The top financial regulators in 25 states and U.S. territories are joining together to pressure Congress to pass legislation allowing marijuana businesses to store their profits in banks.
“It is incumbent on Congress to resolve the conflict between state cannabis programs and federal statutes that effectively create unnecessary risk for banks seeking to operate in this space. The looming threat of civil actions, forfeiture of assets, reputational risk, and criminal penalties is not conducive to a legal, regulated marketplace,” the officials wrote to House and Senate Democratic and Republican leaders in a letter on Monday.
“We urge Congress to consider legislation that creates a safe harbor for financial institutions to serve a state-compliant business or entrusts sovereign states with the full oversight and jurisdiction of marijuana-related activity,” the regulators continued. “Establishing a safe harbor for banks to serve these entities would help reduce the risk associated with large cash-and-carry operations and bring the safeguards, activities, and sales associated with this business into the regulatory reporting compliance framework.”
Although a growing number of states are moving to legalize cannabis for recreational or medical use, continuing federal prohibition leaves many banks reluctant to work with marijuana businesses, forcing growers, processors and retailers to largely operate on a cash-only basis—which can make them targets for robberies.
In March, the House Financial Services Committee approved a bill to shield banks from being punished by federal regulators for providing financial services to marijuana businesses operating in accordance with state laws. Advocates expect the legislation, which cleared the panel in a bipartisan vote of 45-15, to be considered on the floor within the next several weeks.
Last week, more than a fifth of the U.S. Senate filed identical cannabis banking legislation, though it has not yet been scheduled for a hearing or a vote.
The new letter from state officials was led by Pennsylvania Secretary of Banking and Securities Robin L. Wiessmann and is co-signed by regulators from states such as Alaska, Colorado, Georgia, Massachusetts, New York, Oklahoma and Utah, among others.
“A majority of states now have medical marijuana programs and it has become increasingly necessary to craft policy to respond to emerging challenges in this rapidly growing industry,” Wiessmann said in a press release. “Establishing a safe harbor for banks to serve these entities would help reduce the risk associated with large cash-and-carry operations and bring the safeguards, activities, and sales associated with this business into the regulatory reporting compliance framework.”
Wiessmann led a group of 13 state financial regulators in sending a similar letter to Congress last year.
Trump administration officials have indicated they’d like Congress to resolve the issue sooner rather than later.
“There is not a Treasury solution to this. There is not a regulator solution to this,” Treasury Sec. Steven Mnuchin said during a House hearing last week. “If this is something that Congress wants to look at on a bipartisan basis, I’d encourage you to do this. This is something where there is a conflict between federal and state law that we and the regulators have no way of dealing with.”
In a separate hearing he pledged to have his staff review the pending cannabis banking legislation and provide a possible endorsement within two weeks.
Earlier this month, three Federal Reserve Bank presidents called on Congress to solve the issue.
In February, Federal Reserve Chairman Jerome Powell said during a Senate hearing that it “would be great to have clarity” on cannabis banking.
“Financial institutions and their regulators and supervisors are in a very difficult position here with marijuana being illegal under federal law and legal under a growing number of state laws,” he said. “It puts financial institutions in a very difficult place. It puts supervisors in a difficult place too.”
In the new letter to congressional leadership, the state banking officials wrote that “barriers for financial institutions to serve marijuana and ancillary businesses create a commercial risk from the lack of robust and comprehensive regulation and supervision and a diminished ability to identify operators acting to circumvent federal and state licensing and regulatory frameworks.”
“This raises concerns with respect to tracking the flow of funds, issues of public safety because of cash volume, and a loss of economic activity, workforce development and community development opportunities,” they wrote. “We must work together to look for solutions rather than ignoring the new policy landscape.”