Banking in the cannabis industry has been a contentious issue due to marijuana’s current classification as a federal Schedule I drug. A hearing in Congress may mark the beginning of a change in federal policy. Federal financial policies that is.
On February 13, a subcommittee of the U.S. House Committee on Financial Services heard testimony on the difficulties legal cannabis businesses face in opening and maintaining business-related bank accounts.
“It creates a huge barrier for other entrants coming into the marketplace,” said Rachel Pross, Chief Risk Officer of Maps Credit Union, an Oregon-based business.
Presiding over the Consumer Protection and Financial Services Subcommittee hearing on "Challenges and Solutions: Access to Banking Services for Cannabis-Related Businesses" pic.twitter.com/TC0soeE2RM
— Rep. Gregory Meeks (@RepGregoryMeeks) February 13, 2019
“Anytime you have a cash-based industry you’re going to have an increased risk of crime in the community – theft of local business. [Maps Credit Union] serve the whole chain from retailers to growers to laboratories, processors. And in just the last two years we’ve taken in over $500 million in cash off the streets,” Pross concluded.
Pross was scheduled to testify before the House subcommittee on behalf of the Credit Union National Association.
Fellow members of the panel presenting to the House Committee in support of changing banking policies included California State Treasurer Fiona Ma and representatives from such organizations as the Smart Approaches to Marijuana and, surprisingly, the Law Enforcement Action Partnership.
We've needed banking access for cannabis businesses for the past six years. It is unacceptable for Congress to allow such a critical public safety threat to go unaddressed. We're late, and it's past time to pass the #SAFEBanking Act. pic.twitter.com/Lzcm85YgyV
— Denny Heck (@RepDennyHeck) February 13, 2019
What would the SAFE Banking Act do?
The House subcommittee heard testimony and discussed the Secure and Fair Enforcement Banking Act of 2019. Representative Ed Perlmutter introduced a version of this bill last year and was one of the scheduled panel members to discuss the SAFE Banking Act.
According to the discussion draft of the SAFE Banking Act, the proposed bill would “harmonize” federal and state law concerning cannabis businesses, allowing these organizations to access banking services.
Additionally, these banks, as well as their employees, would be exempt from federal prosecution solely for providing banking services to legitimate cannabis businesses.
Glad to see @CalTreasurer @fionama as one of the witnesses in today's @FSCDems hearing on access to banking services for cannabis-related businesses. Legal #cannabis is here to stay & entrepreneurs & consumers deserve safe banking options. Watch LIVE here: https://t.co/KfPk9zVpaE
— Rep. Ted Lieu (@RepTedLieu) February 13, 2019
“Removing the risk of criminal prosecution simply for banking an industry that is legal in our state – that is a huge step forward in the right direction,” Pross said.
The Honorable Fiona Ma, Cal. State Treasurer, also testified on behalf of the SAFE Banking Act. Arguing in a statement that the federal government must address risk management in the cannabis banking industry to assuage nervous financiers.
“It is for this reason that I believe that the risk management of these financial service firms has been transformed into outright risk avoidance by too many institutions and why we need your help,” Ma wrote.
At the Consumer Protection and Financial Institutions Subcommittee hearing where we're discussing the challenges and solutions concerning cannabis-related businesses and their access to banking services. pic.twitter.com/MCjOwlyNOf
— Rep. Jennifer Wexton (@RepWexton) February 13, 2019
Arguments for and against the SAFE Banking Act
Without a bank account, marijuana businesses are required to operate on a cash-only basis. Treasurer Ma stated that cannabis dispensary employees have dropped off duffel bags and even suitcases full of cash to pay their taxes, putting the employees at great risk.
“We have the power in this committee to prevent murders and armed robberies, and we must use it, we must use it now,” said Representative Denny Heck, who is co-sponsoring the legislation.
Opponents of the bill argue that the SAFE Banking Act is putting the proverbial horse before the cart. Congressman Blaine Luetkemeyer argues that federal marijuana laws need to be either enforced or changed before he can consider a bill that would allow cannabis companies to have business bank accounts.
“If you want to get to the point where you can sell marijuana, you have to fix the legality part of it,” Luetkemeyer told Yahoo Finance. “Whether you want to have just the medicinal portions of it to be fixed or you want to do recreational and have the drug be completely legal… that’s up for discussion.
“Once you decide whether you want to… how you want to deschedule it, and then at that point you can work on the banking portion of it,” Luetkemeyer said.
Treasurer Ma disagrees. In her statement to the subcommittee, Ma argued that by establishing federal laws which protect banks that do business with licensed cannabis businesses, the subcommittee would, in fact, be ensuring legal financial practices by state-licensed businesses.
“To sum, an effective safe harbor mechanism in federal law promotes the safety of the public, improves the efficiency of collecting the taxes and fees we use to regulate the industry, and does not allow the banks and credit unions to totally abdicate their responsibilities to know their customers and avoid illicit money laundering,” Ma wrote.
I appreciate today's first-ever hearing on #cannabis banking & I encourage all my colleagues to consider the #SAFEBanking Act as a way to get cash off the streets and make our communities safer. Only Congress can provide certainty for these businesses and financial institutions. pic.twitter.com/o1fHWXNOcr
— Rep. Ed Perlmutter (@RepPerlmutter) February 14, 2019
What are the SAFE Banking Act’s chances of survival?
As with any proposed legislation, a bill has to go through the committee and hearings process. While the House enjoys a Democratic majority, the bill would have to survive the Republican-controlled Senate.
Some Republicans on the subcommittee, including Luetkemeyer, feel that taking on the financial side of cannabis before addressing the federal classification of cannabis may cause confusion.
“Today we are discussing the merits of allowing federally illegal businesses to access banking services. As far as I know, the House Financial Services Committee does not have jurisdiction over descheduling a drug,” Luetkemeyer said.
However, the marijuana industry has received surprising support in recent years. Former House Speaker John A. Boehner, a former opponent to the legalization of marijuana, now acts as the head of a pro-cannabis lobbying group.
Even presidential candidates are admitting to being pro-pot. Senator Kamala Harris admitted in a radio interview to enjoying cannabis in the past.
“Half my family is from Jamaica; are you kidding me? And I did inhale,” Harris laughed.
Time will tell if the proposed legislation can survive the congressional hearing process.