Late last week, a bi-partisan pair of federal lawmakers introduced a new bill to expand cannabis companies’ access to financial resources and opportunities. Introduced by Reps. Troy Carter (D-La.) and Guy Reschenthaler (R-Pa.), the Capital Lending and Investment for Marijuana Businesses (“CLIMB”) Act, H.R. 8200, aims to permit cannabis businesses to engage with community development, small business, minority development, and other public or private financial capital sources for investment and financing. Further, the bill aims to create a safe harbor for security exchanges to list securities for legitimate cannabis businesses.
Currently, cannabis businesses face substantial challenges in accessing the nation’s banking, payment processing and public investment ecosystem. Federal restrictions on cannabis have prompted only a limited number of smaller financial institutions, including banks and credit unions, to take on the risk of providing banking services to cannabis companies. However, those take on such risk are charging high fees and costs. As we have written elsewhere, the economic development of cannabis businesses, and especially small and diversity-owned entities, has been impeded through reduced liquidity, heightened entry barriers, and heightened security issues for some businesses forced to depend on cash transactions.
The CLIMB Act is not the first congressional proposal to address banking issues for cannabis businesses. The SAFE Banking Act has broad bipartisan support and would permit financial institutions to do business with cannabis companies without fear of prosecution, while prohibiting the federal government from terminating or limiting a financial institution’s deposit or share insurance solely because the institution works with a cannabis business. In addition, the bill would provide protections for other financial service providers, such as payment processors, from liability solely because of their activities providing services to legitimate cannabis businesses and investing income derived from such services.
The House has passed the SAFE Banking Act six times, both as part of larger legislative packages and as a stand-alone bill. The measure has so far stalled in the Senate.
The CLIMB Act
The CLIMB Act goes even further than the SAFE Banking Act in its two operative provisions.
First, the CLIMB Act would prohibit any federal agency from bringing any civil, criminal, regulatory, or administrative actions against a business or a person simply because they provide business assistance to a cannabis company or if they received compensation or proceeds from a cannabis company. “Business Assistance” is a defined term within the CLIMB Act, to mean, among other things, management consulting work, insurance, advertising, IT, debt or equity capital services, or banking, credit card, and financial services.
Second, the CLIMB Act would expressly provide a safe harbor for cannabis-related businesses and related service providers to list their securities on national securities exchanges. Specifically, the proposal outlines that the federal illegality of cannabis, whether flowing from the Controlled Substances Act or any other federal law, does not bar the listing or trading of securities on a national security exchange for cannabis-related legitimate business or a service provider.
In a statement announcing the bill, the proposal’s sponsors noted that “access to capital remains one of the biggest barriers to entry and to success in the industry,” and that the bill represents an “opportunity to bring equity and equal opportunity into our nation’s burgeoning cannabis industry.” The statement also included support from many advocacy and industry groups.
Both the SAFE Banking Act and the CLIMB Act represent incremental reform, as neither would necessarily legalize, or de-schedule, cannabis, but instead each addresses the operational realities of cannabis businesses operating in state-legal markets. Both bills would provide safe harbor for banks, credit card processors, and other financial institutions that service the industry, allowing more access to capital and investment for burgeoning cannabis businesses. The CLIMB Act goes farther than the SAFE Banking Act, expanding these safe harbor provisions to other service providers and even to national securities exchanges. As lawmakers and advocates push for cannabis legislation before the end of this Congress, the CLIMB Act presents another option for Congress to consider as it debates more comprehensive cannabis reforms.
Moreover, the SAFE Banking Act has continued to rack up supporters over the years. On May 25, the Conference of State Bank Supervisors released open letters to the House and Senate calling for the passage and expansion of the SAFE Banking Act. Over 20 governors signed a joint letter supporting the bill in 2021, and more than 35 state attorneys general issued a joint letter in 2019.
The CLIMB Act was referred to the House Committee on Financial Services. It faces an uncertain future, as Congress continues to wrestle with other cannabis legislative proposals. While the SAFE Banking Act has 180 bi-partisan co-sponsors in the House, the CLIMB Act was introduced with just two legislative backers: Representatives Carter and Reschenthaler.
Reforms to the cannabis banking and financial services ecosystem are much needed, as many major financial institutions and payment processors have been reluctant to work with cannabis businesses due to the federal illegality of cannabis. The protections proposed by the SAFE Banking Act, or the CLIMB Act, would provide some clarity to the significant uncertainties and hurdles regarding the financial aspects of the cannabis industry, would particularity help small businesses, and is a public safety imperative.