By: Ben Barlow  [7/15/22]

As more states legalize cannabis, license businesses, and regulate product (not to mention engorge tax coffers), entrepreneurs and customers in ‘legal’ states continue to confront fundamental questions often left in the shadows while focus is on the ‘shinier’ topics of plants, THC, Delta-9 versus Delta-8, CBD, and on and on and on (there are a lot of shiny topics).

Those fundamental questions go to the heart of how businesses operate and interact with their customers, and all arise out of the space between state legalization and federal prohibition.

That space between legalization and prohibition holds the details about how businesses operate. Take financial operations, for instance. Non-cannabis business startups often confront questions of credit worthiness – convincing, pleading, and cajoling banks and financiers to take a risk. Cannabis operators face those same challenges – only the challenges go far beyond pitch decks and lunch meetings. Because banking and securities regulations are largely federal, federal prohibition slams the financial sector’s proverbial door in cannabis operators’ faces.

There are a limited number of small financial institutions willing to take on the risk of providing banking services to cannabis businesses, but that risk generates high costs and fees for services. High costs and fees create a barrier to entry which, when joined with security concerns and reduced liquidity presents significant obstacles to entrepreneurs (especially diverse and historically marginalized would-be operators).

The problems that the ‘no room at the financial inn’ federal approach causes for cannabis businesses and customers is clear. A popular and lucrative market (for businesses and states) in ‘legal’ states is given a black market sheen with cash-only transactions, difficult financing options, and ancillary services (including financial and legal advisors) facing the prospect of having Banks freeze accounts or companies shut down normal business tools (such as SMS texting[1]) because of the ancillary services providing advice to cannabis operators (even if that advice constitutes a tiny percentage of the accountant’s or attorney’s overall business). The fact that an industry that skews younger and that utilizes apps requires such old school transactions decreases efficiency and would seem to slow growth (although cannabis users are traditionally comfortable with cash transactions).

Any small business owner can quickly understand the dilemma if their customers were not able to use credit cards or payment applications. But when inability to access consumer credit meets the inability to access banking and the threat to ancillary services, you have the perfect storm of a business ___________ (fill in your own most colorful description of a significant problem). The effects of that perfect storm are easily understood once a few questions are posed – but they are questions most non-cannabis operators never confront.

Whether in politics or business, most problems can be quickly understood if one simply follows the money. Take, for example, a hypothetical cannabis retailer in a state where cannabis is legal for both medical and adult uses. A customer enters the retail dispensary. They learn that they are limited to cash transactions. If they have cash, they make a purchase. If they do not have cash, they are either out of luck or they will have to access cash. To access cash, perhaps there is a bank-owned ATM machine nearby (in which case they leave, access cash, and return to make a purchase). More likely, there is an ATM machine within the cannabis business; however, it will most likely not be a bank-operated ATM because the business is not able to participate in nationally linked banking. 

Moving a step beyond the consumer transaction, the business finds itself in a precarious position – an all-cash business where the cash cannot be deposited into a normal business bank account (remember, the business cannot have normal federally-insured bank accounts). That creates a dire situation for both consumers and businesses – a state-legal business working within the gray penumbra of federal prohibition, selling a popular and, until recently, banned product, and doing it all as customers bring cash into the business and leave piles of cash as they depart.

For some businesses, the cash conundrum has created a dire situation. Increasingly, there have been a spate of break-ins in dispensaries in Washington state resulting in deaths of employees and suspects.[2]  Washington state is not alone. Michigan,[3] Oklahoma,[4] California,[5] and multiple other states face a growing number of robberies and assaults fueled by businesses with stores of cash – each paying significant taxes – treated (as some claim) as second-class businesses by law enforcement.[6]

It can seem as though those opposed to cannabis legalization – even where the state legalization debate has been convincingly settled – continue to support federal prohibition as bulwark that might at some point stop and maybe even reverse state-legalization. In those instances, it can seem that last hopes to stop the cannabis legalization train surround continued denial of access to banking, credit, and finance – even if that denial leads to robberies, assaults, and deaths. It can appear, in those instances, that opponents of cannabis legalization simply chalk such violence up to self-inflicted injuries for those participating in an illicit industry.[7]  

Others see a greater problem that goes beyond individuals not respecting majority decisions at the polls, a problem linked to a ‘if I can’t win – I will take my ball and go home’ approach to businesses, the lives of consumers and employees, and interstate commerce. Multiple bills in Congress aim to allow debates on federal prohibition and scheduling to continue while creating safer and more efficient financial avenues for state legal businesses as the national discussion continues.

