Playing it SAFE

The US SAFE Banking Act could improve confidence and provide greater access to finance for Colombian companies. But it needs to pass into law first.

By: Mat Youkee

On September 25, the US House of Representatives passed the Secure and Fare Enforcement (SAFE) Banking Act with 321 votes in favor and 103 against. The key feature of the bill is that it precludes federal banking regulators from taking adverse action against those financial institutions working with cannabis companies in states in which the drug is legal. Should the bill pass through the senate and enter into law it would allow greater assurances to financial institutions currently wary of providing accounts and loans to cannabis companies.

“There are very few banks in the US willing to assume the risk of doing business with a cannabis company,” Troy Dayton, CEO of investment fund The Arcview Group told CCI. ”If SAFE passes, it would really improve access to finance, push down the cost of capital and open up the path for institutional investors and Fortune 500 companies to take a leap into this space.”

That’s still a big “if”, however. The Republican-controlled Senate is likely to be a far tougher battleground for the proposal, especially given Senate Majority Leader Mitch McConnell’s well-known opposition to legalization. Nevertheless, McConnell has shown a willingness to meet with cannabis companies in Southern California. And data from, which tracks political financing, shows that companies spent a record US$3.77m on lobbying activities in the first nine months of 2019, much of it focused on SAFE.

If SAFE passes it would be a huge boost not just for the US but also for the global cannabis industry as a whole.

- Daniel Tobon, Nu Sierra

“It’s going to be a tough fight in the Senate, but it has a chance,” says Dayton. “And if it passes then it’s very likely the president will sign it. He has remained consistent in supporting states in making their own choices regarding cannabis.”

Should SAFE enter into law, it would have major ramifications for the cash- starved Colombian cannabis industry. The majority of Colombian banks use the Citibank money desk for international transactions and the US institution has rejected lobbying to allow capital inflows to cannabis related companies. For a bank to do business with a cannabis company whilst the drug remains federally illegal in the US would potentially jeopardize this crucial relationship. The risks simply outweigh the potential rewards.

BANKING RESTRICTIONS: In August 2018, CCI reported that only Banco Agrario and Spain’s BBVA were opening accounts for cannabis firms. Since then BBVA have stopped opening new accounts for the industry. Colombia’s banking superintendency has resisted pressure from companies to bring a directive establishing good practices for financial inclusion of the sector. Indeed, it is understood by CCI that several banks have sent internal memos explicitly forbidding branches from doing business with companies directly or indirectly working with cannabis. Amongst certain sections of the banking elite, the suspicion that individuals involved in the illicit drug trade may be trying to “go straight” provokes a further reticence to validate the sector. Nothing appears to have budged the country’s financial institutions, which still look north for a signal for how to deal with the industry.

“Under the current state of the law in the US, banks working within the cannabis sector have to, understandably, undertake a heightened level of due diligence. This entails real costs to the banks in terms of time and personnel.” Daniel Tobon COO of Nu Sierra, a Colombian LP told CCI. “In order to recoup these costs, some banks charge compliance fees of up to $10,000 a month. If SAFE passes it would be a huge boost not just for the US but also for the global cannabis industry as a whole. Not only will this ease access to finance but it will also give greater confidence to banking partners and investors looking to get involved with Colombian projects.”

KNOW YOUR CLIENT: Some level of formalization is necessary in an industry which has been forced to improvise to bring investment into the country. Companies opening an account with Banco Agrario already have to go through a long and arduous know-your-client (KYC) process and bringing money from outside can be delayed up to three months, jeopardizing the investment. Some companies have reportedly resorted to convoluted systems, bringing in money to their personal accounts or establishing real estate investment vehicles to register the foreign investment before recycling the money into their business.

A further complication awaits the country’s growers: Taking out insurance on their projects is also likely to prove impossible. All of the country’s insurance companies receive their reinsurance from US firms.

“The cannabis sector rivals the gold mining sector for the complexity of realizing foreign investments,” Patricia Montoya Ruíz, a Medellín-based investment lawyer told CCI. “All the financial institutions are on alert regarding cannabis, they don’t want to risk their international banking relations or become tied up in a corruption or money laundering case. The government says it wants to promote the industry but there is a lack of political will to break the deadlock in the financial sector.”

The sense of hesitation is palpable to Dayton, who made his first visit to Colombia in September. He was impressed by the level of opportunity in the country but noticed that things were not moving as quickly as many of the pitches he had received suggested. “I’ve heard that one of the reasons the government hasn’t been too excited about promoting the legal cannabis industry is because they worked so hard to move the image of illicit drugs that Colombia has had in the past. They don’t want to reinforce that old stigma, even though the legal marijuana industry would be great for the economy.”

For Montoya, further hurdles exist beyond SAFE. The continued presence of marijuana on the UN’s list of controlled substances could continue to provide challenges for international banking even after US federal legalization. Although European members are broadly in favor of removing cannabis from the list, China and Russia remain firmly opposed, even for medicinal usage.

Colombia’s cannabis companies already face significant operational risks and regulatory uncertainties and the addition of challenges accessing international finance is an unwelcome one. The industry needs to gain credibility and formalization but the current system demands that companies improvise and circumvent.