Smoke Signal From Congress: Movement on Cannabis Banking?

Financial Services Law

Lawmakers recently met to consider cannabis banking, discussing two different bills that have been introduced to solve the problem of providing financial services to an industry that operates under a cloud imposed by federal law.

The hearing focused on two proposed bills, the SAFE Banking Act and the STATES Act, which represent two different approaches to the problem.

What happened

The financial services industry has struggled with how to address the banking needs of the growing and lucrative cannabis industry where it is lawful under state law. At last count, 33 states have authorized medical marijuana use and ten have legalized recreational marijuana use. However, marijuana remains illegal under the federal Controlled Substances Act (CSA), and banks are prohibited from knowingly providing services to illegal enterprises.

Former Attorney General Jeff Sessions took a hard line against the cannabis marijuana industry, emphasizing that marijuana remains illegal under federal drug laws and specifically referencing a provision of the Bank Secrecy Act (BSA) that requires financial institutions to create and maintain sufficient anti-money laundering policies and procedures.

Sessions’ memorandum departed from the position taken under the Obama administration, which put a policy in place that attempted to balance state legalization with the goals and requirements of the BSA.

With a new Attorney General in office who has initially indicated a softer stance on marijuana banking and Democratic control of the House of Representatives, the House Financial Services Committee’s Subcommittee on Consumer Protection and Financial Institutions called for a hearing.

At the hearing, titled “Challenges and Solutions: Access to Banking Services for Cannabis-Related Businesses,” the legislators discussed possible legislative fixes.

One potential candidate is the Secure and Fair Enforcement (SAFE) Banking Act, a bill recently reintroduced by Rep. Ed Perlmutter (D-Colo.). The measure would prohibit federal banking regulators from terminating deposit insurance, penalizing depository institutions from providing financial services, recommending or incentivizing a bank not to offer financial services, or taking other corrective action against banks because they work with legitimate cannabis-related businesses. Significantly, under the bill, in a state that has legalized activities related to marijuana, a depository institution that provides financial services to legitimate cannabis-related businesses may not be held liable under any federal law or regulation solely for providing such financial services.

“We need these marijuana-related businesses and employees to have access to our banking system … to prevent tax evasion, money laundering and other white collar crime,” Rep. Perlmutter said at the hearing. “Our bill is focused solely on taking cash off the streets and making our communities safer.”

The Independent Community Bankers of America (ICBA) threw its support behind the bill. Speaking on behalf of the organization, the CEO of State Bank Northwest (Spokane, Washington), Gregory Deckard, stated that his bank currently does not serve marijuana businesses because “the legal stakes are simply too high for me, my board and my investors to tolerate.” The ICBA pledged to work with lawmakers to advance the SAFE Banking Act in order to, as Deckard said, “create a statutory safe harbor so that banks like mine are free to serve the growing cannabis industry, should we choose to do so, without fear of legal and regulatory repercussion.”

Another approach—the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act, co-sponsored by Sens. Elizabeth Warren (D-Mass.) and Cory Gardner (R-Colo.)—would amend the CSA to create an exception for persons involved in a variety of capacities relating to marijuana, including its manufacture, production, distribution, possession or delivery, as long as they were acting in compliance with state law. Banks, in turn, could offer financial services to such parties without fear that the underlying activities of their customers violated federal law.

The proposal, first introduced last year, has drawn the support of larger banks because of its more holistic approach, extending protections to a variety of banking activities beyond simply the bank’s role as a depository.

While the hearing represents movement on the issue, obstacles remain to passage of a federal law.

“We must remember we are dealing with an illegal industry on the federal level,” Rep. Blaine Luetkemeyer (R-Mo.) told fellow legislators. “As far as I know, the House Financial Services Committee does not have jurisdiction over de-scheduling a drug. In my opinion, we are putting the cart before the horse by addressing this issue here … but I welcome the broader conversation.”

Why it matters

Momentum appears to be slowly rising in favor of a solution to the problem of financial services for the cannabis industry. However, lawmakers differ on the best solution and challenges remain to passage of a law, with some pushing for legalization of marijuana at the federal level and others hesitant to support a bill if their state hasn’t legalized the drug yet. With an increasing number of states taking action to legalize cannabis, and a new Attorney General in place at the Justice Department, there may be a potential relaxation of restrictions that would provide a much-needed opportunity for depository institutions to service the cannabis industry.



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