The Senate Committee on Banking, Housing, and Urban Affairs yesterday hosted a hearing titled “Challenges for Cannabis and Banking: Outside Perspectives.” This long-awaited congressional hearing focused on the challenges state-legal cannabis companies face in utilizing traditional financial services during federal prohibition. As expected, the Secure And Fair Enforcement Banking Act (“SAFE Banking Act”) was a main focus of attention.
The SAFE Banking Act would immunize banks, credit unions, and other financial institutions from legal consequences for working with the cannabis industry, and the first speakers at the hearing were the bill’s Senate co-sponsors, Senators Cory Gardner (R-CO) and Jeff Merkley (D-OR). Gardner said in his testimony, “the states are leading on this issue, and the federal government has failed to respond. It has closed its eyes and plugged its ears and pretended the issue will go away. It won’t.” He seemed particularly concerned with large amounts of cash being used and transported (often in briefcases) with no ability to trace where the dollars go. Merkley expressed concern about money laundering, tax fraud, and most importantly, community safety.
Also testifying were a variety of individuals from different areas of the industry with a wide range of perspectives on banking reform. Of note, Rachel Pross of the Credit Union National Association (CUNA) emphasized how her association does not have a position regarding federal legalization but believes financial institutions should be permitted to enter transactions and relationships legal in their states, even though inconsistent with federal law. Joanne Sherwood from the American Bankers Association (ABA) explained how payroll companies, law firms, real estate investors, and others often derive revenue from cannabis companies, and the burden on banks to screen for cannabis funds is extremely burdensome. She testified that “the bank must dedicate significant resources to developing a compliance strategy that allows them to continue to serve their communities in an environment where the letter of federal law and the reality of the current marketplace are irreconcilable.” John Lord, CEO of LivWell Enlightened Health, explained the difficulties his vertically integrated cannabis company faces without banks; he has rented out a vault to store cash and has walked into the IRS building in Denver with 3 million dollars in cash to pay federal taxes. On the other hand, Garth Van Meter, Vice President of Government Affairs from Smart Approaches To Marijuana (SAM), challenged the premise of banking reform, arguing that “by skipping ahead to a technicality over banking rules, the marijuana industry is hoping to gain many of the benefits of federal legalization without a debate over the public health effects.”
The fact that a hearing was held at all is a good sign for the cannabis industry. Senate Banking Chairman Mike Crapo (R-ID) had previously shown a reluctance to move banking reform forward, as we wrote about here, and was under no obligation to hold this hearing. But there were also worrisome signs. Senator Crapo was the only Republican member of the committee to attend the hearing, suggesting that there is still, at best, lukewarm support among the Republican caucus. And Senator Crapo gave no indication that he intends to push the bill any further, although he did note that “a case has been made pretty strongly here about the need to get the banking industry issues relating to cannabis resolved.” For now, we will all just have to wait and see.
If you would like to watch a video of the hearing, that can be found here.