WASHINGTON — Banks and credit unions may be moving one step closer to federal legislation freeing them to serve legal marijuana businesses, but the path to enactment is still fraught with huge challenges.
The House Financial Services Committee is poised to advance a bill within days that would protect financial institutions that open accounts for legal cannabis providers from penalty, and all signs point to the full House passing the measure. Such protection would be a boon for banks that, despite the substance being legal in more than 30 states, are restricted as a result of the federal ban on marijuana.
But even though President Trump has indicated support for legislation enabling marijuana businesses in certain states to skirt the federal ban, backers of the legislation must still convince skeptical Senate Republicans opposed to legalizing the drug.
“We are just trying to take one step at a time and the House seems to be the place to start,” said Don Childears, president and chief executive officer of the Colorado Bankers Association.
Companies and lawmakers from Childears' state have been on the forefront of enabling financial institutions to work with the pot industry. But not everyone is on board. In the bill's favor, enough senators likely support some type of pot banking reform, but a handful of senior GOP leaders in the upper chamber — whose support is needed to hold a vote — are said to oppose such efforts.
“The issue remains the Senate,” Jaret Seiberg, a policy analyst at Cowen Washington Research Group, said in a research note. “There is nothing the House can do to force the Senate to consider the measure."
Even key GOP House members have tried to block the bill coming before the House committee on Tuesday. Rep. Patrick McHenry, R-N.C., the Financial Services Committee’s ranking member, and Rep. Blaine Luetkemeyer, R-Mo., called on Chairwoman Maxine Waters to delay the vote, which is expected to come Wednesday. They say the committee needs to better understand how the bill would impact anti-money-laundering enforcement, nonbank financial firms and the current tax code, among other things.
But Waters shows no sign of agreeing to a delay, and backers of marijuana banking measures view the momentum in the newly Democrat-controlled House as a positive sign.
“It would be the first official step forward for any marijuana bill because no bill has received a hearing before and this will be the first one to come out of markup,” Childears said.
More than 140 members have already signed on as co-sponsors of the Secure and Fair Enforcement Act, or SAFE Banking Act, including original co-sponsors Reps. Ed Perlmutter, D-Colo., Denny Heck, D-Wash., Steve Stivers, R-Ohio, and Warren Davidson, R-Ohio, who all serve on the Financial Services Committee.
The bill would make it illegal for a federal regulator to penalize an institution that accepts insured deposits from marijuana businesses in states where the substance is legal.
“The SAFE Banking Act is very direct and helpful first step in ensuring banks are not punished by banking cannabis-related businesses when it is legal in the state,” said Paul Merski, group executive vice president for congressional relations and strategy at the Independent Community Bankers of America.
Perlmutter tried to push the legislation for more than six years when Republicans controlled the House, but was unable to get former House Financial Services Committee Chairman Jeb Hensarling, R-Texas, to hold a hearing on the bill.
The Senate roadblock is likely not a matter of getting enough votes, since members on both sides of the aisle have expressed support for easing financial institutions' ability to bank legal pot businesses.
Sen. Cory Gardner, R-Colo., has pushed for broader legislation that would enable legal marijuana businesses in certain states to skirt the federal ban on the substance. And his bill, known as the STATES Act, has several other Republican co-sponsors. (Gardner also signed on as a co-sponsor of a Senate companion to the SAFE Banking Act in the last Congress.)
Rather, the key obstacle is getting the Senate leadership to prioritize the legislation. Cannabis banking is nowhere to be found on the list of priorities for Senate Banking Committee Chairman Mike Crapo, R-Idaho. Crapo also represents one of three states that haven't legalized or decriminalized marijuana in any way.
“It would have more than 60 in the Senate. … I’m not sure that members are excited to take positions either way,” said Aaron Klein, economic studies policy director at the Brookings Institution. “A lot of this leadership will matter. Forty-seven states have allowed some sort of state-licensed cannabis. Of the three that haven’t, Idaho is one of them.”
So the strategy for moving the bill forward in the Senate will likely need to center around public safety, rather than easing restrictions on marijuana.
“The best chance to get this done in the Senate is to make this about law enforcement and safety and not about cannabis legalization,” Seiberg said in an interview. “That’s how you get senators who otherwise oppose legalization to support the measure.”
Childears agreed, saying, “The reason we backed [marijuana banking] all along was to promote public safety, getting the cash off the streets."
“That is so the states and Colorado can tax and regulate the marijuana industry, which they can’t do on a cash-only basis," he said. “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.”
Most cannabis business currently operate in all cash because banks and credit unions are cautious to offer financial services to them over concerns that they will get slapped with money-laundering citations by their regulators. The regulatory framework doesn’t simply affect marijuana businesses and dispensaries. Fearing regulatory repercussions, financial institutions are also prone to cutting off ancillary businesses, such as utility companies, if they serve marijuana businesses in states where the drug is legal.
Rep. Denver Riggleman, R-Va., a new member of the House Financial Services Committee, signed onto the bill after a February hearing on the measure, partly because it would offer clarity for banks serving those ancillary businesses.
"The bill establishes regulatory protections for legitimate ancillary businesses connected to the cannabis industry," Riggleman said in an email to American Banker. "For example, an accountant or janitor who performs professional duties or services to a cannabis business often times has trouble accessing the financial system because of the regulatory risk financial institutions assume by banking these legitimate entities. The SAFE Act will provide regulators with a clear directive to ensure these problems do not persist."
Klein said that members of Congress need to realize that the regulatory framework for banks and legal marijuana businesses is inefficient.
“What is clear is the status quo costs billions of dollars of useless bureaucracy that thwarts the intention of voters in states all through the country who want to get consistence,” Klein said. “Federal banking law requires banks to report on state-licensed cannabis companies as if they were operating in the cloak of darkness trying to escape legal detection. … The reason we have anti-money-laundering rules is based on a very sound premise. Criminals are trying to hide criminal activity. What makes cannabis so unique is these guys aren’t hiding."
While Senate leadership remains an obstacle, some are hopeful that support from the White House, as well as a number of Republican members in states that have legalized marijuana, could force the issue to the floor.
“I would start with, where is Trump?” Klein said. “Trump has been everywhere on this. I suspect that this topic will gain some momentum in the Democratic presidential primary. Trump has shown an amazing ability to swing to embrace policies for purely political purposes. … The old-model Congress passed more bills that the president vetoed. If the President supports this, it could end up in a different position.”
The issue could also gain steam as the GOP seeks to hold on to the Senate in 2020. Gardner faces a tough race to hold on to his seat, so Republican leadership may try to help him.
“I do think Sen. Gardner from Colorado will continue to push hard given his tough re-elect next year. And this is such a big issue in Colorado, so I wouldn’t be surprised if Crapo does him a favor and holds a hearing or two, but I don’t expect movement of a Senate bill this year,” a former senior Senate staffer said.
Seiberg said if the Senate were to move forward with marijuana banking legislation, it would likely come through an appropriations package.
“The great advantage of narrow approaches like the SAFE Banking Act is that you can more easily pass it via appropriations or by sticking it in a much broader bill,” Seiberg said. “It’s a lot more difficult when you have the STATES Act or other bills that are closer to legalization. Those are a lot more contentious and harder to slip into another package.”
