How Would Rescheduling Marijuana Affect Cannabis Banking?

Currently, “marihuana” is a Schedule I controlled substance under 21 U.S. Code § 812, meaning, by definition, it has no known beneficial medical use coupled with a high potential for abuse. However, that designation has long been in question by proponents of expanding US cannabis access. On May 31, 2024, news came out that the U.S. Department of Health and Human Services recommended cannabis be rescheduled to Schedule III drug, considered to have “a moderate to low potential for physical and psychological dependence.” Since the DOJ’s proposed rule change, a 60-day public comment period has come and gone. 

Many advocates have worked for years to push the DEA to consider rescheduling cannabis. Those efforts led to the proposed rescheduling to Schedule III. More than 40,000 comments were submitted to the federal government, 68% of which support rescheduling.

The next step is for the Drug Enforcement Administration (DEA) to hold a public hearing, which will not take place until December 2024 — after the presidential election. We do not know how the DEA will rule.

The impact of rescheduling cannabis

Cannabis’s current classification as a Schedule I substance has been a major roadblock in efforts to federally legalize cannabis. So has the adoption of the Comprehensive Drug Abuse Prevention and Control Act of 1970, more than 50 years ago. During that time, advocates have argued that there is enough evidence to suggest that cannabis’ Schedule I designation is not appropriate. The U.S. Food and Drug Administration (FDA) implied cannabis could have therapeutic properties as far back as the 1980s, when the agency approved synthetic form of Delta-9 THC called Dronabinol as an antiemetic (nausea medication) and appetite stimulant for people with AIDS or those undergoing chemotherapy.

If cannabis is rescheduled, how may banking be affected?

Should rescheduling be finalized, we could see a significant impact in the way financial institutions approach the legal cannabis industry. Here’s how and why:

More financial institutions would be encouraged to serve the legal cannabis industry

Cannabis remaining federally illegal keeps some financial institutions from working with legal cannabis businesses. However, rescheduling may allay some concerns about serving medical marijuana businesses specifically. It could also provide bankers with a familiar conceptual model, similar to the pharmaceutical banking industry. Financial institutions understand the risks of the pharmaceutical industry and are lending today using accepted industry underwriting models. Thus, financial institutions wouldn’t have to reinvent the wheel to accommodate this particular cannabis sector.

Interested in perspectives for banks, credit unions, and financial institutions? Check out our guide on what financial institutions need to know about cannabis rescheduling.

There may be more pressure on payment processors to support cannabis transactions

Major credit card networks like Visa and Mastercard have said they won’t support cannabis businesses unless the industry is federally legalized. Rescheduling is not the same as federal legalization.

However, should the federal status of cannabis change, major card networks like these will more than likely reexamine their position on cannabis. If they open their networks to cannabis transactions, this would allow a slew of new (and existing) payment processors to enter the space. Keep in mind that Visa, Mastercard, and AMEX all opened up their networks in Canada following federal legalization.

Increased medical cannabis treatments and access 

If cannabis becomes a Schedule III drug, it would improve the ability of the FDA to approve cannabis-derived prescription medications, because there would be fewer barriers to conducting research to back up those products’ medical efficacy claims. If that were to happen, insurance companies may be able to reimburse patients for medical marijuana treatments. This may indirectly affect further normalization in cannabis banking because financial institutions can apply their preexisting pharmaceutical banking infrastructure to medical cannabis businesses. If this is the case, more big banks could open up to serving the industry. 

Improved access to the stock market for cannabis businesses

If the pharmaceutical industry is able to enter the legal cannabis market via cannabis rescheduling, it’s unlikely their publicly-traded companies will be delisted from the NYSE and NASDAQ. This would establish a precedent that cannabis-related businesses (CRBs) could be listed on the exchanges. That would lead to more investment opportunities for the industry, stimulating growth opportunities nationwide, and likely globally, too.

Lending options may open up

Rescheduling could broaden access to more financial services for cannabis businesses. Lending would naturally follow basic banking services like checking accounts, and any possible changes from major card networks would be an encouraging signal as well.

There’s also the ripple effect such a ruling would have on the economic and political climate. Economically, financial institutions may be more likely to consider entering the cannabis market if they can generate more business by offering more products. Politically, a strong signal like rescheduling from the federal government may encourage support for legislation that may benefit the industry as a whole, spurring an even greater need for lending products throughout the industry.

Interested in lending to the cannabis industry? Learn about the types of lending products you can offer to cannabis related businesses now.

Could rescheduling disrupt state-level cannabis markets?

 No path forward for federal cannabis legislative change will come without changes nor challenges for state-level markets. Observers have expressed both excitement and concern that rescheduling cannabis could disrupt state markets and regulatory programs. However, only time will tell precisely what those changes are. Since the cannabis industry is still young and evolving, it is both susceptible to — and receptive of — seismic changes, so we can expect some ripple effect from the federal level, even if not 

Rescheduling cannabis will be a big step if it moves forward

If cannabis gets rescheduled in 2025, financial institutions could serve cannabis businesses through a familiar pharmaceutical lens. Credit card companies and other payment processors would likely start offering electronic payments to medical cannabis businesses. Cannabis businesses could gain better access to American public markets for the first time, more big banks may move to embrace the existing medical cannabis market, and lending should naturally follow. 

However, rescheduling is not inevitable. As financial institutions and cannabis operators hypothesize on what’s ahead, it’s important to remember that rescheduling may not come to fruition. For financial institutions who serve or want to serve the cannabis industry, we encourage you to continue developing your programs and servicing this rapidly-growing industry. This way, you’re well-situated to capitalize on the growing opportunity when and if rescheduling does happen.