| 3.23.22

Should the Feds Allow Legal Marijuana Businesses to Access Banks? (H.R. 1595)

Do you support or oppose this bill?

What is H.R. 1595?

(Updated January 3, 2021)

This bill — the SAFE Banking Act of 2019 — would allow marijuana-related businesses in states where their businesses are legal to access the banking system. It would also protect banks that do business with marijuana firms from prosecution under federal law by providing a safe harbor for banks and credit unions to do business with legal, legitimate marijuana businesses. Currently, because cannabis is illegal at the federal level under the Controlled Substances Act, financial institutions that provide banking services to legitimate and state-licensed marijuana businesses can be subject to criminal prosecution. Because legitimate cannabis businesses can’t bank at federally insured institutions, they’re often forced to operate on a cash-only basis.

Banks would be required to comply with the current Financial Crimes Enforcement Network (FinCEN) guidance, which would be streamlined over time as states and the federal government adapt to legalized medicinal and recreational cannabis policies. Additionally, this bill would:

Prevent the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA) from taking action against banks or credit unions (and the employees of such financial institutions) that serve cannabis-related businesses.
Prevent regulators (the FDIC and NCUA) from limiting access to financial institutions by cannabis-related businesses.
Require FinCEN and the Federal Financial Institutions Examination Council (FFIEC) to issue guidance for institutions that provide services to cannabis-related businesses.
Require reporting by financial regulators and the Government Accountability Office (GAO).
Impose or increase the cost of private-sector mandates on financial institutions and remove a private right of action against financial institutions.

This bill’s full title is the Secure and Fair Enforcement Banking Act of 2019.

Argument in favor

The federal prohibition on state-licensed cannabis businesses accessing the traditional banking system has forced the industry to be largely cash-based.. Aside from being inconvenient, this also makes cannabis businesses and their employees targets and makes them more difficult to audit. Giving cannabis businesses access to traditional banks would benefit everyone involved.

Argument opposed

The federal government shouldn’t lift the ban on cannabis businesses accessing the banking system until federal marijuana laws are reformed more broadly to account for legalization by states. Alternatively, the federal government should keep marijuana illegal and crackdown on state-licensed cannabis businesses that are ignoring federal law.

Impact

Cannabis businesses; banking services for cannabis businesses; banks; banks that wish to do business with cannabis businesses; and federal regulations regarding banking services for cannabis businesses.

Cost of H.R. 1595

The CBO estimates that on net, this bill would reduce spending by $2 million over the period 2019-2029.

Additional Info

In-Depth: Rep. Ed Perlmutter (D-CO) reintroduced this bill from the 115th Congress to address cannabis banking issues and allow marijuana-related businesses in states with existing regulatory structure to access the banking system:

“The majority of American voters have spoken and it’s happening whether we act or not. The SAFE Banking Act is focused solely on taking cash off the streets and making our communities safer. Only Congress can provide the certainty financial institutions need to start banking legitimate marijuana businesses – just like any other legal business – and reduce risks for employees, businesses and communities across the country.”

Bill coauthor Rep. Denny Heck (D-WA) notes that allowing and encouraging marijuana businesses to use traditional banking methods will encourage regulated markets:

“Modern banking services and existing federal laws on financial disclosures allow law enforcement to keep records and track potential criminal activity. We know based on the Treasury guidance that the federal government prioritizes keeping this product out of the hands of children and organized crime. The most effective way to do that is to not only allow, but encourage these businesses to use traditional banking methods to track their sales, deposits, expenses, tax payments, and other business transactions. If Congress fails to act, we are discouraging responsible, regulated markets and allowing a serious public safety threat to go unaddressed.”

Original cosponsor Rep. Steve Stivers (R-OH) adds that marijuana businesses are currently forced to operate in cash, which makes them prime targets for robberies and other crimes:

“The SAFE Banking Act is an answer to the very real problem facing these businesses as they are forced to operate exclusively with cash. It makes them prime targets for violent robberies and money laundering schemes. This isn’t about condoning marijuana businesses, it’s about creating an auditable trail and keeping our neighborhoods safe.”

Rep. Warren Davidson (R-OH), also an original cosponsor of this bill, notes that barring legally recognized marijuana businesses from the traditional banking system violates such businesses’ civil liberties:

“Government Regulators have deemed cannabis business owners to have certain reputational risks. From a civil liberties standpoint, I believe this is something we need to move away from. There are reputational risks associated with any small business, and barring legally recognized small businesses from our financial institutions threatens the very pillars of liberty and freedom our country was founded on.”

Senate sponsor Sen. Jeff Merkley (D-OR), who has introduced companion legislation in the Senate in both the 116th and 115th Congresses, says:

“Forcing legal businesses to operate in all-cash is dangerous for our communities. It’s absurd that cannabis business owners in Oregon have to shuttle around gym bags full of cash to take care of their taxes or pay their employees. Operating in cash is an invitation to robbery, money laundering, and organized crime. This is a public safety issue, and I hope that this will be the Congress when we build a bipartisan consensus to put this common-sense fix into law.”

