U.S. Senate Committee Holds Marijuana Banking Hearing
A key U.S. Senate committee convened on Thursday to discuss marijuana banking issues and bipartisan legislation that seeks to resolve the industry’s unique financial challenges.
Members of the Senate Banking Committee didn’t take any votes at the hearing, which was titled “Examining Cannabis Banking Challenges of Small Businesses and Workers,” but a focal point was the Secure and Fair Enforcement (SAFE) Banking Act.
Sens. Jeff Merkley (D-OR) and Steve Daines (R-MT) refiled the measure last month, and they were among those who testified at the committee hearing.
Other witnesses included representatives of the Cannabis Regulators of Color Coalition (CRCC), United Food and Commercial Workers International Union (UFCW), Dama Financial and Smart Approaches To Marijuana (SAM).
“The cannabis landscape looks far different than it did a few short years ago,” Banking Committee Chairman Sherrod Brown (D-OH) said in opening remarks. “Cannabis has been legalized or decriminalized in almost every state. States and localities have established licensing and social equity programs to ensure that small businesses and communities impacted by the War on Drugs are part of the growing legal cannabis industry.”
“Banking, of course, is critical for small cannabis businesses who already face hurdles getting their businesses off the ground,” he said. “I’m glad we’re building on the progress we’ve made over the years. I look forward to continuing these conversations.”
Ranking Member Tim Scott (R-SC) said that each member “represents different states with different marijuana laws, and I understand that some of us may be in very different places when it comes to the legality of marijuana.”
“As a former small business owner, I understand and appreciate the importance of having that relationship with your financial institution,” he said. “A banking relationship is crucial to providing safety and stability for a company’s employees and the customers it serves.”
But he also raised concerns that the legislation could “create loopholes in our money laundering laws making it harder to catch criminals that traffic weapons, fentanyl and even people.”
Watch the Banking Committee hearing on cannabis issues in the video below:
Merkley, the bill’s lead Democratic sponsor, said at the hearing that “our federal law has not kept pace with Americans’ changing attitudes towards cannabis, nor with changing laws at the state and local level.”
“That failure has denied legitimate businesses the ability to access the same basic necessities as every other business, whether it’s access to banking and credit card accounts, payroll services and more,” the senator said. “Because depository institutions and credit unions are worried that they may be threatened with prosecution under federal law, they have largely refused to work with this industry, so three-quarters of the cannabis economy operates entirely in cash.”
He said that his bill would promote public safety, support small businesses, respect states’ rights and mitigate the risk of money laundering.
Today is the day! The Senate Banking Committee is holding a hearing on the bipartisan SAFE Banking Act of 2023—a key step in getting this to the Senate floor for a vote. pic.twitter.com/hpREFiioOu
— Senator Jeff Merkley (@SenJeffMerkley) May 11, 2023
Daines, the lead Republican sponsor, started his testimony by noting the spike in crime targeting state-licensed marijuana businesses in Washington State, and he said the SAFE Banking Act would “help address a major cause of this increase.”
He argued that the reform would increase tax compliance, while also enabling law enforcement to more effectively distinguish legitimate businesses from illegal operators.
“This bill does not legalize marijuana. I personally do not support federal legalization of marijuana,” he said. “The people in states across this country have spoken, and it’s abundantly clear that the status quo is not only untenable, it’s very dangerous. The SAFE Banking Act is a common sense bill that can and should pass and would immediately improve the public safety threats we’re seeing on the ground in our states.”
Cat Packer, a former Los Angeles cannabis regulator who now serves as vice chair of CRCC and as director of drug markets and legal regulation at the Drug Policy Alliance (DPA) said in written testimony that advocates are encouraged by several “new, common-sense provisions focused on promoting fairness” that were incorporated into the latest version of the bill.
Those changes include extending legal protections to Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs) that work with marijuana businesses.
I've heard directly from legal cannabis business owners in Nevada – the lack of access to banking is putting them and their employees in harm's way.
We need to pass the SAFE Banking Act so they can use bank services just like any other legal business. It's just common sense. pic.twitter.com/QT3QSUsSzS
— Senator Cortez Masto (@SenCortezMasto) May 11, 2023
“However more can, and should, be done to ensure that all communities have the opportunity to benefit from this limited but critical reform,” she said. “Fortunately, with a few additional minor and technical amendments the SAFE Banking Act could be a significantly improved means to promote fair access to banking for those participating in the hemp and cannabis market.”
Packer specifically proposed adding language that would ensure that prior marijuana convictions do not trigger automatic “red flags” for financial accounts that signal possible criminal activity.
