Congress Hears Testimony on Federal Cannabis Banking Reform

A subcommittee of the U.S. House Committee on Financial Services met today to discuss reforming federal banking regulations so that they can better accommodate cannabis businesses.

With six experts from across the country testifying on the banking challenges facing cannabis companies, the hearing before the Consumer Protection and Financial Institutions Subcommittee provided a stark contrast between predominately Democratic representatives who expressed their support for passing quick legislation to give a safe harbor to banks working with cannabis businesses — and Republicans who warned of “putting the cart before the horse” and creating further confusion.

Rep. Ed Perlmutter, a Democrat from Colorado, spearheaded the effort behind Wednesday’s subcommittee meeting, and testified first about his SAFE Act, which would give protections to banks working with cannabis businesses. (He introduced the SAFE Act as H.R. 2215 in 2017, and its companion bill is currently under consideration in the Senate.)

“This hearing is a big deal for thousands of employees and business across this country who have been put at risk because they are forced to deal in piles of cash while Congress stuck its head in the sand for the last 20 years,” Perlmutter said. “The fact is you can’t put the genie back in the bottle. Prohibition is over. Our bill is focused solely on taking cash off the streets and making our communities safer, and only Congress can take these steps and provide this certainty for financial institutions across the country.”

Thanks to the disconnect between state laws allowing for legal cannabis and federal laws prohibiting the plant, cannabis businesses are often unable to access the traditional banking system, turning instead to local credit unions (many of which have only recently started accepting cannabis businesses, have long wait lists or get cold feet) and conducting business in cash transactions.

In 2014, the Obama administration released guidelines allowing banks to legally provide services to state-licensed cannabis businesses, but many banks have been reluctant to take the risk anyway. By mid-2018, only 411 banks across the country were helping cannabis businesses, according to a 2018 Treasury Department report.

The Human Costs of Operating in Cash

Perlmutter, his Democratic colleagues, and many of the experts who testified before the committee spoke frequently throughout the hearing about the risks of armed robbery and violence due to the country’s backward cannabis banking laws.

Specifically, Perlmutter and Rep. Denny Heck (D-WA) spoke about Travis Mason, a young security guard and former Marine, who was killed in Aurora, Colorado during an armed robbery of a dispensary.

“We have the power in this committee to prevent murders and armed robberies and we must use it, we must use it now, because we are already late,” said Heck.

Retired Baltimore police Maj. Neill Franklin, who heads the Law Enforcement Action Partnership, testified in front of the subcommittee in favor of the SAFE Act, and spoke about the considerations that law enforcement has when it comes to the “soft target” of cannabis businesses who cannot bank properly.

“My greatest fear is not the lost profit due to theft, it is the potential for serious assaults and death for the people attempting to protect that cash,” said Franklin, referencing security guards, employees transporting cash and employees on payday carrying thousands of their own dollars in cash. He recalled the story of the Orange County dispensary owner who was kidnapped, tortured and sexually assaulted in 2012, as his assailers attempted to extort him for cash.

In her line of questioning, Rep. Alexandria Ocasio-Cortez (D-NY) also raised the concern that cannabis regulations can give first mover advantages to wealthy individuals and firms, while the black and Latino people disproportionately impacted by the War on Drugs are left 0ut of the profits.

Corey Barnette, owner of the Washington, D.C. dispensary Metropolitan Wellness and CEO with the cultivating company District Growers, testified that he believes the SAFE Banking Act would be “a valuable tool for winners of licenses,” which could put “opportunity firmly within reach” for people of color looking to enter the cannabis industry.

“This is an opportunity to right the injustices of the past, but we need equity embedded [in the policy] and we need the financial industry to be nimble with any other growing industry,” said Rep. Ayanna Pressley (D-IL). “This is about the people, the small business owners.”

The Republicans Answer With Delay Tactics

The single expert present who spoke out against the SAFE Act — Jon Talcott, a lawyer for Nelson Mullins, speaking on behalf of Smart Approaches to Marijuana (SAM), who was invited by the Republican minority on the subcommittee — also focused his comments on the public health ramifications of cannabis banking. However, he chose to focus on how cannabis itself is dangerous and did not directly discredit any of the points put forward by cannabis banking proponents.

