Attorneys General from 33 states wrote a letter to Congress to urge passage of cannabis banking legislation known as The SAFE Banking Act, which the House Financial Services Committee advanced in March. So far the bill has 175 co-sponsors from both parties.
As things currently stand, Federal marijuana statutes put banks at risk of civil actions, asset forfeiture, reputational risk, and criminal penalties should they do business with the marijuana industry.
The letter, which is an attempt to move the marijuana business out of a financial gray area and into the regulated banking sector stated in part:
"Regardless of how individual policymakers feel about states permitting the use of medical or recreational marijuana, the reality of the situation requires federal rules that permit a sensible banking regime for legal businesses . . . Our banking system must be flexible enough to address the needs of businesses in the various states and territories, with state and territorial input, while protecting the interests of the federal government. This includes a banking system for marijuana-related businesses that is both responsive and effective in meeting the demands of our economy."
According to SAFE Banking Act sponsor, Rep. Ed Perlmutter of Colorado, the letter from state officials "underscores the need to respect states' rights on this issue and make our communities safer by allowing the marijuana industry and related businesses access to the banking system."
The letter was praised by banking industry officials, including the American Bankers Association which wrote in a statement that the bill “provides much-needed clarity for banks in states where cannabis is legal."
According to the President and Chief Executive Officer of the Colorado Bankers Association Don Childears, the goal is to get cash off the streets. Childers told American Banker magazine, "We've had people killed in robberies of marijuana shops here in Colorado. I can't say that wouldn't happen if you had banking services, but at least you wouldn't have the temptation of large amounts of cash."
Those signing the letter included attorneys general from Alaska, Arizona, Arkansas, California, Connecticut, Colorado, Delaware, Hawaii, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nevada, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Utah, Vermont, Virginia, Washington, West Virginia, and Wisconsin.
Marijuana is a cash-only industry
The majority of U.S. states have legalized marijuana in one form or another. However, marijuana is still illegal under the Federal Controlled Substances Act. For this reason, the vast majority of banks have shied away from doing business with the industry in order to avoid potential legal battles, especially getting caught up in federal racketeering laws.
Most marijuana operations today must do business in cash which is not only a public safety risk, but it makes revenue tracking and taxation more difficult. Even the U.S. Internal Revenue Service had to build “cash rooms” to accommodate tremendous amounts of cash being used to pay taxes.
Because of the risks involved in holding such large amounts of cash, cannabis operations must invest heavily in security that other businesses do not require or otherwise risk being easy targets for armed robberies.
The letter argued that over $8 billion in legal cash is being transported annually by operators, not only inviting crime but preventing oversight against money laundering.
"This is simple: Not incorporating an $8.3 billion industry into our banking system is hurting our public safety and economy. The SAFE Banking Act would reward taxpayers and small and local licensed businesses who play by the rules. We urge Congress to pass legislation to meet the demands of our growing economy." — California Attorney General Xavier Becerra
A similar letter was sent to Congressional lawmakers earlier this month by a group of 17 bipartisan state treasurers. Their letter, which was put together by Oregon's Tobias Read states, "Without banking services, cannabis businesses are less able to obey the law, pay taxes, and follow state regulations of the industry. The public safety risks posed by these businesses are easily mitigated through access to banking service providers and keeping the cash off the streets. Nearly every U.S. state has a stake in this issue."
Recent developments on the SAFE Banking Act
Last month, the House Financial Services Committee voted 45 to 15 in favor of the SAFE Banking Act. Representative Ed Perlmutter (D-Col.) introduced the bipartisan SAFE Banking Act. During a markup session, Rep. Steve Stivers (R-Ohio), produced an amendment which would extend the bill’s protections to insurers.
Also at the House hearing, Treasury Secretary Steven Mnuchin noted, “There is a conflict between federal and state law that we and the regulators have no way of dealing with. There is not a Treasury solution to this. There is not a regulator solution to this.”
And Federal Reserve Chairman Jerome Powell recently stated during a Senate hearing, “Financial institutions and their regulators and supervisors are in a very difficult position here with marijuana being illegal under federal law and legal under a growing number of state laws.”
“Conflicting federal and state marijuana laws make it difficult for legitimate businesses to use the basic financial services they need access to, and this bipartisan legislation gives them that access they need. We must also take into account the risk to public safety, as these businesses are being forced to carry around bags of money to pay for their employees and rent. Legal businesses should not be treated like this, and I’m glad that Republicans and Democrats are working together to address this issue.” — Sen. Cory Gardner
The SAFE Banking Act now awaits the House Judiciary Committee’s response. This month, Senators Jeff Merkley (D-Or.) and Cory Gardner (R-Col.), along with twenty co-sponsors filed a companion version of the SAFE Banking Act which would require banks to comply with current Financial Crimes Enforcement Network (FinCEN) guidance. It would also allow FinCEN guidance to be “streamlined over time as states and the federal government adapt to legalized medicinal and recreational cannabis policies.”
According to a report in The Hill, the SAFE Banking Act has the support of the American Bankers Association (ABA), Credit Union National Association (CUNA), Independent Community Bankers of America (ICBA), Law Enforcement Action Partnership (LEAP), the Electronic Transactions Association (ETA), the National Cannabis Industry Association (NCIA), Mid-Size Bank Coalition of America (MBCA), The Real Estate Roundtable, and various U.S. trade associations such as the American Land Title Association (ALTA), American Property Casualty Insurance Association (APCIA), and the Reinsurance Association of America (RAA).
Both bills are still being debated and could undergo substantive changes. Currently, neither the House bill nor the Senate bill is scheduled for a vote on the floor.