Below is a lightly edited transcript of the podcast:
BRENDAN PEDERSEN: Do you remember how this country used to talk about weed? Specifically how paid communications professionals used to talk about it? And I’m not talking about gateway drug paranoia or urban violence or the fear of an entire generation being glued to the couch. I mean the jokes. Here’s a montage courtesy of the Daily Show from 2017. Apologies in advance.
PEDERSEN: Cannabis occupies a very weird place in American culture. Cannabis — or, more accurately, hemp —
HALLE BERRY: You’ve never smoked pot?
LENO: No, I’m not ...
BERRY: Have you ever, ever smoked ...
LENO: No no no…
BERRY: And you never smoked and rode?
leno: No, no. I’m not a pot smoker. I like cupcakes.
PEDERSEN: That was 10 years ago. Now, here’s Jimmy Kimmel on cannabis in April 2022.
jimmy
PEDERSEN: OK, some jokes don’t die.
GUILLERMO: It was a good experience.
KIMMEL: What’d you smoke, like a whole pillow case?
GUILLERMO: It was almost a joint, man.
KIMMEL: So to demonstrate the effects that this has on the human brain, I thought it’d be fun to ask some questions before he smoked and after — kind of like a pot quiz.
PEDERSEN: You get the idea. Americans as a whole have completely reoriented their relationship to cannabis in a remarkably brief timeframe. As of 2020, one in three Americans have recreational access to cannabis, and two in three could acquire it legally with a medical prescription. Cannabis is also a big and growing industry, valued at
How about this as an illustration: In 2009, one of the biggest stories in sports journalism broke when Olympic swimmer Michael Phelps was photographed holding a pipe with weed in it, leading to a
Cannabis today is the definition of mainstream. But cannabis banking? Well, we might as well have stuck around with Jay Leno in 2012. So if the culture seems to have moved on from cannabis prohibition, why are banks still kept on the sidelines of this increasingly legal and lucrative business?
For American Banker, I’m Brendan Pedersen, and this is Bankshot — a podcast about banks, drugs, and the world we live in.
Here’s the thing about cannabis banking. As an idea, as a reform, as a policy in 2022, it is utterly uncontroversial.
DAVID MANGONE: As far as SAFE Banking goes, it seems as though no one really has a problem with the actual policy of the bill.
PEDERSEN: This is David Mangone.
MANGONE: My name is David Mangone. I am the director of policy for the Liaison Group. We are a Washington, DC-based lobbying firm that focuses entirely on cannabis policy.
PEDERSEN: And we’re talking about the Secure and Fair Enforcement Banking Act, or SAFE Banking Act. This is a bill designed to create a kind of legal safe harbor for banks doing business with legal cannabis companies. As you may imagine, working with a business that’s selling a substance the federal government says is more or less the equivalent of heroin sounds like a great way to give compliance officers heartburn. But the SAFE Banking Act says, ‘Hey, banks and other financial institutions, if you want to work with law-abiding cannabis firms, you can! And you don’t have to worry about being wrist-slapped by your examiners just for banking these companies.’ When we talk about cannabis banking reform, this is the crux of it.
David is one of the many folks in DC who have tried to push national cannabis banking reform across the finish line since about 2012, the same year that Colorado and Washington State legalized recreational cannabis for the first time in the U.S. And, since 2019, SAFE Banking has had a ton of support. That year, the bill passed the House of Representatives with 321 votes, including almost 100 Republican lawmakers. But getting to that level of political support was not easy.
DAVID MANGONE: The narrative has absolutely changed. I think when I first started working on this — that was about six years ago — there were still a lot of puns, lots of you know, ‘it goes up in smoke,’ a lot of, ‘did you bring any munchies, any samples.’ The conversation has very much elevated and evolved over that time. Now, folks are looking at this on both sides of the aisle in a much more nuanced way.
PEDERSEN: When you ask folks on Capitol Hill about how that dynamic changed, a lot of them will point to the bill’s chief sponsor: Colorado Representative Ed Perlmutter, the Democrat who introduced SAFE Banking in 2013. Perlmutter has been a relentless advocate for his bill. Here’s a clip of him pushing for it on the House floor just before it passed the chamber for the first time, in September 2019.
REP. ED
PEDERSEN: Access to the financial system is something we’ve touched on in this podcast before, but typically that conversation is centered around financial literacy or marginalized communities. This is a different kind of financial access story — one where an entire industry struggles to get basic financial services. And the consequences of that lack of financial service can be severe.
MONIQUE CONRAD: There's been a lot of robberies and a lot of shootings in dispensaries in the last couple months.
KING5 NEWS: Tom Bout, the founder of the Cannabis Professionals Network, made a spreadsheet tracking the crimes he could find records for.