“I also speak on behalf of people who have been the victims of cannabis,” Talcott said. He spoke about his sister, who he says developed schizophrenia and died young after she started smoking pot; his cousin, who smoked pot and then died of an opioid-induced heart attack, and about Alex Berenson’s reefer-madness-redux book on the dangers of cannabis.

Then Talcott pivoted to the main point put forth by the Republicans on the subcommittee who were opposed to new banking regulations: Cannabis banking rules should not be addressed while cannabis remains a Schedule I drug.

“I think you really need to address the Controlled Substances Act and its prohibition of marijuana before any of the proposed changes and safe harbors would be effective,” Talcott said. “We need to be very careful about how we proceed. If we want to discourage the black market, which I think we all do, then we need to be much more straightforward about how we approach this issue. We need to change the scheduling of marijuana — if that’s what people want to do — and then go about putting in place the proper banking regulations.”

In his opening statement, the Republican ranking member on the subcommittee, Rep. Blaine Luetkemeyer (R-MO), articulated almost this exact same point.

“It is my opinion that we are putting the cart before the horse by addressing this issue here in the Consumer Protection and Financial Institutions Subcommittee before the drug is descheduled, but I do welcome the conversation,” said Luetkemeyer.

Luetkemeyer then proceeded to list the variety of issues he would like resolved before financial institutions are given a safe harbor to work with cannabis businesses, including money laundering laws, resolving questions around FDIC insurance, moving money across states that don’t have legal marijuana, clarifying the Bank Secrecy Act and the rights of states to supersede federal law. Luetkemeyer pointed to the hemp industry as a good example of pushing for descheduling first, and then called on the Department of Justice to consider descheduling cannabis first.

“I believe we can’t do much today besides realize we have a problem and that we can solve it by descheduling the drug,” he said.

In a tense back-and-forth with Rep. Andy Barr (R-KY), Heck demanded that the Republican representative explain how he could insist that Congress had to deschedule cannabis in order to address banking concerns, when he wouldn’t support descheduling in the first place.

“We have shown the way to do this, and it’s an amendment to the Controlled Subtances Act,” said Barr.

“Are you willing to vote to delist marijuana?” Heck demanded.

“No, I’m not,” Barr replied, with a stutter.

“I don’t understand the argument then,” said Heck. “It’s spurious if you suggest that’s the solution and [then say you’re] against it.”

By and large, the question of whether or not cannabis should or should not be legalized was left off the table, with the exception of Talcott’s comments.

A handful of Republican subcommittee members also brought up concerns about hypocrisy, saying the federal government should not make it easy for banks to work with cannabis businesses, after Obama-era banking efforts under Operation Choke Point discouraged banks from working with federally legal companies such as firearms dealers and payday lenders. (Heck noted that Operation Choke Point is now over.)

Why Is Support From Congress Necessary?

In his line of questioning, Luetkemeyer demanded the experts answer whether or not the organizations they represented had taken their requests to the Judiciary Committee or the Attorney General to ask about descheduling cannabis first. His demands appeared to have backfired, as a few of the panelists indeed had, specifically California’s treasurer Fiona Ma, who noted that Californian representatives have repeatedly pushed for federal law changes.

Rep. Maxine Waters (D-CA), the chairwoman of the U.S. House Committee on Financial Services, chimed in on the subcommittee hearing to commend Ma on California’s attempts to figure out a solution to the cannabis banking problem, which included conducting research into whether or not the state could open its own bank to work with cannabis businesses. (California’s research found it would be too costly and challenging to open such a state bank.)

“You’ve made a really strong case here for why it makes sense to create a safe harbor and why California supports the SAFE Banking Act,” Waters said.

“We really need Congress to act,” said Ma. “The most expeditious solution to the problem of cannabis banking would be for this committee and Congress to act.”

TELL US, do you think Congress should make it easy for cannabis businesses to bank?