Pot banking bill's closer to finish line, but Democrats could sabotage it

WASHINGTON — Senate Democrats’ plan to push for comprehensive cannabis reform could spell trouble for financial institutions seeking legislation to help them serve legal marijuana businesses.

The House passed legislation on Tuesday to make it easier for banks and credit unions to offer loans and accounts to cannabis businesses in states where the drug is legal. On previous attempts, the bill had died in the Senate when the chamber was controlled by the Republicans, including some powerful members who were uninterested in easing the distribution of a substance still banned under federal law.

Democrats now hold a razor thin advantage in the Senate. But any legislation still requires 60 votes and a marijuana banking bill is not a slam dunk because Democrats are more focused on legalizing cannabis than piecemeal reforms. That worries industry advocates who hoped Congress would take an easier, more targeted path.

“How do you eat an elephant? One bite at a time,” said Ryan Donovan, chief advocacy officer at the Credit Union National Association. “To take the metaphor a little further, this bite is ready."

Several Republicans have supported the Secure and Fair Enforcement Banking Act, or SAFE Banking Act, which passed the House 321-101. It would bar federal regulators from penalizing financial institutions that serve marijuana-related businesses in states that legalized the substance. In the past, powerful Senate Republicans like former Banking Committee Chairman Mike Crapo of Idaho stopped the bill dead in its tracks.

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The Democratic gains in the 2020 elections appeared to shift the tide in the bill's favor, raising hopes particularly in states with fast-growing cannabis sectors that Congress would remove legal obstacles to businesses accessing financial services.

But key Democrats now say they do not want to focus just on marijuana banking reforms without making other changes, such as looking at sentencing for those incarcerated for marijuana offenses.

“I am willing to look at moving on the SAFE Act, but with it needs to come sentencing reform,” Senate Banking Committee Chairman Sherrod Brown, D-Ohio, told the Cleveland Plain Dealer in February.

Yet broad-based reforms potentially decriminalizing the substance and expunging marijuana arrest records would face an uphill battle, while the odds of passing comprehensive cannabis reform to legalize the substance in the House and Senate are slim.

“The all-Democratic majority in D.C. is both a blessing and a curse for passage" of cannabis reform, said Ed Mills, a policy analyst with Raymond James.

Others say the cannabis banking bill could be a casualty of Democrats' bigger ambitions.

“While there might be broad conceptual support for the cannabis banking bill, I think that it's going to be crushed under the weight of a more holistic cannabis reform effort and ultimately will not come to fruition in this Congress,” said Isaac Boltansky, director of policy research at Compass Point Research & Trading.

Boltansky and others say Democrats' calculation likely stems from the belief that reforms to the criminal justice system are a higher priority than satisfying the business interests of cannabis providers and financial services firms.

“Why should the first thing that Congress does to fix the problems around cannabis be to help banks and dispensary owners?" said a former senior Senate staffer. "So I think there's just a strong sense among the Senate Democratic caucus, that if we're going to address these issues, we need to address them much more broadly.”

The debate over the SAFE Banking Act comes as states continue to pass measures legalizing marijuana for recreational or medical purposes. Yet cannabis is still considered a banned Schedule 1 drug under the Controlled Substances Act.

Financial institutions have convinced lawmakers from both parties that the conflict between the federal and state cannabis laws is unsustainable, and that state-legal businesses should be able to access banking services so they aren’t operating as cash-only businesses.

“There has to be some type of system in place where these businesses can work where it is not a cash-only and they are given the opportunity to make deposits as any legal businesses would,” said James Ballentine, executive vice president of congressional relations and political affairs at the American Bankers Association.

The bipartisan interest in making it easier for cannabis businesses to access financial services means that the SAFE Banking Act would likely pass the U.S. Senate if it received a floor vote. Sens. Steve Daines, R-Mont., Cynthia Lummis, R-Wyo., and Kevin Cramer, R-N.D., who all sit on the Senate Banking Committee, have signed on as cosponsors of the legislation. And it has widespread support from Democrats.

“That's a pretty broad spectrum of support politically in the United States Senate,” said Donovan.

But Mills said Republicans who support the SAFE Banking Act may bolt if the congressional debate focuses on legalizing cannabis.

“On the issue of legalization, there are a variety of concerns especially among Republicans … that could slow this down,” Mills said.

Senate Majority Leader Chuck Schumer, D-N.Y., and Sens. Cory Booker, D-N.J., and Ron Wyden, D-Ore., said in February that they planned to release a “unified discussion draft on comprehensive reform” to cannabis laws this year. In a joint statement, they said part of their goal is to "lift up people who were unfairly targeted in the War on Drugs."

"We are committed to working together to put forward and advance comprehensive cannabis reform legislation that will not only turn the page on this sad chapter in American history, but also undo the devastating consequences of these discriminatory policies," they said. "The Senate will make consideration of these reforms a priority."

But industry representatives are worried that a broader cannabis reform push will make it harder to enact the SAFE Banking Act.

“Once you start broadening out the bill even further, you're going to get more debate taking place on legalization than just the banking. … It will cause broader opposition and debate on the issue,” said Paul Merski, group executive vice president for congressional relations and strategy at the Independent Community Bankers of America.

Democrats may just want to demonstrate to their constituents that they have at least attempted to legalize cannabis, some observers said.

“I think they have to attempt and prove more comprehensive legislation is unable to move,” the former senior Senate staffer said. “And then I would think there's the possibility they find a way to settle for the SAFE Banking Act, because that becomes the only thing that can pass the Senate."

As Democrats push for broader cannabis reform, financial services industry representatives say that they will continue to push lawmakers to enact the SAFE Banking Act as a standalone bill.

“We recognize that there are members that wish to look at legality, that there are members that want to look at expungement, that there are members that want to look at sentencing reform, but for our area of knowledge and expertise and the area where it comes to working with customers … we are in support of advancing the SAFE Banking Act as is,” Ballentine said.

Donovan said the SAFE Banking Act is one piece of the cannabis reform debate that has already been studied extensively and is ready to be signed into law.

"The leaders in Congress that have worked on this issue for almost a decade have done their due diligence," he said. "They've built strong bipartisan support. They're addressing an issue that is critical to a number of communities across the country. It’s ready to move forward.”