Politics
Congressional Lawmakers Want Updated Marijuana Banking Guidance To Stop Punishing Business Owners For Prior Cannabis Convictions
A coalition of 20 congressional Democrats is urging Treasury Department officials to update federal guidance to prevent financial institutions from discriminating against marijuana business owners over prior cannabis-related activity that’s since been made legal at the state level.
In a letter sent to Treasury Secretary Janet Yellen and Financial Crimes Enforcement Network (FinCEN) Director Andrea Gacki on Tuesday, the bicameral lawmakers said that the existing Obama-era guidance “predates action by many states to legalize marijuana possession and sales, and it unnecessarily red-flags businesses whose owners have been engaged in marijuana activities that are no longer criminalized at the state level.”
The thinking is that, as the Biden administration and congressional lawmakers continue to pursue incremental cannabis reform amid the state-level marijuana legalization movement, federal financial agencies should modernize their guidance in a way that stops regulators from taking unnecessary adverse action against cannabis businesses operating in compliance with state laws.
“The updated guidance should clarify that if a marijuana-related act has been expunged, pardoned, is no longer illegal under state law, or is not disqualifying for obtaining a state marijuana license or permit (i.e. ‘state-sanctioned marijuana activity’), then financial institutions should not consider that offense a ‘red flag’ when conducting customer due diligence of marijuana businesses,” the lawmakers said in the letter, first reported by Punchbowl News.
“This would be an important step to promote fairness in the provision of financial services to marijuana businesses that participate in state-sanctioned marijuana activity,” the letter—led by Sens. Elizabeth Warren (D-MA), Jeff Merkley (D-OR), Raphael Warnock (D-GA) and Rep. Earl Blumenauer (D-OR)—says.
Under the existing guidance, FinCEN asks banks and credit unions to consider past marijuana-related activity, regardless of state laws authorizing the actions, as “red flags” that could affect their standing to receive financial services. The lawmakers say the current standard has contributed to racial disparities that fail to account for state reform efforts.
“FinCEN’s red flags bake a penalty for non-violent marijuana activity into lending decisions—even as states overwhelmingly move to eliminate such penalties,” the letter says. “State and local cannabis regulators across the country have raised FinCEN’s red flag policy as a significant issue impacting their efforts to responsibly and fairly license and regulate marijuana businesses. FinCEN should ensure its guidance does not impose barriers to the efforts of states to provide business opportunities to those with previous marijuana offenses.”
The letter cites testimony from Cat Packer, a former Los Angeles cannabis regulator who now serves as vice chair of Cannabis Regulators of Color Coalition (CRCC) and as director of drug markets and legal regulation at the Drug Policy Alliance (DPA), during a Senate Banking Committee hearing on a bill that would address financial issues within the marijuana industry.
“Under this red flag guidance, a marijuana business owner with a marijuana conviction may be permitted to participate in a state licensing program on paper, but in practice may be unable to access a bank loan to grow her business because she is considered a high-risk customer,” the letter says. “Others may be denied bank accounts and left to operate their businesses on a cash-only basis, exposing workers to safety risks. This disproportionately harms Black- and Brown-owned businesses, whose owners are more likely to have a marijuana-related conviction, though they are not more likely to have violated marijuana use laws.”‘
“Thirty-eight states now permit adult-use and/or medical-use marijuana programs. Moreover, 24 states have begun expunging, vacating, or sealing past marijuana criminal records, for some or all types of offenses. Additionally, 14 states have laws that allow individuals with past marijuana criminal records to participate in state-legal markets. State and local cannabis regulators across the country have raised FinCEN’s red flag policy as a significant issue impacting their efforts to responsibly and fairly license and regulate marijuana businesses. FinCEN should ensure its guidance does not impose barriers to the efforts of states to provide business opportunities to those with previous marijuana offenses.”
The letter’s other signatories include Sens. Tina Smith (D-MN), Ed Markey (D-MA), Ron Wyden (D-OR), Bernie Sanders (I-VT), Cory Booker (D-NJ), Peter Welch (D-VT), Brian Schatz (D-HI), Amy Klobuchar (D-MN), Chris Van Hollen (D-MD) and John Fetterman (D-PA), as well as Reps. Eleanor Holmes Norton (D-DC), Jan Schakowsky (D-IL), Barbara Lee (D-CA), Becca Balint (D-VT), Val Hoyle (D-OR) and Katie Porter (D-CA).
The lawmakers are asking that Treasury and FinCEN provide responses to the following questions by December 4:
1. What steps, if any, is FinCEN taking to update its 2014 guidance in light of marijuana decriminalization, expungements, and/or pardons at the state level?
2. What steps, if any, is FinCEN taking to update its 2014 guidance in light of state laws allowing or prioritizing marijuana business licenses or permits for those with past marijuana-related convictions?
3. Is FinCEN planning to update the 2014 guidance to make clear that convictions for statesanctioned marijuana activity should not be considered a “red flag”?
a. If so, what is FinCEN’s timeline for updating the guidance?
b. What stakeholders, if any, is FinCEN speaking with about updates to its guidance?
4. Has FinCEN studied the impact of the 2014 guidance on lending patterns, including trends in the size of marijuana businesses that receive bank loans and the race/ethnicity of business owners? If yes, what has FinCEN learned from studying the impact of the 2014 guidance?
5. Has FinCEN gathered data on the number of business owners who are adversely impacted by the red flag that directs financial institutions to consider owners’ criminal records and “connections to illicit activity”? If yes, how many businesses:
a. Have been adversely impacted by a red flag, and what was the nature of the adverse impact for each case?
b. Were subject to the red flag but were not adversely impacted?
6. What are FinCEN’s past efforts and future plans to monitor and promote fair access in the provision of financial services to state-sanctioned marijuana businesses and hemp businesses, especially for minority-owned, women-owned, veteran-owned, Tribal community–owned, and small businesses, as well as business owners with past marijuana criminal records? For example:
a. Has FinCEN established best practices for financial institutions to follow, including best practices to promote fairness when providing financial services, including when processing payments to state-sanctioned marijuana businesses and related service providers?
b. If not, is FinCEN considering establishing such best practices? i. If so, what is FinCEN’s timeline for issuing such best practices?
c. What specific steps has FinCEN taken to ensure compliance with President Biden’s January 2021 Executive Order on Advancing Racial Equity
This letter comes as advocates and industry stakeholders eagerly await Senate floor action on a bill to protect financial institutions that work with state-legal marijuana businesses from being penalized by federal regulators. That measure cleared the Senate Banking Committee in September, but further action has been delayed amid concerns about its prospects in the House.
Prior to the committee vote, FinCEN released new data showing that a record-high number of banks and credit unions are now working with the cannabis industry despite federal prohibition.
Yellen told lawmakers in March that regulators are also exploring options to address the unique financial issues related to the cannabis industry.
Last year, Yellen said that it’s “extremely frustrating” that Congress has so far been unable to pass legislation like the SAFE Banking Act and that Treasury is “supportive” of the proposal.
Photo courtesy of Mike Latimer.