TOM BOUT: I think that people would be shocked to learn how frequent these pot shops have been hit over the last three months.
KING5 NEWS: He counted more than 30 since November.
BOUT: I can tell you that there is risk involved with marijuana retail stores ... their business is essentially a cash-only business.
PEDERSEN: The word that comes up again and again around cannabis banking is cash. Payment companies like Visa and Mastercard have explicit policies that ban the use of their systems for cannabis transactions in the absence of Congressional reform. That means when we’re talking about cannabis as a $13 billion dollar industry, we’re talking about $13 billion in paper bills. So it’s not an accident that the acronym that anchors Perlmutter’s bill, which is ostensibly just a regulatory relief measure, is the word “SAFE” — the public safety implications of a rapidly growing, cash-exclusive business are pretty obvious. People are dying because of existing federal policy. But that has not been enough to get the Senate to follow the House on this bill.
MANGONE: So, you know, I think there is a lot of momentum around this. But that being said, you know, we still have not seen it come up even for a hearing on the Senate side.
PEDERSEN: It’s not that the Senate doesn’t have the votes to get SAFE Banking passed. Most lobbyists that I talk to actually say the opposite is true — that as many as 70 senators may support the measure. But in the almost three years since SAFE Banking first passed the House, Republican and Democratic leadership alike have refused to hold that vote.
In 2019, the stalling was done by Republican Senate Banking Chair Mike Crapo, whose home state of Idaho is one of the three in the U.S. that has refused to legalize any aspect of the cannabis business. He blocked the bill from passing out of committee.
Since 2021, with Democrats in charge of the Senate, that distinction has passed on to Majority Leader Chuck Schumer, who has blocked the bill for something like the opposite reason, saying he wants a vote on comprehensive cannabis legalization, not just carveout for banks. Analysts do not expect his bill to succeed.
MANGONE: Senator Schumer has regularly tweeted about this issue, saying we need comprehensive reform, it's a Senate priority. But if this is a Senate priority that goes the same way that voting rights and most recently, the abortion issue has, it is tough to see how he gets the votes for something that is sweeping.
PEDERSEN: So where does that leave the rest of us? The regulatory landscape around cannabis and financial services is murky, and realistically, it will stay that way until Congress acts. But that hasn’t stopped some banks from taking the plunge. We’ll hear from them — right after this.
PEDERSEN: Like many Americans before him, our next guest fell into the cannabis business more or less by accident.
JOE CAMPANELLI: Initially, it came through almost an indirect process. We obviously do a lot of real estate lending. And we had clients that started to lease to cannabis dispensaries. And the question was, what are the proceeds coming out to pay the lease payments and those types of things, and what was the responsibility of the banking system in accepting those payments?
PEDERSEN: This is Joe Campanelli.
CAMPANELLI: Joe Campanelli, CEO and president of Needham Bank. I oversee all the banking activities for a local community bank and which obviously includes the cannabis business along with other lending functions.
PEDERSEN: With about $2.4 billion of assets, Needham Bank is based in Massachusetts, where recreational cannabis was legalized in 2016. And Joe says that the thing you need to understand about banking in this industry today is that, yes, it is complicated, and yes, it is time-consuming and expensive. But that doesn’t make it impossible.
PEDERSEN: When you started to work with any of these firms, is it typical for them to have to make changes to their operations and how they conduct their business to work with you? What does the onboarding process typically look like?
CAMPANELLI: Well, we would hope they don't have to make any changes. We hope that’d be compliant already.
PEDERSEN: The truth is, it takes a lot of compliance on the part of the cannabis firms themselves to be in this business. Every state has its own standards for financial transparency, auditing, cultivation, you name it. So in some ways, they can actually be a perfect partner for the right bank. But an appreciation for the finer points of compliance probably won’t spare the firms from expensive account fees — fees that could be as high as $5,000 a month per account, if not higher.
CAMPANELLI: Yeah, it is a significantly higher cost of service, given all the compliance requirements and we’ll continue to do so. Even when you regulate it, or you reconcile the change between federal laws and state laws, it's still going to be high service requirements to make sure that the cash is appropriately monitored.
PEDERSEN: Again, cash. Joe told me that some of the businesses in Needham’s portfolio routinely have millions of dollars in cash to drop off at the bank — sometimes as much as $10 million in a single night. If a bank wants to work with a firm pulling that kind of money, they have to be prepared to really integrate the business into theirs. Sometimes, that means recommending the same money transportation services the bank itself uses. But sometimes you need to go farther, Joe says.
