banking laws and the cannabis industry". Instead, bank lending was found to have increased anywhere from 6.5-8.6% post-legalization with deposits also showing increases of around 4% on average. Obviously, this isn't proof in itself that that banks have totally changed their tune.

There are so many facets to the industry that a large proportion of the revenue that it generates comes from places you might not instinctively think of. Dispensaries will pay money to suppliers and tradesmen, traditional firms may offer services to new businesses or enter into promotional partnerships and a huge range of other possible avenues exist that would benefit from legalization without direct involvement. Some institutions have filed requisite reports which state that they are working directly with cannabis clients but this is still just a fraction of the total institutions considered in the study.

The authors of the study have come to the conclusion that there are two likely possibilities for catalysts to this trend.They suggest that the "risk from regulatory uncertainty did not decrease banks' willingness to accept deposits  or make loans [because the] banks were either unconcerned about the potential risk associated with accepting cannabis related deposits or optimistic about the chances that regulation will adapt to the needs of legalizing states". Both of these are valid considerations and changes to legislation around banking regulations is something that is ever evolving.

Previously we have seen guidance for financial institutions in relation to reporting requirements for any business related directly to cannabis and around the time that the SAFE Banking Act was brought in there was a sharp increase in the number of institutions who registered their cannabis clientele with the relevant authorities.

Ultimately the banking system is based around managing the balance between risk and reward. Regardless of the letter of the law, there is a serious lack of evidence that institutions are prosecuted, penalized or even investigated in relation to this matter.

As a result, it is perfectly plausible that banks are prepared to branch out into the cannabis world as they deem the chance of a negative consequence as incredibly unlikely or that the actual repercussions would be too minor to even consider. If banks continue to put faith in this idea then it could eventually benefit the status quo by ushering in changes to legislation People see that there is so much potential to this market but without the security provided by a change to the law it leaves people in a quandary. If the system was entirely legal it would allow for more money to come in via taxes, bring dividends from interest on loans and credit and allow communities to channel money back into supporting themselves.

Too much money is tied up by red tape and until real change comes there will always be people out there who will continue to work for change. It is only a matter of time before the potential economic gains of legalization become too large to ignore and it will be no surprise if this trend continues to blossom and grow in the meantime.

Written and Published by Psy-23 in Weed World Magazine Issue 157 

Featured Image: Pexels - Jeff Stapleton