WASHINGTON — Advocates of easing restrictions on marijuana banking were dealt a blow this week when senators rejected legislation that would ease the cannabis industry's access to financial services. But bankers are not giving up the fight following passage of a separate measure that is viewed as a victory.
The criminal justice reform bill passed by the Senate this week excluded an amendment that would have allowed banks to work with pot businesses in states that have legalized the substance. But banks won a consolation prize of sorts last week, when the farm bill passing both chambers of Congress legalized hemp, a less potent substance.
“If anything, the hemp provision of the farm bill can be seen as kind of a shout to incrementalism,” said Aaron Stetter, executive vice president of policy and political operations at the Independent Community Bankers of America. “I could see additional incremental steps going beyond hemp into some form of cannabis legislation.”
Marijuana is still classified by the federal government as an illegal schedule 1 drug, like other narcotics. That prohibition continues to put banks in a tricky spot offering services to business in states that have made the drug legal.
The same prohibition has also applied for decades to hemp. The material is used in industrial goods and contains less than 0.3% THC, the compound that causes the psychoactive effects of marijuana. But the farm bill, which President Trump is expected to sign this week, takes hemp off the prohibited list, enabling farmers to grow it. That provision was touted by Senate Majority Leader Mitch McConnell.
Hemp legalization along with signs of bipartisan House support for recognizing state marijuana laws are being viewed as positives. Many observers say the business challenges faced by banks and cannabis businesses trying to navigate the legal mine field has bolstered the case for federal clarity.
“There is a growing, bipartisan recognition that the status quo is unacceptable,” said Dan Stipano, a partner at Buckley Sandler LLP.
But it will still be an uphill challenge, as evidenced by the defeat this week of a measure introduced by Sens. Cory Gardner, R-Colo., and Elizabeth Warren, D-Mass, that would have exempted businesses from the federal ban on marijuana in states where it is legal.
Gardner attempted to introduce that bill as an amendment to the pending criminal justice reform legislation then being considered by the Senate, but the amendment failed to advance due to objections by Sen. Chuck Grassley, R-Iowa, who chairs the Senate Judiciary Committee. The broader criminal justice bill passed the Senate overwhelmingly on Tuesday.
But Gardner's efforts could elevate the issue in the upcoming Congress, as he vowed to continue fighting for the legislation, known as the Strengthening the Tenth Amendment Through Entrusting States Act. A separate banking-specific proposal by Rep. Ed Perlmutter, D-Colo., and Sen. Jeff Merkley, D-Ore., Secure and Fair Enforcement Banking Act, would prohibit federal regulators from restricting deposit insurance for legitimate marijuana businesses.
“This suggests to us that the fight in the 116th Congress — which convenes in January — is likely to include both the push for legalization through vehicles like the STATES Act and through narrower measures to address the banking access issue such as the SAFE Act,” said Jaret Seiberg, a policy analyst at Cowen Washington Research Group. “And we continue to believe there is an easier path forward for the narrower measures than the legalization provisions.”
Still, even though bills have been introduced to help banks work with marijuana-related businesses, the current Republican-controlled House and Senate have yet to hold congressional hearings on the issue.
But with the House in Democratic control next Congress, Rep. Maxine Waters, the likely incoming chair of the House Financial Services Committee, told the Wall Street Journal that it is “inevitable” that the issue will come up in committee.
“On an issue that’s inevitable, opposition is not as fierce,” said Ed Mills, a policy analyst at Raymond James. “But there are some kind of real issues that are related to the conflict between state and federal law that Republicans are not necessarily just going to roll over on.”
Banking lobbyists say they are going to push early on for those hearings.
“The biggest hurdle … what we need to see more than anything is a commitment from congressional leaders to hold hearings on this,” said Stetter. “It is imperative that Congress hear directly from the prudential banking regulators, as well as state banking regulators and community bankers on some of the impediments. Initially, that is what we are looking for and asking for early in the next Congress.”
If the House is able to pass legislation that would make it easier for banks to work with marijuana businesses in states where the substance is legal, it could put pressure on the Senate to at least consider the issue more seriously. But any legislation would likely need to be strongly bipartisan.
“I expect opposition in the Senate even if the House passes a bipartisan bill," said Stipano. "But the more bipartisan the support in the House is, the more credible the effort will be in the Senate.”
McConnell’s leadership on legalizing hemp in the farm bill could be a small step in the direction of enabling banks to do business with marijuana companies.
“It is an incremental step in the right direction,” Stetter said. “While these incremental steps take time, it does show movement in that direction.”
“D.C. is frequently a town of precedent and incremental movement,” agreed Mills. “As you make incremental progress in one area, that opens the door for another.”
Gardner told Bloomberg TV Monday that he is optimistic his bill would get at least 50 votes on the Senate floor, with support from Republicans and Democrats.
“The votes are there,” Gardner said. “If we have a honest to goodness straight up vote, 50-vote threshold in the United States Senate, which is a rarity sometimes, this would pass with the majority of voters in the U.S Senate, bipartisan support.”