CAMPANELLI: I tell people, it's not for the faint of heart. It's got to be part of your DNA. It's got to be part of your risk management process. And you have to understand the special nuances that go into it, as an industry. So, the new branch I mentioned is specifically designed to handle this type of business … Money counting, the security, the cameras, all those things that you would envision in a money counting room.
PEDERSEN: But in other ways, working with the cannabis industry has opened up the door to other opportunities for the bank that simply wouldn’t have appeared otherwise.
CAMPANELLI: We did get federal regulatory approval to conduct this business and most importantly, not only to the dispensaries and cultivators, but to the employees. There are a large number of employees that can't get home mortgages, can't get car loans, that are denied credit, because their W2 is coming from an illegal federal activity. So we've already addressed that — we will serve as the employees of all of the clients we serve.
PEDERSEN: But, OK, that’s just the opinion of one bank CEO. To really get a sense of the day-to-day grind of cannabis banking, you have to talk to compliance officers.
DANIEL SCHNEIDER: I don't know if this is a controversial opinion or not, but I don't think banking cannabis is hard. It's just a lot of work.
PEDERSEN: This is Daniel Schneider.
SCHNEIDER: I'm Daniel Schneider. I'm the Bank Secrecy Act officer for Lead Bank. I'm generally in charge of overseeing the entire BSA, AML, anti-terrorist financing program for Lead Bank.
PEDERSEN: Lead Bank is based in Kansas City, Missouri with about $660 million of assets. Missouri legalized the use of medical marijuana in 2018, but recreational use remains illegal. Given that quasi-legal status, Daniel says a significant part of his job is communicating to clients that, yes, you can put your money in the bank and no, you will not go to jail for it.
SCHNEIDER: A lot of it is education, and working with these clients, and teaching them you know, that it's okay to bank transparently because they were forced to hide for so long and, you know, funnel their money through intermediaries and different companies and what to a normal BSA officer, you'd be like, that's really suspicious, like that’s suspicious activity. It's really just working with them and being like, ‘No, you can just tell us, you know, the money's from cannabis, you're a dispensary, you sold a bunch of weed like, that's okay. Like, we want you to be like, feel like that's okay.’
PEDERSEN: OK, sure. But what about suspicious activity reporting? Bankers have always made a point of complaining that the act of filing a SAR, as they’re commonly known, is pretty difficult and time-consuming, even as far as compliance activities typically go. I asked Daniel about that.
PEDERSEN: I know the sort of classic complaint about working with cannabis funds and other gray industries is this idea that bankers, in order to cover themselves, will just file SAR after SAR after SAR. Has that been your experience at all? Do you ever find yourself filing suspicious activity reports in the course of your work?
SCHNEIDER: Um, well as a BSA officer, I can't confirm nor deny the existence of a SAR but FinCEN did release very specific guidelines on what is required of banks.
PEDERSEN: Those guidelines, published in 2014 during the Obama administration, break down cannabis-related SARs into three categories. SCHNEIDER: The marijuana limited SAR is essentially — you're notifying, more or less, FinCEN that we're aware that this is a cannabis business. … Then you have priority SAR, which is like the second tier, which would be, I don't know, more of what a BSA officer would probably consider to be a normal SAR. You think they're structuring, or [there’s] suspicious fund movement, you know, — the sketchy things like that. And then the termination SAR; we think something illegal is happening, banking this business puts our AML program in jeopardy, we're terminating the relationship due to potential AML concerns.
That tiered approach means that as long as the cannabis companies you’re banking are law-abiding, the types of SARs you’re filing on a regular basis aren’t going to amount to much of a burden. Plus, if you’re monitoring the cannabis banking space for anti-money laundering compliance, you’re probably not going to be working alone.
KEVIN HART: At its essence, that’s the challenge for full access to the U.S. financial business and financial services for the cannabis industry — it's about data and having that visibility. So how do you connect two individual highly regulated industries that would love to work together?
PEDERSEN: This is Kevin Hart.
HART: Kevin Hart, founder and CEO of Green Check Verified, and I have the fortunate opportunity to work with some of the brightest people in the world day in and day out.
PEDERSEN: Green Check Verified is one of several fintech companies who have developed systems and tools to help banks track and verify the cash that comes from their cannabis clients. Hart’s company also helps banks manage the regulatory reporting burden that inevitably crops up from this type of work, including SARs filing.
HART: We're operating in 38 states, we have 2,300 unique cannabis businesses; not just dispensaries! Growers, manufacturers, suppliers. We banked the entire supply chain of cannabis. And year to date alone — last year, we did $2.3 billion in verified sales through the platform. We've already surpassed one $1 billion in April.
HART: That's money that was not in the US banking system previously, or would not be. Now it's there safely and with compliance.
