Marijuana Banking Legislation Gets Attention in U.S. Senate

The Republican chairman of the Senate Banking Committee seemed open on Tuesday to legislation that would clear the way for more banks and credit unions to provide financial services to state-regulated marijuana businesses.

“I think a case has been made pretty strongly here about the need to get the banking industry issues relating to cannabis resolved,” U.S. Sen. Mike Crapo, an Idaho Republican who chairs the panel, said towards the end of a hearing about banking for the cannabis sector.

But he also voiced concerns that “legacy cash” flowing through the industry poses a problem by providing money launderers and drug cartels with an inroad to the banking system.

Also on Tuesday, U.S. Sen. Kamala Harris, of California, who is vying for the 2020 Democratic presidential nomination, introduced a bill that would decriminalize marijuana at the federal level, and require federal courts to expunge certain marijuana convictions.

“Marijuana should not be a crime,” Harris said in a statement. “We need to start regulating marijuana, and expunge marijuana convictions from the records of millions of Americans.”

U.S. Rep. Jerrold Nadler, a New York Democrat who chairs the House Judiciary Committee, introduced a companion bill in the House.

Even though 11 states have moved to legalize recreational marijuana and nearly three dozen permit medical marijuana, cannabis remains classified as a dangerous and illegal drug under federal law.

For banks, this has meant they largely won’t deal with the industry.

So, cannabis businesses end up handling large sums of cash, raising concerns about robberies, tax fraud and a host of other issues. State and local governments are also dealing with the ramifications as they process millions of dollars in cash tax and fee payments.

Legislation known as the Secure And Fair Enforcement, or SAFE, Banking Act is intended to provide a way for more banks and credit unions to work with state-legal marijuana businesses.

The legislation has backing from the banking industry, at least 17 state treasurers and 38 state and territory attorneys general, as well as support from within the cannabis sector itself.

A House Committee approved a version of the legislation in March. But Tuesday marked the first time that a panel in the Republican-controlled Senate has held a hearing on the bill.

“It’s the states that are leading on this issue and the federal government has failed to respond,” U.S. Sen. Cory Gardner, a Colorado Republican, said during testimony before the Senate Banking Committee. “What makes the current situation intolerable and untenable is the disconnect between federal and state law.”

Gardner is one of five Republican cosponsors who’ve signed onto the Senate draft of the legislation. Twenty-four Democrats and two Independents are also backing it.

Sen. Jeff Merkley, an Oregon Democrat, is the lead sponsor.

"There's nothing good about forcing the world to operate on cash,” he told the committee. “It is an invitation to money laundering, it is an invitation to organized crime, it is an invitation to robbery, it is an invitation to cheat on your taxes, or cheat your employees.”

Merkley noted that in Oregon in fiscal year 2018, the state and local governments collected over $80 million in tax revenues from the marijuana industry. "That's $80 million traveling down the roads and highways in duffel bags and backpacks,” he said.

"Let's fix this,” Merkley added. “Let's honor the states' rights vision.” 

Under the legislation, federal banking regulators wouldn’t be able to penalize banks for providing financial services to marijuana businesses that are operating legally under state laws, or from prohibiting them from offering services to the companies.

The bill would also block authorities from terminating or restricting a bank’s federal deposit insurance solely because the bank is working with clients in the regulated marijuana sector.

And it would create a “safe harbor” from criminal prosecution and liability and asset forfeiture for banks and their employees who provide financial services to the industry.

John Lord is the CEO and owner of LivWell Enlightened Health, a cannabis company in Colorado with over 600 employees and $100 million in annual revenue. The company’s 15 retail stores each pull in about $20,000 in revenues per day on average.

“Because of the current status of the law, we are forced to operate an all-cash business,” Lord, also the current board of directors chair for the Cannabis Trade Federation, told the committee.

He said his company has frequently struggled to obtain and maintain bank accounts, that he at one point rented out a former bank to use as a vault to store cash, and once walked into the IRS offices in Denver with more than $3 million in cash in order to pay federal taxes.

“We're looking forward to federal regulation,” he said. 

Rachel Pross, chief risk officer for Oregon-based Maps Credit Union, which serves marijuana businesses, testified on behalf of the Credit Union National Association. 

She noted the connections that a wide range of businesses can end up having with the marijuana industry, putting them at risk of running into difficulties when banking. 

“Locking lawyers, landlords, plumbers, electricians, security companies, and the like out of the nation’s banking and finance systems serves no one’s interests,” she said.

Similar risks exist for marijuana business employees and investors, according to those who testified on Tuesday.

“Cannabis banking can be done safely and effectively,” Pross added.

She also stressed that when companies are operating in the banking system it can make it easier for authorities to sniff out illegal activity. 

Maps Credit Union, according to Pross, has filed 3,489 reports of suspicious activity with federal authorities since 2017—91.5% of which were directly due to filing obligations for cannabis businesses under Treasury Department guidance.

Joanne Sherwood, a Colorado banker who appeared at the hearing on behalf of the American Bankers Association, reiterated the group’s support for the SAFE Banking Act.

“As the legal state cannabis industry continues to grow, the indirect connections to cannabis revenues will also continue to expand,” Sherwood said.

“Without congressional action and clearer guidance from banking regulatory agencies, that entire portion of economic activity,” she added, “may be marginalized from the banking system.”

Gardner, the Colorado senator, suggested Congress’ failure to address conflicts between federal and state marijuana laws is mainly rooted in two incorrect assumptions. 

One, he said, is that the federal government can continue with a policy of total prohibition. “We can't. We are a government of the people and the people have changed their views,” he said. 

The second is that a national consensus on full legalization will be possible in the near term. Gardner doesn’t see this as the case. 

“There are still too many unanswered questions,” he said. “If those seeking reform insist on swinging for the fences, they will strike out and lose the chance for real improvement.” 

Gardner’s skepticism of the possibility for full federal marijuana legalization in the short-run is a sign of the uphill battle Harris and Nadler face with their legislation.

In addition to the decriminalization and expungement provisions, the bill would—among other things—authorize the assessment of a 5% sales tax on marijuana goods to pay for an “Opportunity Trust Fund” that would support several new grant programs.

One would provide people most adversely affected by the “War on Drugs” with services, including job training, assistance for people getting out of prison, legal aid, literacy programs, youth recreation, mentoring, and substance use treatment.

Another would fund loans to assist small businesses in the marijuana industry owned and controlled by people who are socially and economically disadvantaged.

A third would help pay for programs meant to lower barriers to getting marijuana business licenses, and jobs in the cannabis industry, for those most adversely affected by the War on Drugs.

The bill defines people most adversely affected by the War on Drugs as those who had an income below 250 percent of the federal poverty level for at least five of the past 10 years and who've been arrested for or convicted of certain drug-related crimes, or had a parent, sibling, spouse or child arrested for or convicted of those offenses.

“As marijuana becomes legal across the country,” Harris said, “we must make sure everyone—especially communities of color that have been disproportionately impacted by the War on Drugs—has a real opportunity to participate in this growing industry.”