She also said that the SAFE Banking Act should require updated guidance from financial regulators so that banks have “clear guidelines to follow when serving the cannabis industry, and that individuals who have been impacted by past cannabis criminalization are not unfairly penalized.”
“Without this type of change, cannabis criminal records will continue to be a significant barrier towards participation in state-legal marijuana industries, disproportionately impacting Black and Brown entrepreneurs and undermining state efforts to address barriers associated with cannabis criminal records,” Packer said.
Further, she said that while the bill requires an analysis on barriers to access to financial services for the marijuana industry, it should be bolstered with updated regulatory guidance on best practices for banks to follow.
Also, in the interest in enhancing information sharing between regulators and financial institutions, Packer said that the legislation should be amended to “establish a process for financial institutions to follow, including best practices to promote fairness when providing financial services, including processing payments to state-sanctioned marijuana businesses and hemp-related legitimate businesses.”
Minnesota is on the cusp of legalizing recreational marijuana, but dispensaries will be forced to operate exclusively using cash.
It’s impractical, a pain for consumers, and dangerous.
We need the SAFE Banking Act so legal cannabis shops are treated like every other business.
— Senator Tina Smith (@SenTinaSmith) May 11, 2023
The bill does require the U.S. Government Accountability Office (GAO) to similarly study financial services barriers for the cannabis sector, but Packer said that should be accompanied by a report on how to resolve those issue, partly drawing from the experiences and actions of local and state governments.
A GAO marijuana industry diversity study provision should also be revised to clarify that it would “address barriers to marketplace entry and competition, or at least clarify that barriers to competition should be included in its consideration of marketplace barriers to success,” she wrote.
Ademola Oyefeso, director of UFCW’s legislative and political action department, emphasized in his written testimony that the “majority of people employed in the cannabis industry are workers, not owners, and lack of banking has become a real issue for this growing workforce.”
“In order for workers in the legal cannabis industry to have the same opportunities as all other workers, Congress must directly address the cannabis banking challenge,” he said.
“Without a bank account that will accept their paycheck, cannabis workers struggle in purchasing homes and must find alternatives to traditional banking to do so,” he added. “This includes finding a co-signer or co-borrower, paying in cash, or finding alternative credit unions. However, none of these alternatives are a guarantee, and workers often find themselves having to pay higher rates due to their work in a fully legal profession in their state.”
He said that giving cannabis employers that ability to access banking services would mean that “their workers get the economic security of a steady paycheck, as well as the peace of mind knowing their payroll taxes and benefits are being properly funded.”
“Cash puts workers in physical danger,” he continued. “Cannabis businesses are forced to have large amounts of cash on hand, putting targets on the backs of workers and customers alike.”
“UFCW cannabis workers have said that access to traditional banks and payroll services can help significantly improve their lives by increasing financial stability, providing more and convenient secure payment processing which leads to safe working conditions and benefits. Cannabis workers do not deserve to be treated as criminals and should not have to struggle with financial and legal ambiguity while on the job.”
Dama Financial’s Michelle Sullivan said in her testimony that, even as a company that exists to support the marijuana industry, they still “reject a fair number of businesses from qualifying for our services because they are not transparent with us and/or they don’t meet our diligent standards.”
Accordingly, she said that “the SAFE Banking Act should be stronger and encompass a more stringent statutory framework.”
“We can’t simply rely on existing guidance without more robust legislation from Congress,” Sullivan said. “It is quite possible that banking standards will be more lax after the passage of the SAFE Banking Act than there is today.”
“At a minimum, a financial institution should follow enhanced rules regarding board approved risk limits and deposit ratios and reporting criteria when limits are approached or breached with required technology and staffing expertise. We must also include enhanced due diligence and ongoing monitoring requirements, especially as it pertains to cash deposits and legacy cash.”
The SAFE Banking Act alone will not solve all of the industry’s financial problems, she said, noting that access to credit cards may continue to be a problem because the bill wouldn’t change the fact that marijuana is federally illegal.
“Without solving the larger decriminalization issues, we worry that the passage of the SAFE Banking Act alone could make problems worse by giving us a sense of resolution while huge conflict in federal law still exists,” she said. “This will still make it difficult for some financial institutions to proceed.”
“This problem is not the urgent one that it once was,” she added, citing federal data showing that “there are over 700 financial intuitions that work with legal cannabis businesses.”
“Every company that meets the risk standards we’ve laid out should already be able to access a banking solution in America,” Sullivan said. “In my opinion, we should pause and provide more teeth to the existing bill to protect the financial and banking industry as a whole.”
