Giving the weed industry access to sophisticated financing would turn smaller businesses into big corporations.
By
The
legalization of marijuana as a medicine in 33 states, 11 of which allow
its use as a recreational drug, has made weed a dynamic American
industry, among the economy’s fastest-growing sources of new jobs.
California alone, with $3.1 billion in projected marijuana sales for
this year, has a legal market as large as that of any country on the
planet.
Entrepreneurs grumble
nonetheless. Not since Ronald Reagan ran for president have American
newspapers been so full of anecdotes about heroic jobs-creating
businessmen stymied by regulation.
Their
gripe concerns banking. Marijuana may be legal in many states, but it
remains illegal under federal law, which classifies it, implausibly, as a
highly dangerous Schedule 1 narcotic. A bank that does business with
weed growers or sellers therefore puts its assets at risk. Proprietors
of marijuana businesses find it hard to start 401(k) retirement plans
for workers and to get insurance. They can’t avail themselves of federal
bankruptcy protection. And they need to conduct a lot of their business
in cash.
To fix this problem,
Congress is considering the Secure and Fair Enforcement (SAFE) Banking
Act, which would create a “safe harbor” against federal bank regulators
in states where marijuana has been legalized. The bill has 206
co-sponsors and breezed through the House’s Financial Services Committee
in March. Treasury Secretary Steven Mnuchin backs it. So does
Representative Maxine Waters, Democrat of California. It appears to be a
matter of bipartisan logic and common sense.
It
is true that the available banking for marijuana business is unstable,
most of it provided by state-chartered banks and credit unions that do
not have the federal government as their primary regulator.
It is also
true that marijuana-related banking is expensive — $5,500 a month for a
checking account at one bank in Massachusetts, according to The Boston
Globe.
But reform could make matters
worse. Big investment banks and corporations want a more streamlined
banking regime in order to scale up marijuana operations. Many members
of Congress have rallied behind the SAFE Banking Act not because their
voters care about pot but because their donors care about money. The old
hippie who grows a couple of plants in his backyard in Santa Cruz is
not the guy who is paying the former House speaker John Boehner to lobby
on behalf of the National Cannabis Roundtable.
Relatively
well-capitalized pot businesses are already turning into big
corporations. Last year Bank of America and Goldman Sachs reportedly
advised Constellation Brands on a $4 billion investment in Canopy
Growth, a “multifaceted cannabis company” headquartered in Ontario.
(Marijuana is legal nationally in Canada.) On Tuesday the retired New
England Patriots tight end Rob Gronkowski revealed his new role as a
spokesman for Abacus, a corporation that sells cannabis-derived health
products.
Any businessman would want
in on marijuana. It is a legal drug, and a legal drug is a gold mine. If
it is addictive, it creates a compulsion to purchase. As we learned
from the tobacco hearings of the 1990s, not all businessmen can resist
exploiting their customers’ compulsions. The National Institute on Drug
Abuse says marijuana “can” be addictive. But even if a drug is merely
“habit forming,” as many doctors believe marijuana to be, it creates an
unlevel playing field between seller and consumer. The more “efficient”
the market, the more powerful this inequality.
Whether
or not marijuana’s Schedule 1 classification makes sense medically, it
serves a purpose politically. Often government intervention requires
thwarting businessmen’s antisocial impulses, not just unleashing their
productive ones. Politicians are reluctant to admit to being
“anti-business.” So a lot of useful regulation gets carried out under
pretexts.
Adding
sophisticated banking to the pot business will do more than make it
more “logical.” It will also turn an artisanal space into a corporate
one. It will change what we mean by “legalized marijuana.” In referendum
questions over the past decade, Americans have been making big
decisions based on such thoughts as, “Should my 19-year-old daughter be
put at risk of prison because she was caught with a joint at the
freshman mixer?” Voters in many states have seen legalizing marijuana as
the prudent choice. Corporations didn’t enter into it.
But
corporations bring to the fore questions of size, power and
accountability. Do we want multinational businesses using vast marketing
budgets and gifted creative teams to teach our children that smoking a
lot of pot is somehow sexy, or manly, or sophisticated? Do we want labs
to come up with new flavors and varieties that turn pot-smoking into an
adventure in connoisseurship and a way of demarcating oneself by class?
Would we be content with a Microsoft of marijuana?
You might still want
pot to be legal under these circumstances, but it seems likely that
sentiment in its favor would weaken, especially in an age when Joe Camel
and OxyContin have become symbols of how corporations market legal
drugs. Losing popular support could cost marijuana its legal status.
Or
it could simply mean an embattled legality, maintained through some of
the tactics other outcast interests have used: lobbying, regulatory
capture, the funding of tendentious research.
Good
political outcomes are often accidental. Institutions get built at some
arbitrary resting place between two clashing logics. Our current
marijuana banking regime is the result of such an accident.
It is where
the half of the country that wants a retreat back to criminalization
meets the half that wants a rush ahead to megamarijuana. For now it may
be the country’s best way to avoid a premature and destructive
consolidation.
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