House passes landmark cannabis banking legislation
A bill moving through Congress could open up a legal path for financial institutions to offer banking services to cannabis businesses.
The Safe and Fair Enforcement Banking Act, HR 1595, passed the House of Representatives on Sept. 25 by an overwhelming and bipartisan vote of 321-103. The bill would prevent federal regulators from punishing financial institutions that choose to do business with cannabis establishments in states that have legalized its use.
Specifically, a federal financial regulator wouldn’t be able to terminate or limit the depository or share insurance of a depository institution; prohibit, penalize or discourage financial institutions from providing services to cannabis businesses and would provide protections for ancillary businesses in transactions with cannabis-related businesses, among other protections.
Federal financial regulators also wouldn’t be able to take any adverse or corrective action on a supervisory loan simply because it involves a cannabis business, an employee of one or the owner of a business working with one, according to the bill.
Rep. Don Young, one of the bill’s sponsors in the House, said in a press release that his constituents highlighted the banking issue in meetings. Young, co-chair of the Congressional Cannabis Caucus, has consistently held that cannabis legalization should be up to the states, not the federal government.
“When cannabis businesses are not permitted to utilize traditional financial institutions, they are forced to operate cash-only businesses, leaving significant amounts of cash out in the open and making these businesses high-profile targets for robbery and other crime,” Young said in a release. “The SAFE Banking Act is as much a public safety bill as it is a cannabis bill, and I am proud to have been an original co-sponsor of this important initiative.”
Lack of access to banking is one of the biggest hurdles for the cannabis industry. Since Alaska’s industry came online in 2016, retailers have been forced to operate on a cash basis, and cultivators have had to pay their taxes in cash. In 2018, retailers conducted more than $130.4 million in total transactions, and cultivators paid more than $15.6 million in taxes, according to the Alcohol and Marijuana Control Office.
Having to operate on a cash basis makes businesses more vulnerable to theft, and employees are limited in their ability to deposit paychecks earned from working with cannabis. Other financial services, like loans, are also off-limits, which hamstrings businesses from being able to operate like other retailers or farmers.
Earlier this year, a handful of Alaska cannabis businesses got the chance to try a pilot program for banking through Credit Union 1, but it was short-lived. In August, the credit union announced its intentions to cancel the pilot program because a critical insurance program wouldn’t be renewed if the pilot program continued.
“The Alaska Marijuana Industry Association and its members are thrilled to see the SAFE Banking Act pass the House with strong bipartisan support, and hope it will move swiftly through the Senate without hurdle,” said Lacy Wilcox, President of the Alaska Marijuana Industry Association, in a press release.
A similar bill was introduced in the Senate in April with 33 co-sponsors, including Alaska Sens. Lisa Murkowski and Dan Sullivan. The Alaska delegation has generally agreed to support legislation delegating more cannabis regulation authority to states. The Senate version of the bill has not moved through hearings.
Though HR 1595’s language talks about cannabis, it would also affect the hemp industry. Because of its association with cannabis — hemp is a non-THC-bearing part of the cannabis plant — hemp farmers are also not allowed to access banking services under current federal law. Industrial hemp farming itself was legalized nationally in 2018. Because of its murky legal status, hemp industry stakeholders have also reported difficulties accessing banking services.
Senate Majority Leader Mitch McConnell, R-Kentucky, introduced the Hemp Farming Act of 2018, in part because of the interest in farming hemp in his home state. McConnell’s office did not return requests for comment on the SAFE Banking Act, but in previous public statements and newsletters has indicated support for banking availability for hemp-related businesses.
Because cannabis is legal either recreationally or medicinally to some extent in 33 states, the District of Columbia and Puerto Rico, the American Bankers Association is encouraging the federal government to do something.
The gap between federal and state law has caused confusion for financial institutions and creates risk for those who choose to provide services to cannabis businesses.
“Current proposals in both the Senate and the House that seek to provide greater clarity and bridge the gap between state and federal law provide a solid starting point for discussion,” the ABA wrote in a statement. “We look forward to working with policymakers of both parties to find solutions that provide the legal and regulatory certainty banks need to best serve their communities.”
The Senate is currently in recess and will return Oct. 8.
Elizabeth Earl can be reached at [email protected].