Kevin Sabet of the prohibitionist group SAM used his testimony to reiterate arguments against marijuana reform in general, saying that further opening up the financial system to cannabis businesses would lead to harmful public health consequences.
“Today’s marijuana is dangerous, and this bill would open the marijuana industry to major institutional investors who will create even more hazardous products,” he said. “This bill would open the U.S. financial system to activity from transnational criminal organizations who intend to harm Americans.”
Further, he said that the SAFE Banking Act “purports to fix a fake problem,” arguing that “today’s marijuana businesses are not dealing primarily with cash; there are hundreds of banks working with pot businesses.”
Sen. Elizabeth Warren (D-MA) said that the SAFE Banking Act is “a long overdue step to help legal cannabis businesses in Massachusetts and all across the country be able finally to open bank accounts accept credit cards and access other basic banking services.”
“I look forward to working with my colleagues to pass this bill—but it cannot be the end of our work on marijuana policy. That’s because, as long as marijuana remains criminalized federally, we’re not fully fixing the problem,” Warren said. “If people can still get busted for purchasing marijuana, many banks will find it too risky to serve legal cannabis businesses, no matter whether we tell them it is technically okay.”
Brown, the Banking Committee chairman, said recently that senators planned to “move quickly” on the SAFE Banking Act, and so far that’s exactly what’s happening. The announced scheduling of the hearing came just about a week after it was reintroduced in both chambers.
Senators on both sides of the aisle have been pushing for urgent action on the standalone legislation, which would protect banks that work with state-legal cannabis businesses from being penalized by federal regulators.
Senate Majority Leader Chuck Schumer (D-NY) said at a cannabis rally in New York City on Saturday that he would bring the bill to the floor after it clears committee, and he emphasized that it would be revised to include expungements provisions.
The bill is considered one of the more passable pieces of cannabis legislation this session with Republicans in control of the House. A former top aide to Schumer recently wrote an op-ed for Marijuana Moment explaining how the new political dynamics could actually bolster the bill’s prospects of passage this year.
Schumer has emphasized his commitment to advancing the marijuana banking legislation with criminal justice provisions included, calling the broader effort to repair the harms of the drug war a “moral responsibility” for Congress.
A vote in the Senate last month on separate marijuana legislation, however, has raised some questions about whether any modest cannabis reform is achievable under the current congressional makeup. Senate Republicans blocked a procedural motion to advance a bipartisan bill to simply require studies into the medical potential of cannabis for military veterans with chronic pain and PTSD.
The standalone SAFE Banking Act has been approved along largely bipartisan lines in the House in some form several times in recent years. But it’s consistently stalled out in the Senate under both Democratic and Republican leadership.
Last month, Schumer said that he was “disappointed” that the so-called SAFE Plus package of marijuana banking and expungements legislation he worked on last year didn’t advance, saying “we came close,” but “we ran into opposition in the last minute.” He said lawmakers will continue to “work in a bipartisan way” to get the job done.
The majority leader has been holding meetings with Democratic and Republican members in the early months of the new Congress to discuss cannabis reform proposals that might have bipartisan buy-in this year.
For his part, Sen. Cory Booker (D-NJ) said recently that lawmakers are working to “resurrect” the cannabis reform package, acknowledging that failure to advance a banking fix for the industry “literally means that hundreds of businesses go out of business.
Rep. Earl Blumenauer (D-OR), who is sponsoring the House version of the SAFE Banking Act, said at a recent press briefing that thinks it’s important that advocates and lawmakers align on any incremental proposals to end the drug war, warning against an “all-or-nothing” mentality.
The American Bankers Association (ABA) also recently renewed its call for the passage of the legislation.
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Numerous cannabis bills have been filed in Congress in recent weeks beside the banking legislation.
For example, bipartisan congressional lawmakers recently filed a bill to mandate the automatic sealing of criminal records for certain non-violent federal marijuana convictions.
House and Senate lawmakers also reintroduced legislation last month to provide a safe harbor to insurance companies that work with licensed marijuana businesses.
Rep. Brian Mast (R-FL) introduced legislation last month to protect the Second Amendment rights of people who use marijuana in legal states, allowing them to purchase and possess firearms that they’re currently prohibited from having under federal law.
Reps. Dave Joyce (R-OH) and Alexandria Ocasio-Cortez (D-NY) have filed a bill to incentive state and local marijuana expungements with a federal grant program.
Also last month, Joyce and House Minority Leader Hakeem Jeffries (D-NY) filed a measure designed to prepare the federal government for marijuana legalization, directing the attorney general to form a commission to study and make recommendations about regulating cannabis in a way similar to alcohol.
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