The $3 trillion HEROES Act contains provisions to reform marijuana banking laws.

For more than two months now, the coronavirus disease 2019 (COVID-19) pandemic has disrupted economic activity to a degree we've never previously witnessed. All told, the U.S. unemployment rate is nearing 15%, which is a level unseen since the Great Depression.

With the understanding that things may not be "normal" for a while, Congress passed and the president signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law on March 27. Among other things, the $2.2 trillion CARES Act provides $100 billion to hospitals, $500 billion for distressed industries, almost $350 billion for small business loans, and $260 billion for a four-month expansion of the unemployment benefits program.

But the most memorable aspect of the CARES Act is the $300 billion directed toward stimulus payouts.

A second round of stimulus payments has been proposed

These payouts, officially known as Economic Impact Payments, were sorely needed by Americans and their families to help purchase essential goods, as well as pay rent, mortgage, or utility bills. Unfortunately, surveys have shown that the vast majority of stimulus recipients burn through their payout in four weeks or less. Thus, for many folks, a second round of stimulus is very much needed.

Understanding these concerns, the Democrat-led House of Representatives introduced the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act last week. At $3 trillion, it would surpass the CARES Act as the biggest relief package in history, if approved.

The HEROES Act puts money to work in a variety of ways. It provides $1 trillion to at-need states, creates a $200 billion Heroes' fund to provide hazard pay to essential works, extends the unemployment benefits program expansion through January 2021, and allots $175 billion to help struggling families pay their rent, mortgage, or utility bills.

Additionally, the HEROES Act would mark round two of direct stimulus payouts. Using the same adjusted gross income eligibility requirements as the CARES Act, another maximum payout of up to $1,200 would head toward single taxpayers. However, changes in the bills' language, as well as in how much dependents can add to what a parent or household receives, could boost household payments to as much as $6,000.

But putting money into the pockets of Americans isn't all the HEROES Act would do. A deeper dive into the 1,815-page bill uncovers, of all things, cannabis banking reform legislation.

Surprise! The SAFE Banking Act is contained within the 1,815-page HEROES Act

For those who may recall, the House made history in September 2019 when it passed the Secure and Fair Enforcement (SAFE) Banking Act in a landslide (321 yea votes to 103 nay votes). It was the first piece of stand-alone cannabis legislation to ever reach any congressional floor for vote -- and it passed.

As the name entails, the SAFE Banking Act would provide permanent protections to financial institutions that want to offer basic banking services, such as a checking account, line of credit, or term loan, to marijuana businesses in legalized states. Although some states are currently allowing banks and credit unions to provide these traditional forms of access to financial services, marijuana remains a Schedule I substance at the federal level, and is therefore illicit. Since most financial institutions report to the Federal Deposit Insurance Corporation, a federally created entity, they risk criminal or financial penalties by offering services to businesses engaged in a federally illicit activity.

In addition to many pot stocks being unable to access lines of credit or loans, they've been forced to deal in cash, which is both a security concern and a growth inhibitor.

Further, since cannabis is a federally illicit substance, marijuana businesses haven't been eligible for any of the federal assistance tied to the CARES Act or other small business loan initiatives.

But beginning on page 1,066 of the HEROES Act, and continuing through page 1,091, you'll find the exact language used in the SAFE Banking Act that passed on the House floor in September. In other words, as the HEROES Act is written now, its passage would free up banks to provide financial services to pot stocks without the fear of federal prosecution or monetary penalties, as well as make pot businesses eligible for COVID-19 financial relief. 

Sorry, but cannabis banking reform won't pass muster

On paper, it sounds great. But the reality is that the HEROES Act contains numerous provisions that the Republican-led Senate and/or President Trump are unlikely to agree with. This makes the chance of the SAFE Banking Act becoming law very slim.

Putting aside the numerous other provisions contained within the HEROES Act that primarily concern the COVID-19 relief effort, the SAFE Banking Act would first have to get by Senate Majority Leader Mitch McConnell (R-Ky.). Following Jeff Sessions' departure as attorney general, there's probably not a more ardent opponent to reforming cannabis legislation than McConnell. As Senate Majority Leader, he can block the HEROES Act from coming to vote, or block the addition of certain riders to legislation.

Another key concern would be Senate Banking Committee Chairman Mike Crapo (R-Idaho). Like McConnell, Crapo has long had reservations about marijuana. In December, Crapo offered up an amended version of the SAFE Banking Act, calling for financing to only go to businesses that retail products containing less than 2% tetrahydrocannabinol (THC), the psychoactive cannabinoid that gets users high. This limitation would, effectively, eliminate almost all pot businesses from gaining access to traditional forms of financing.

About the only means of obtaining consistent financing for U.S. multistate operators (MSO) of late has been through sale-leaseback agreements via Innovative Industrial Properties (NYSE:IIPR). Innovative Industrial has taken advantage of Capitol Hill's unwillingness to reform cannabis banking laws to become a core provider of cash to MSOs. In a sale-leaseback arrangement, an MSO sells a cultivation farm or processing site to Innovative Industrial in exchange for cash. IIP then turns around and leases the property right back to the selling party, thereby locking in a renter for an extended period of time. As long as the SAFE Banking Act remains a proposal and not a law, IIP will continue to hold this financing arrangement advantage.