Duffels packed with cash. Bank accounts suddenly closed. Regular reports to the federal government’s top financial crimes investigators.
That’s the legal marijuana business, which remains lodged in a regulatory gray area. While the drug has been legalized in 10 states and decriminalized to varying degrees in 37 more, federal banking regulations, like the criminal laws, have not budged. Change may be afoot, though.
Legislation that would create a safe harbor for banks working with legal cannabis businesses appears poised to pass the U.S. House of Representatives. The Secure and Fair Enforcement (SAFE) Banking Act, as it’s known, was introduced by Colorado Rep. Ed Perlmutter and now has 180 bipartisan cosponsors. Thirty-eight state attorneys general — including Utah Republican Sean Reyes — wrote a letter in support of the bill.
Whether the measure would advance in the Senate remains to be seen. There, the bill’s future will be decided by Banking Committee Chairman Mike Crapo. The Idaho Republican represents one of three states where cannabis remains completely outlawed, and has shown reluctance to consider support for the industry. “As long as cannabis is illegal under federal law, it seems to me to be difficult for us to resolve this,” Crapo said at a banking conference in April, as reported by Politico.
Jeff Merkley, the Oregon Democrat sponsoring the Senate version of the bill, plans to push for a vote. Like the House version, the bill has attracted bipartisan support: It is cosponsored by Colorado Republican Cory Gardner and 26 others.
“The difficulty accessing banking services for legal cannabis businesses has become increasingly untenable in states all across the country,” a Merkley spokesperson told Bitterroot. “As Senator Merkley has emphasized with his colleagues, forcing businesses to operate in all-cash is simply an invitation to crime, money laundering and robbery — and there’s no reason for any individual, Democrat or Republican, to support continuing such a nonsensical and dangerous system.”
At present, banks could face criminal prosecution or asset seizure for taking in money earned through marijuana sales. The Obama Justice Department precluded prosecutors from targeting banks involved in the legal marijuana business, but that directive was thrown out in January 2018 by then-Attorney General Jeff Sessions.
Banking cannabis businesses carries a significant liability, one that State Bank Northwest President and CEO Gregory Deckard said was too great for his institution to risk.
“The legal stakes are simply too high for me, my board, and my investors to tolerate,” the Spokane, Washington, banker said during a House subcommittee hearing in February. “We owe it to our community to ensure that our doors remain open.”
Accommodations of the federal restrictions lean toward the absurd. Washington CannaBusiness Association spokesperson Aaron Pickus described trucks packed with cash zipping between growers, processors, distributors, and their banks. Treasury Secretary Steven Mnuchin recently told a House subcommittee that the Internal Revenue Service has built “cash rooms” to accommodate taxes paid by legal cannabis companies. And tremendous amounts of cash are being exchanged — industry watchers estimate worldwide cannabis spending hit $12.2 billion in 2018, and they forecast 38 percent growth in 2019.
“It’s clearly a strong and emerging sector of our economy, which is great,” Pickus said. “There’s a lot to be excited about … but no other industry has to deal with this level of challenge in their banking practices.” One cannabis business owner, Pickus said, has had her checking account closed five times. Another had his retirement account shut down, while others have seen their children’s bank accounts canceled.
Industry leaders have been pushing for federal reform since recreational sales began in Washington state and Colorado five years ago. The SAFE Banking Act would prevent federal banking regulators from interfering with banks providing financial services cannabis businesses and protect those banks against prosecution. Banks could still choose not to serve marijuana-related businesses, and they would still be required to comply with existing anti-money laundering rules.
Beyond addressing the public safety problems inherent in high-dollar, cash-only businesses, the reform would make the cannabis industry more equitable for workers and minority entrepreneurs, said Morgan Fox, spokesperson for the National Cannabis Industry Association.
At present, many marijuana businesses struggle to open a checking account or secure small-business loans. Fox said employees paid in cash may end up with a blank spot in their employment history or their credit reports, and they can be targets for robbery. Would-be business owners of color, who are less likely to have connections with angel investors or non-bank lenders, can’t secure capital to start or expand their businesses.
While at least 551 banks and credit unions across the country service the industry, most do so quietly.
“Some financial institutions do not openly advertise that they provide banking services to marijuana-related businesses, but many marijuana-related businesses in Washington continue to be served by state chartered banks and credit unions,” said Charles Clark, director of Washington state’s Department of Financial Institutions.
The SAFE Banking Act would alleviate the need for such secrecy. The bill passed out of the House financial services committee by a 45-15 vote in March, and is expected to receive a floor vote in coming weeks. If passed, the bill would arrive at Crapo’s committee, where some fear it may languish. A spokesperson for Crapo declined to comment on the bill, but in the February banking conference, the Idaho senator said any action on marijuana “needs to be something that the Department of Justice deals with.”
While welcome, Justice Department allowances for marijuana businesses aren’t a substitute for congressional action, Fox said. “Until Congress actually changes the law, everyone in this space has to operate with some level of uncertainty,” he said.
“I think that we’ve steadily seen support for legalization grow among all sectors of American society, young and old, all ends of the political spectrum,” he continued. “It’s become very unpopular to oppose.”