While the SAFE Banking Act has drawn much attention this spring, representatives have introduced other bi-partisan bills that are both broader and narrower in scope.[8]  On June 23, Representatives Troy A. Carter, Sr. (D-LA) and Guy Reschenthaler (R-PA) introduced the Capital Lending and Investment for Marijuana Businesses (CLIMB) Act[9] with aims to permit cannabis businesses access to community development, small business, minority development, and public or private financial capital sources. Additionally, the Bill would create a safe-harbor period for securities listing – meaning that cannabis businesses might be listed on stock exchanges despite federal prohibition. Currently, only the Canadian Securities Exchange allows listing and trades in over-the-counter (OTC) markets. OTC markets lack the presence of a broker, who in a traditional exchange serves as a price-setter. An OTC, then, who some claim[10] are rife with scams and criminal activity, features buyers and sellers determining share prices. CLIMB’s listing provisions aim to introduce safeguards against scams and share manipulation.

Of course, the potential listing of cannabis businesses would further normalize the industry and might make federal legalization more likely. Large multi-national corporations with eyes on the cannabis sector are largely keeping their powder dry until questions of federal prohibition are addressed. With an interim step of financial sector access, such corporations would likely take steps into the cannabis space (in non-plant-touching ways) generating momentum for additional steps.

Supporters have championed the CLIMB Act’s expansion on financial access provided by the SAFE Act (which has been passed six times by bipartisan votes in the House of Representatives but never been brought to a vote by the Senate). 

“The CLIMB Act is critical because it provides state legal American businesses with traditional funding and support mechanisms for this emerging industry, which other domestic industries currently enjoy,” said Saphira Galoob, Executive Director of the National Cannabis Roundtable.[11]

The CLIMB Act is not without detractors, even in the Cannabis sector. 

While the Act would allow federal agencies such as the Small Business Administration to award grants to cannabis sector businesses, the Act does not mandate the award of such grants. That allowance for discretion worries cannabis legalization advocates who have watched bipartisan voter majorities support legalization again and again only to have actual regulations (including licensing procedures) slow-walked or thwarted where there is no mandate to take action.

How much support the CLIMB Act garners in the House of Representatives and whether the Act would ever receive a vote in the Senate are unanswered questions. 

Whether the Act would play nicely and eventually be integrated with the SAFE Act is doubtful. Whether the Act can garner support of SAFE Act proponents or proponents of other cannabis measures (including legalization proponents) seems like a long shot given the traditional ‘my way or the highway’ (no pun intended) approach many cannabis bill sponsors and advocacy organizations not to mention Senate leaders have taken in the past. Proponents hope, though, that a multifaceted approach to cannabis reform will slowly but surely fill that space between state legalization and federal prohibition. Whether the Act can CLIMB to a SAFEr space is worth keeping an eye on.

For more information on how Dunlap Bennett & Ludwig can help you with your legal needs, contact us by calling 800-747-9354 or emailing

[1] Recently, Calendly – a platform providing integration of scheduling, lead follow-up, and email (and a lot more) – has notified law firms that Calendly’s messaging functionality (provided by Twilio) prohibits firms advising the cannabis sector from using their platform. Recent notices sent to law firms by Calendly provide:

“… federal law prohibits cannabis entities and cannabis-related businesses from utilizing SMS messaging. This includes but is not limited to: cannabis dispensaries, growers, producers of cannabis-infused products, medical marijuana consulting firms, or other cannabis-related businesses. Twilio’s Messaging Policy is reflective of the US carrier rules, and there are no exceptions to this policy.

We ask that you remove any SMS messaging from your event types, including SMS reminders and workflows, and stop utilizing our SMS functionality immediately. Should this violation continue, your Calendly account could be subject to suspension. Thank you for your cooperation.”  






[7] The irony of many ‘states rights’ proponents putting personal feelings about cannabis above voter mandates is palpable. While many, when the issue is cannabis legalization, rely on federal prohibition as a trump to state legalization, other significant issues of the day feature some of the same voices advocating state prohibition as a trump to federal legalization.

[8] One criticism of the cannabis legal caucus is that it often makes the perfect the enemy of the good, rejecting measures to address cannabis operators’ access to the financial sector if those measures do not also address federal prohibition, criminal justice reform, and social justice measures.




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