In his press release upon introducing this bill, Rep. Perlmutter notes that forcing legal and legitimate marijuana businesses to operate on a cash-only basis creates “a serious public safety risk for employees, businesses and communities [and provides] an opportunity for tax evasion, money laundering and other white-collar crimes.”

The Credit Union National Association (CUNA) is one of a number of financial services organizations that supports this bill. In testimony before the House Financial Services Committee’s Subcommittee on Consumer Protection on Financial Services, Rachel Pross, Chief Risk Officer at Maps Credit Union, testified on CUNA’s behalf in favor of this bill:

“If enacted, the SAFE Banking Act would offer narrowly targeted federal protections for credit unions and other financial institutions accepting deposits from, extending credit or providing payment services to an individual or business engaged in marijuana related commerce in states where such activity is legal with a safe harbor, so long as they are compliant with all other applicable laws and regulations. Furthermore, the SAFE Banking legislation provides safe harbor to credit unions and their employees who are not aware if their members or customers are involved in this business. We believe that this is a reasonable and sound approach.”

Rep. Blaine Luetkemeyer (R-MS) argued against this bill during its committee hearing, saying lawmakers were “putting the cart before the horse” by focusing on the marijuana industry’s banking needs while the industry remains illegal at the federal level. Luetkemeyer’s sentiments were echoed by Jonathan Talcott, chairman of Smart Approaches to Marijuana, who argues that “[y]ou really need to address the Controlled Substances Act and its prohibition on marijuana … before any of the proposed changes and safe harbors would be effective.”

In mid-September 2019, several leading advocacy groups, including the ACLU, Human Rights Watch (HRW), and Drug Policy Alliance (DPA) wrote a letter urging leadership to delay the vote on this bill until more far-reaching legislation ending federal cannabis prohibition advances first. Expressing concern that this bill would help the marijuana industry and decelerate the push to end prohibition, the organizations wrote:

“We are concerned that if the House approves this bill, it will undermine broader and more inclusive efforts to reform our country’s marijuana laws. The Congress has a unique opportunity to address the myriad injustices created by this nation’s marijuana laws. For decades, people of color have suffered under harsh and racially-biased marijuana laws... The banking bill does not address marijuana reform holistically. Instead, it narrowly addresses the issues of banking and improved access to financial services, measures that would benefit the marijuana industry, not communities who have felt the brunt of prohibition. To be clear, we recognize the challenges facing marijuana businesses that lack access to financial services. However, we believe it is a mistake to move this issue forward while many of the other consequences of marijuana prohibition remain unresolved. The banking bill does not solve the underlying problems of marijuana prohibition – namely, that many people of color have been saddled with criminal records for a substance that is now legal in many states, and that communities have been shut out of the emerging and booming marijuana industry.”

Queen Adesuyi, policy coordinator for DPA, explains:

“Individuals and communities who are still suffering from the destabilizing collateral consequences of prohibition need reform and should not be second in line behind the industry. We need to ensure that the sequencing of federal marijuana bills, especially under House Democratic Leadership, is well thought out and done in a way that centers the millions directly impacted by overenforcement. We want to avoid the banking bill becoming Congress’ only bite at the apple for cannabis reform this session.”

The National Cannabis Industry Association’s media relations director, Morgan Fox, rebuts Adesuyi’s statement, arguing that banking reform is a step in the right direction towards more comprehensive marijuana reform:

“The SAFE Banking Act is a necessary reform that would represent a major step toward more sensible cannabis laws, and it’s looking increasingly likely that it can actually pass soon. We have an opportunity to end policies that actively endanger people, hurt small businesses, and stymie equitable participation in the cannabis industry. Banking reform is certainly not the end of the road, and the industry is committed to working in support of far more comprehensive reforms that more fully address the harms caused by prohibition. Passage of this legislation will only add momentum to those efforts.”

Ashley Verville, communications director for Rep. Perlmutter, expresses similar sentiments:

“After six years of working on this bill, the SAFE Banking Act will go a long way in providing certainty for financial institutions to work with cannabis businesses and getting cash off our streets to make our communities safer… SAFE Banking is a narrowly focused bill that serves as the ice breaker for this Congress to take up additional marijuana legislation.”

Thus far in the current Congress, this legislation has passed the House Committee on Financial Services (by a 45-15 vote) and been discharged by the House Committee on the Judiciary with the support of 206 bipartisan House cosponsors, including 180 Democrats and 26 Republicans. Its Senate companion, sponsored by Sen. Jeff Merkley (D-OR), has 33 bipartisan Senate cosponsors, including 26 Democrats, five Republicans, and one Independent.

Financial regulators in 25 states and territories, as well as 17 state treasurers, have endorsed this legislation. Additionally, a range of financial services, trade, and marijuana business organizations support this legislation.

Smart Approaches to Marijuana and the National Fraternal Order of Police (NFOP) oppose this legislation.

Last Congress, this legislation had 95 bipartisan House cosponsors, including 82 Democrats and 13 Republicans. Its Senate companion, sponsored by Sen. Merkley, had 20 bipartisan Senate cosponsors, including 15 Democrats, four Republicans, and one Independent. Neither bill received a committee vote.

