If at first you don’t succeed, try, try again is—in most cases—a tired old cliché.
But when it comes to marijuana banking, it fits.
The House has passed legislation seven times giving financial institutions a regulatory safe harbor if they provide services to marijuana-related businesses.
But each time, the measure has died in the Senate.
On Thursday, advocates began the effort once again, as the Senate Banking Committee held a hearing on the issue. And while some Senate Democrats have argued in the past that marijuana banking should be included in more comprehensive cannabis legislation, Banking Committee Chairman Sen. Sherrod Brown, D-Ohio, said that banking is critical for small cannabis businesses.
“Like any business, they need to apply for licenses, raise capital,” he said. “But that’s hard to do when you don’t have a bank account, or if you do, one that might come with lots of fees.”
Backstory and context
This year, Senate legislation S. 1323 (the SAFE Banking Act of 2023) was introduced by Sens. Jeff Merkley, D-Ore., and Steve Daines, R-Mont., which specifically encourages CDFIs and MDIs to serve marijuana businesses.
“We want small banks and credit unions, MDIs, and CDFIs to be able to serve small businesses and their workers, and level the playing field in an industry that is increasingly concentrated,” Brown said.
However, Banking Committee ranking member Sen. Tim Scott, R-S.C., said the Justice Department and national law enforcement groups have expressed fears that the bill could create loopholes in money-laundering laws.
And Scott raised a separate issue that has been used in the past to gain Republican support of the measure.
“If we are going to have a conversation about SAFE Banking and banking a product that is illegal at the federal level, then we must discuss the importance of banking all industries,” he said. “In the past few years, we have seen certain financial institutions cave to political pressures and take actions to ‘de-bank’ certain legal industries, such as firearms and oil and gas entities, due to the wild progressive nature of the radical Left and their agenda.”
He said he understands that the SAFE Banking Act, as drafted, currently contains a provision to ensure legal industries have access to banking services.
Credit union and banking trade groups have repeatedly endorsed the bill.
Concerns expressed by witnesses
And some witnesses testifying Thursday told the committee that the lack of banking service harms the cannabis industry and its workers.
“The cash-heavy nature of cannabis retail creates safety and financial problems for businesses, customers, workers, and the communities they serve,” said Ademola Oyefeso, international vice president and director of the legislative and political action department of the United Food and Commercial Workers International Union.
He noted that the union represents 10,000 workers in the marijuana industry.
Nearly all cannabis retailers and delivery services must operate on a cash-only basis, 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.”
Cat Packer, vice chair of the Cannabis Regulators of Color Coalition, said she was pleased that the bill explicitly extends protection to CDFIs.
However, she added that the bill should be updated to ensure that federal banking regulators issue best practices for financial services providers serving the marijuana industry.
Michelle Sullivan, chief risk and compliance officer at Dama Financial—a provider of banking and payment solutions for marijuana businesses—also said that the bill as introduced in the Senate needs work.
“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,” she said. “We must also include enhanced due diligence and ongoing monitoring requirements, especially as it pertains to cash deposits and legacy cash.”
The legislation’s future
But another witness questioned whether the bill should be enacted at all.
“Today’s marijuana is dangerous, and this bill would open the marijuana industry to major institutional investors who will create even more hazardous products,” said Kevin Sabet, president/CEO of Smart Approaches to Marijuana.
Sabet questioned whether there is a banking problem at all.
“Today’s marijuana businesses are not dealing primarily with cash; there are hundreds of banks working with pot businesses,” he said.
He added, “Banks currently want to have it both ways: they say they are not taking a position on legalization, but they want to profit from a fabulous new line of business: depositing federally illegal proceeds.”