Four ways cannabis banking could cross the finish line in 2022

May 15, 2022 10:26 PM

WASHINGTON — The legalization of cannabis banking looks as likely as ever, but the road lawmakers will take to get there remains an open question.

Even in states where the substance has been legalized for recreational or medical use, many law-abiding cannabis companies have struggled for years to access basic financial services from depository institutions (though some have been willing to take the plunge).

Nearly a decade after Colorado and Washington State first legalized the substance, legal cannabis companies have been plagued with an overabundance of cash. Major payment companies like Visa and Mastercard have explicit policies preventing their electronic systems from being used to purchase or sell cannabis so long as it remains criminalized at the federal level, and as a result those companies have to do business primarily in cash. That reality is a deterrent for many banks, which would prefer not to take on clients who show up in their branches with cash-stuffed duffle bags looking to make a deposit.

Congress has been aware of this problem for some time, and in 2013 U.S. Rep. Ed Perlmutter, D-Colo., introduced a bill that would provide a federal safe harbor for banks to work with cannabis firms. Perlmutter’s bill, the Secure and Fair Enforcement (SAFE) Banking Act, passed the House in 2019 with remarkably widespread bipartisan support.

But since then, the bill has remained on the shelf in the Senate and has not been brought up for a vote. In 2019 and 2020 the Republican-led chamber did not act on the bill out of concern that it might alienate some of the GOP's core base, while the Senate under Democratic control since January 2021 has stalled the bill in favor of broader decriminalization and restorative justice legislation.

But after years of stasis, many policy analysts are suddenly bullish on the reform’s odds of passage by the end of the year, and there are four main legislative avenues for the SAFE Act to become law before 2023.

The Cannabis Administration and Opportunity Act (CAOA)

Both the simplest and least likely approach to legalizing cannabis banking in the near term, the Cannabis Administration and Opportunity Act — championed by Senate Majority Leader Chuck Schumer — would fully decriminalize the plant and remove cannabis from the federal government’s list of controlled substances. The bill, which has circulated as a discussion draft but not as a final bill, would remove virtually all the legal obstacles faced by banks interested in cannabis firms today.

But most analysts believe CAOA will be dead on arrival in the 50-50 Senate, where Republicans and some Democrats have expressed reservations with comprehensive cannabis legalization.

Schumer, who has acknowledged the resistance to the bill within his own party, has nonetheless maintained that he will release a final bill and seek a vote before the August congressional recess. Analysts say that the New York Democrat is trying to avoid the perception of sidestepping progressive interest in full legalization in favor of bank access to a widely untapped market.

“Our stance since last year has been that the CAOA needs to fail before holdout Senate Democrats can embrace cannabis banking language,” Isaac Boltansky of BTIG said in a note in April.

The U.S.-China competition bill

Since the beginning of May, House and Senate lawmakers have been negotiating the finer points of a massive bipartisan bill to bolster American economic competitiveness with China by subsidizing semiconductor production and scientific research.

When the House passed its version of the package in early February — the America Competes Act — the bill contained the SAFE Banking Act, marking the sixth time that Perlmutter’s bill has passed his chamber. The Senate’s version, however, did not include the law.

But as lawmakers continue to hammer out a final bill, cannabis banking’s legislative proponents have been out in force urging the Senate to follow the House’s lead. In a letter dated May 12, two dozen sitting senators — including five Republicans — urged congressional leadership to allow the SAFE Banking Act to survive negotiations.

The House and Senate lawmakers drafting the final bill met publicly for the first time in a committee meeting Thursday, where House Financial Services Committee Chair Maxine Waters (pictured above) said that the “bipartisan House support for the SAFE Banking Act is evident in its inclusion in America Competes, and I urge my fellow conferees to support its inclusion in the final conference report.”

The FY2023 National Defense Authorization Act

Cannabis banking is no stranger to military spending legislation, and the next iteration of the National Defense Authorization Act could very well include some version of the SAFE Banking Act later this year.

The must-pass NDAA is one of Congress’s most reliable legislative vehicles; the Anti-Money Laundering Act was folded into the package and enacted in January 2021, for instance, and while the SAFE Banking Act was included in the House version of that bill, it was removed after negotiations with the Senate.

But over the last year, analysts say that the SAFE Banking’s odds of surviving the passage of a future NDAA have improved — not least because of mounting public safety concerns with the widespread reliance on cash among cannabis companies. In Washington State, for instance, the prevalence of cash among dispensaries has been blamed for a surge in violent robberies and sustained media attention.

Safety was one of the top concerns cited by the bipartisan group of senators in their May 12 letter: “Allowing cannabis businesses operating legally and in compliance with state law to access financial services without federal reprisal would address public safety and compliance challenges, helping communities reduce cash-motivated crimes,” the lawmakers wrote.

Jaret Seiberg, a policy analyst with the Cowen Washington Research Group, said the uptick in attention to crime against cannabis dispensaries could help frame the reform of cannabis banking “as a public safety measure rather than as a cannabis bill,” he wrote in a note earlier this month.

“We expect advocates of the bill will continue to push for more media coverage of crimes against cash-rich cannabis retailers. To us, this is an effective way to build GOP support for the SAFE Act.”

SAFE-Plus legislation

For a long time, it’s been relatively rare for Congress to pass significant legislation as stand-alone bills. Thanks to the 60-vote threshold of the Senate filibuster, lawmakers have made a habit of cramming a lot of legislative work into a relatively small number of packages, including the budget reconciliation process and massive military spending laws. In 2020, the 116th Congress enacted just 28 bills out of the more than 5,000 introduced by lawmakers.

But the SAFE Banking Act could buck that trend thanks to its enduring bipartisan popularity. When the bill introduced by Rep. Perlmutter (pictured) first passed the House in 2019, it did so with the support of nearly 100 Republican lawmakers and 321 affirmative votes in total. And in the Senate, the bill’s inability to pass has had less to do with finding votes than specific decisions made by the chamber’s leadership.

As a stand-alone bill, the SAFE Banking Act would likely stay the same by providing federally regulated financial institutions a kind of safe harbor to serve legally compliant cannabis companies. But in the meantime, some analysts have speculated that the bill could evolve into a “SAFE-plus” version.

If and when Schumer’s push for comprehensive legalization fails, progressives are expected to push for some restorative justice measures in a cannabis banking bill, including funds to help states expunge nonviolent criminal records involving the substance. Republicans and their allies in financial services would also like to see the bill’s scope expanded to include cannabis firms' access to capital markets, which could encourage wider institutional investment in the sector.