Real Estate in the Weeds
Green Real Estate is big business today, but I’m not refereeing to the latest environmentally friendly buildings or LEED certifications. The business of cannabis, or marijuana, is growing rapidly through the US with 36 States having already legalized it either for recreational use or medical use.
Cannabis remains a banned substance Federally which creates difficulty for businesses within the industry. It means that they still mostly transact in cash, as credit card companies will not process payments for fear of breaking Federal laws. It also means cannabis businesses do not enjoy the full expense write-offs that other businesses do when filing their taxes. The substance may be banned Federally, but you still have to pay your Federal Taxes on it!
The Federal limbo that a legitimate State licensed cannabis business finds itself in has knock on effects elsewhere. Landlords are unsure if they can accept these businesses as tenants for fear that the rental income may not be accepted by their real estate lender, or even deposited at their bank. Lenders may fear being sanctioned if they accept loan payments from landlords, if those funds were generated from cannabis rents. Lenders are also unsure if they can lend directly to the cannabis business, take their deposits, or other financial business.
As the legalization of cannabis has become the norm, more and more banks have stepped up and have been willing to work with the cannabis industry. Many banks will now take their cash deposits, and some have begun lending to them too. Up until recently the only way these businesses could get credit was via private money loans which come with an expensive interest rate.
The SAFE Banking Act has been passed by the House, which was drafted to protect the cannabis industry from the Federal legal limbo. The Act allows for financial institutions to freely transact with the industry without fear of any violation. This will mean credit card processors can begin working with the industry, and it should open up all banks to start offering services and loans to the industry too.
The Act now moves to the Senate for approval, where it failed to advance on the prior four attempts. Public opinion is firmly in favor of legalizing cannabis at a Federal level, so the passing of The SAFE Banking Act, which is only protecting financial institutions from working with the industry, should be a no-brainer. Of course there are no certainties with legislation and the vested interests of lawmakers, or the lobbyists that influence them.
Passing of the Act will remove a lot of uncertainty for landlords and lenders, and provide a safer and more secure way for businesses to transact.
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