Reps. Perlmutteer and Heck have introduced bills like this one in every Congress since 2013. Although this bill passed the House Financial Services Committee by a healthy margin, as of June 9, 2019, there were discussions underway to introduce amendments to garner more Republican support.

These were spurred by the bill’s uncertain chances in the Senate, particularly in the face of Senate Majority Leader Mitch McConnell’s (R-KY) aversion to bills favoring marijuana over hemp (of which he has been a major champion, given that Kentucky is a major hemp producer). Some amendments under discussion earlier this year included proposals to extend the banking protections to hemp and CBD businesses, or to block regulators from going after some unrelated, but also controversial, business sectors, such as the gun and payday loan industries.

Of Note: Marijuana has been legalized in some form, either recreational or medical, in 47 states, the District of Columbia, and four U.S. territories. These laws are all in conflict with the Controlled Substances Act of 1970 (CSA), which makes cannabis illegal at the federal level. Under the CSA, financial institutions providing banking services to legitimate cannabis businesses licensed under state law are subject to criminal prosecution and civil and regulatory action. Due to the restrictions on banks imposed by the CSA, legal and legitimate marijuana businesses are forced to operate on cash-only bases.

Over the past five years, there have been numerous memoranda on the issue of banking for cannabis businesses. Originally, in response to ongoing state cannabis legalization efforts, both the Dept. of Justice (DOJ) and Treasury Dept.’s FInancial Crimes Enforcement Network (FinCEN) issued memos and guidance on cannabis banking. In an August 29, 2013, memorandum, then-Deputy Attorney General James Cole stated that while marijuana remains illegal under the CSA, the DOJ would focus its resources on the “most significant threats in the most effective, consistent, and rational way.” The memo set out eight enforcement priorities, which didn’t include prosecuting banks providing services to legal and legitimate marijuana businesses. This point was reiterated in a February 14, 2014 memorandum in which then-Deputy AG Cole directed U.S. Attorneys to “apply the eight enforcement principles described in the August 29 guidance” in determining whether to charge individuals or institutions with financial offenses based on marijuana-related violations of the CSA.

FinCEN issued its own guidance with respect to cannabis-related financial crimes on February 14, 2014. In its guidance, FinCEN provided a roadmap for financial institutions seeking to comply with suspicious activity reporting requirements when providing financial services to state-authorized cannabis-related legitimate businesses. It also directed them to alert FinCEN to transactions that might trigger federal enforcement priorities. Specifically, FinCEN’s guidance advised financial institutions that “[b]ecause federal law prohibits the distribution and sale of marijuana, financial transactions involving a marijuana-related business would generally involve funds derived from illegal activity. Therefore, a financial institution is required to file a [suspicious activity report (SAR)] on activity involving a marijuana-related business (including those duly licensed under state law) in accordance with this guidance and [FinCEN regulations].”

FinCEN advised financial institutions providing services to cannabis-related businesses that they’d be required to file one of three types of special SARs:

Cannabis Limited SAR: For cases in which the bank determines, after exercising appropriate due diligence, that the customer isn’t engaged in any activities that violate a state law or implicate the investigation and prosecution priorities in the Cole Memorandum;
Cannabis Priority SAR: For cases in which the financial institution believes a customer is engaged in activities that implicate DOJ’s investigation and prosecution priorities; and
Cannabis Termination SAR: For cases in which a financial institution finds it necessary to sever a relationship with a customer to maintain an effective anti-money laundering (AML) program.

On January 4, 2018, then-Attorney General Jeff Sessions issued a new DOJ memo on marijuana enforcement that effectively rescinded the previous memoranda that former Deputy AG Cole had written on the topic. However, after Reps. Pelmutter, Heck, Young, and other Congress Members wrote a letter urging FinCEN to maintain its 2014 guidance, the Treasury Dept. responded that the FinCEN guidance would remain in place.

Today, although the FinCEN guidance is still valid, many financial institutions are still reluctant to serve cannabis-related legitimate businesses. Thus, many cannabis businesses have little to no access to traditional banking services, and must operate as cash-only businesses that can’t access credit cards, deposit their profits, or write checks to pay employees or taxes.

Because cannabis businesses are so cash-heavy, they’ve been described as a “soft target” for robberies, assaults, store break-ins, and theft of both cash and cannabis products. Employees themselves — who are often paid in cash — are also soft targets for criminals. In some cases, this has had tragic consequences, such as in the case of 24-year-old Travis Mason, a security guard and former Marine who was killed in a 2016 robbery at a dispensary in Aurora, Colorado. Mason, who had only worked as a security guard at the dispensary for a few weeks at the time of the shooting, was gunned down when two masked men stormed the store. As of July 2019, Mason’s killers remain unidentified.

The cash-dependent nature of marijuana businesses also poses challenges for service providers that work with such businesses, such as electricians, plumbers, insurance providers, and landlords. For these businesses, cannabis business customers’ lack of checking accounts or inability to utilize payment processors can be challenging for their business operations.

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