PEDERSEN: The major upside of this kind of compliance software, Hart says, is the labor required to bank these businesses.
HART: When we first started this, the general thinking and the written opinion of so many people was … you would need one BSA person for every five cannabis businesses. And then some folks got to that five to 10. Okay, so if you're going to scale a program, you're at 50 [businesses], all of a sudden you have five-plus BSA people. Well, BSA people are hard to find, they're hard to train, they're hard to retain. Okay, so now you're looking at that expense, and you're looking at the cost of funds back then, what the fee revenue could be, and people had a hard time reconciling — why am I going to do this? How can I make money? Why?
PEDERSEN: But with the right technology in place, the BSA officer calculus flips on its head.
HART: We are seeing banking programs right now scaling with one BSA [officer] and have 80-90 accounts. You apply that math, you apply that savings and you apply that opportunity up against the increasing cost of funds, and you have the largest consumer packaged goods industry — billions of dollars outside your door, waving their hands saying ‘Please, please, please let me in!’ And you can enable all that? Everybody benefits in that scenario.
PEDERSEN: You might be asking yourself — where would the SAFE Banking Act fit into this? Right now, policy analysts are pretty bullish that some form of federal cannabis banking will become law by the end of the year. Putting aside Schumer’s comprehensive legalization bill, there are three main avenues for that to happen. The first is a bipartisan spending bill that’s supposed to bolster American competition against China with a boost in funding for semiconductor production and scientific research. The House side of that bill passed the chamber with the SAFE Banking Act tucked inside, but the Senate’s did not. We’ll see how that bill turns out.
The Congressional Plan B for cannabis banking is another spending bill — the National Defense Authorization Act for fiscal year 2023. Again, last year, House lawmakers tried to use that must-pass package to help SAFE Banking become law, and again, it got taken out of the final bill after Senate negotiations. This year could be different, though, given the wave of crime targeting cannabis companies in Washington State and beyond. It’s just not a rhetorical stretch to call cannabis banking a public safety issue any more.If the U.S.-China bill nixes cannabis banking, and the military spending package follows suit, there’s one last way the bill could become law this year: as a standalone measure. That might sound far-fetched in a 50-50 legislature limited by the Senate filibuster, but, again, this is a really popular reform. Now, bear in mind that as a standalone law, the SAFE Banking Act might change in some significant ways — progressives who wanted to secure comprehensive legalization will push for funds to help states expunge the criminal records of nonviolent offenders. Some Republicans will also probably push for capital markets access for the cannabis industry, which would make it a lot easier for institutional investors to step into the space, but the core of the bill should remain intact. So:if Congress introduces a federal safe harbor law for banks, are banks still going to need this type of compliance vendor, along with all the other commitments and strategies we’ve talked about? Hart says yes.
HART: God love Washington, and all the work those great folks do, regardless of what side of the aisle you sit at, but they're not going to make this less complex. They're going to make it more complex, there's gonna be more rules and regulations.
PEDERSEN: It’s worth noting here that the statutory text of the SAFE Banking Act says that banks would be covered to work with quote-end-quote “legitimate” cannabis-related businesses. That would obviously include state-level regulations, but it may also include federal regulations coming out of Fincen or other AML-focused regulators.
PEDERSEN: You're not worried about losing your job?
HART: No, not in the least.
PEDERSEN: Okay, great.
PEDERSEN: Back at Needham Bank, Joe Campanelli told me that the SAFE Banking Act would almost certainly make their cannabis business easier as far as compliance goes. But it certainly wouldn’t eliminate the distinct challenges of the industry entirely.
CAMPANELLI: Once you take the cash out of the system, you have an audit trail from the growth side. You know how much cannabis has been produced from a yield standpoint, and then you can track it all the way through the sale. So when you look at the money laundering concerns, and BSA concerns, all those things, the focus is on making sure that from seed to sale, there's adequate controls in place. And eliminating the cash really mitigates that risk to a substantial level. It won't eliminate it, you still need to have heavy-duty compliance to make sure that you're not exposed to money laundering.
PEDERSEN: Again, at the end of the day, we’re talking about an industry that’s worth billions and growing rapidly. The sooner that industry gets access to the kinds of basic financial services that other legitimate businesses enjoy — with or without Congress’s help — the sooner cannabis businesses stop being a target for crime and the more those businesses can grow and flourish. And banks can play an integral role in that process, starting right now.
CAMPANELLI: This is one of the few times in life you really see an entire industry become — to flourish from seed to sale, quite candidly. There's been lots of talk for the last 10 years about how this industry evolves. There's lots of different applications, especially on the medical side, from pain killing, from sleep aids, all different types of applications. We’re very much in the early innings, so to speak, of this industry.