WASHINGTON — For six years, Rep. Ed Perlmutter, D-Colo., has pushed for legislation that would enable banks to provide financial services to legal marijuana businesses without fear of repercussions from regulators.
It’s an effort he started after residents of Colorado in 2012 passed Amendment 64 to the state’s constitution, which legalized marijuana for recreational use. It was an amendment he initially didn’t support, but he realized that as more states began to legalize cannabis, the issue would pose legal and regulatory challenges. Marijuana is still illegal on the federal level, so pot shops and other related businesses had to operate in all cash.
In 2013, he introduced the Secure and Fair Enforcement Banking Act, or SAFE Banking Act, which would prohibit federal banking regulators from restricting deposit insurance for marijuana businesses in states where the substance is legal.
“Anytime I would bring up marijuana or cannabis, there would be a chuckle,” Perlmutter said in an interview with American Banker last week. “That was pretty consistent for a couple years. But then people, both Democrats and Republicans, began to realize this was serious. And they stopped chuckling about it and realized this was a banking issue that had to be addressed.”
With Democrats now controlling the House, Perlmutter had his chance to push the the issue forward last week with the
“I’m happy that I had the first hearing in six years by a Democratic-led House,” he said. “We had a panel that was outstanding in its diversity and in its quality for the record that they developed — law enforcement, taxing authority, banker, credit union and business owner. That’s a hell of a first step.”
Although interest in the problem has been growing in recent years as more states have legalized cannabis, former Financial Services Committee Chairman Jeb Hensarling, R-Texas, largely sidelined the effort during his tenure.
“Jeb Hensarling didn’t want to address it — period,” Perlmutter added. “He stuck to his guns. … Because of his personal belief system, we were not going to get a hearing.”
Yet Perlmutter's bill sports bipartisan support: Two of the four original co-sponsors this term are Republicans — Reps. Warren Davidson and Steve Stivers of Ohio. (Rep. Denny Heck, D-Wash., is another co-sponsor.)
There's also growing consensus around the issue across the industry.
"Banks simply want the cannabis conundrum to end so they can serve their customers and communities as they always have," Rob Nichols, president and chief executive of the American Bankers Association, wrote in
But for a typically risk-averse industry, it's a position that's taken some time to ripen.
"I think if you turn the clock back six years ago … I just don’t think enough momentum had been built,” said James Ballentine, executive vice president for political affairs and congressional relations at the ABA. “As time has passed and the issue needed more clarity in the states … I think that’s really what helped build up momentum for this issue.”
Following Perlmutter’s banking-specific proposal came a companion bill in the upper chamber by Sen. Jeff Merkley, D-Ore., which included a number of Republican co-sponsors such as Sen. Cory Gardner of Colorado. Gardner also introduced a broader bill with Sen. Elizabeth Warren, D-Mass., known as the STATES Act, which would enable all businesses in states where marijuana is legal to sidestep the federal ban on pot. It's possible the latter measure could come to
For the banking industry, support has built for Perlmutter’s safe harbor proposal because banks are hesitant to serve not only cannabis businesses in states that have legalized pot, but also ancillary businesses, such as electricians, plumbers and landlords, who aren’t directly involved in the sale or production of cannabis but provide services to related businesses. In many cases, banks are forced to close customer accounts if they are associated with marijuana.
“It was really the ancillary business piece" that started to attract discussion, Ballentine said.
Supporters of pot banking measures do still face opposition, however. Last week's hearing highlighted concerns from several Republican lawmakers.
Rep. Blaine Luetkemeyer, R-Mo., the ranking member of consumer protection and financial institutions subcommittee, said he thinks Congress would need to de-schedule marijuana before it approves proposals to enable banks to serve cannabis businesses.
But others argue that the banking system might not be able to wait that long. Stivers, one of the co-sponsors on the Perlmutter bill, said the status quo — marijuana-related businesses operating in all cash — is putting the financial system at risk.
“It makes it easy to commit tax fraud. It makes it really hard to audit,” he said in an interview with American Banker.
Still other Republicans on the Financial Services Committee who aren’t on board with Perlmutter’s bill have said they recognize the security risks posed by all-cash businesses and they are willing to come to the table and offer fixes to the proposal.
“We need to do a little bit more due diligence about the risks” associated with giving cannabis businesses access to banking, aside from cash, Rep. Andy Barr, R-Ky., who is the ranking member of a financial services subcommittee, said in an interview. Money laundering “can also happen because these businesses are at a higher risk of being involved with cartels” and other criminal activities.
Barr said he thinks Perlmutter could build bipartisan support for a solution that would ensure banks have a safe harbor to serve all legal businesses, including industrial hemp, which was legalized at the end of 2018. Barr and other Republicans raised concerns about an Obama-era policy, known as Operation Choke Point, which discouraged banks from serving certain legal businesses, such as payday lenders, firearms dealers and pawnshops, while marijuana is still illegal at the federal level.
And Barr said changes to national marijuana laws could help the committee tackle pot banking.
“If there was a legislative process where the Controlled Substances Act was amended further, that would be helpful,” Barr said.
While Perlmutter’s legislation will likely continue to face opposition from some Republicans, observers expect it has enough support to pass the House.
“We believe there are the votes for the SAFE Act to pass the House Financial Services Committee in the coming months and the full House later this year,” Jaret Seiberg, an analyst with Cowen Washington Research Group, said in a note last week.
“Watch some of these guys on the committee that looked fairly aligned against it and see if any of them break over time,” Stivers added.
The SAFE Act’s path forward is less clear in the Senate. Marijuana is still illegal in all forms in Idaho, the state represented by Republican Senate Banking Committee Chairman Mike Crapo. And Crapo has not publicly indicated whether he will hold a hearing on pot banking.
But others point to the growing number of states that have legalized marijuana as a sign that pot banking legislation could prove inevitable.
“Voters in a number of states have taken to the ballot box and pushed initiatives to change the legal status of marijuana-related activities,” said Milan Dalal, of counsel at Brownstein Hyatt Farber Schreck and a former senior Democratic House and Senate staffer. “I think that Republicans see this. … They are keeping up with the wishes of their constituents.”
Dalal added that the Senate could tackle marijuana banking without going through the committee process.
“Depending on how bipartisan and overwhelming a vote is in the House, cannabis banking legislation may have multiple paths in the Senate, including being appended as a rider to appropriations bills,” he said.
After six years working on the issue, Perlmutter, who said he smoked marijuana “probably twice” when he was in college, said he recognizes that last week’s hearing was just one step in the process of moving his bill forward, and he doesn’t know how the Senate would handle the bill if it passes the House. But he is optimistic that the legislation would pass both chambers if given a floor vote.
In the last Congress, the SAFE Banking Act had 95 co-sponsors in the House, including more than a dozen Republicans. The Senate companion bill led by Merkley had 20 co-sponsors, including four Republicans.
“We have a lot of work to do to get this passed out of the House in a form that the Senate can then really take up, if they choose to do so,” Perlmutter said. “And if it gets brought up, it will pass. Whether they bring it up or not, that’s the $64 question.”
