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Bank building
Debate is raging as lawmakers are preparing to resolve their differences regarding the America COMPETES Act (HR 4521). This manufacturing bill includes the Secure and Fair Enforcement (SAFE) Act, which has been a hot-button topic for years, and which would grant equal protections to state-legal marijuana businesses and the financial institutions that are currently unwilling to work with marijuana.
As the House passed the SAFE Act language but the Senate rejected it, despite approving the rest of the COMPETES Act, this difference must be resolved in a conference committee. Ahead of this, the American Bankers Association, representing banks and credit unions in every state, urged congressmen—in particular Republican senators, who are the major roadblock to the bill’s success—to pass the provisions of the SAFE Act. As they point out, the status quo of marijuana banking is not a sustainable solution.
“The inability of the state-licensed cannabis industry to access safe and regulated financial services is a pressing concern for so many of our nation’s communities and the banks that serve them. With state-licensed cannabis businesses currently operating in 37 states and more states weighing legalization, we urge you to include the SAFE Banking Act in the compromise version of the COMPETES Act to address these critical issues as quickly as possible,” the American Bankers Association wrote in defense of reform.
The Problem with Marijuana Banking
Currently, lawful cannabis businesses, which exist in states that legalized marijuana, are facing an enormous burden because of their products’ illegal status in the eyes of the federal government. Banks do not do business with entities that partake in illegal activities. If they accept to work with federally banned marijuana businesses—and some banks do, albeit very few—they are opening themselves up to liability and potentially extreme consequences as facilitators of drug trafficking. As such, tens of billions of dollars in regulated and taxed marijuana sales cannot be processed by banking institutions. It is not just banks, but also insurance companies, retirement funds and all financial institutions that refuse to touch cannabis money, no matter how licit.
Among other consequences, state-legal cannabis businesses often cannot accept anything other than cash payments. This can be seen even in marijuana-adjacent stores, such as ones selling delta-8 THC, a derivative product from the cannabis plant that can make you high but that is legal at both the state and federal levels; they are lumped in with businesses that deal in federally illegal but state-legal products.
As a result of this artificial chokepoint of cash, cannabis businesses are priority targets for robberies, especially armed robberies. It reduces safety in neighborhoods with cannabis stores. It makes it difficult to keep books, it makes it difficult to pay employees and contractors, it makes it difficult to pay rent, and it even makes it difficult to pay taxes. The Internal Revenue Service (IRS) even publicly took the side of marijuana reform by launching a large-scale effort to integrate marijuana businesses and by requesting swift action from Congress. Congress, naturally, failed to act.
In 2019, then-Treasury Secretary Steven Mnuchin explained that the IRS had to build “cash rooms” in IRS locations to contain the literal heaps of cash paid in taxes by cannabis businesses. This is an inconvenience as well as a significant security risk for IRS offices and workers, Mnuchin explained to Congress in another call to change. “I hope this is something that [lawmakers] can work with on a bipartisan basis, there are people on both sides of the aisle that share these concerns,” he said.
“The SAFE Banking Act is an urgently needed, and widely supported, bipartisan legislative solution to allow banks to handle the proceeds from state-licensed cannabis businesses and the accountants, skilled trades, landlords, law firms, and other service providers they rely upon for legal operations,” the American Bankers Association added to their statement. “Federal law prevents banks from banking cannabis businesses, as well as these ancillary businesses, without fear of federal sanctions. As a result, this industry is operating primarily in cash, which causes significant public safety concerns and undermines the ability of cannabis regulators, tax collectors, law enforcement and national security organizations to monitor the industry effectively.”
Incremental or Radical Solution?
Superficially, given that some Republicans support it, one could assume that passing banking reform would be a mere formality. Yet, the SAFE Act was passed by the House of Representatives repeatedly and always died without a decisive vote in the Senate. The SAFE Act was passed in its current form by the House in 2019, then in 2020, then again in 2021, then again in 2022, but similar legislation was introduced by Rep. Ed Perlmutter every year since 2013.
While Perlmutter’s dedication to passing marijuana reform is admirable, it is not unanimous even among congressional Democrats who fight alongside him for drug reform. Among his opponents, you can count marijuana champion Cory Booker, who promised to block any narrow marijuana banking bill, and even Senate Majority Leader Chuck Schumer. While most of Schumer’s Democratic appointees who will serve as conferees for the COMPETES Act have vowed to defend SAFE banking legislation, Schumer himself has gone on record speaking against it.
Why oppose what appears to be a common-sense bill with no drawbacks? Specifically because it is one of very few aspects of marijuana reform that appeals to Republicans. The topic was broached during a recent meeting by the Council for Federal Cannabis Regulation. Reginald Babin, Chief Counsel to Chuck Schumer, defended the lack of enthusiastic support for banking reform by pointing out that reform can be radical, not just incremental, and that incremental reform “makes sense when it makes sense,” which is not always.
“The elephant in the room is that SAFE Banking has broad bipartisan support. I think that there is a real interest in both chambers to get it done,” said Amanda Kain, Chief of Staff of the Cannabis Caucus. In the same meeting, she pointed out that “there are different calculuses in both chambers, there are different considerations… At the end of the day, what we are all trying to do here is to get as much done as possible.”
That is the key: For Schumer, Booker and more lawmakers, opposing the SAFE Act is a strategic move with the same end goal as all other Democrats, which is cleaning off the stain that marijuana prohibition left on America itself.
Sen. Schumer himself is working on his own federal marijuana legalization plan, and he wants cannabis reform to be a priority of his Senate. But, by passing banking reform, which is largely bipartisan, a portion of cannabis reform enthusiasts fear that it would take the wind out of the sails of the larger legalization movement.
The current state of banking for state-legal marijuana is a catastrophe causing an ever-increasing amount of damage to people and businesses across the nation. Maintaining the status quo on banking will also put an ever-increasing pressure on Republicans to accept more concessions in order to finally pass banking reform. There is also fear that federal banking reform without federal legalization would open the doors to corporations who could use the SAFE Act to seize the legal weed market and leave Americans with less resources in the dust.
“To just do [banking reform] so some people can get rich and not do something about the people who are languishing with criminal convictions—to not do something on restorative justice, not to make sure that the business opportunities that are created are given a fair playing field, where right now in many states, someone who has a criminal conviction for selling marijuana can’t get a license now, is unacceptable,” Cory Booker denounced. “I don’t know about other members of the Senate, but I will lay myself down to do everything I can to stop an easy banking bill that’s going to allow all these corporations to make a lot more money off of this, as opposed to focusing on the restorative justice aspect.”
“I agree we need to get that banking bill done,” Booker clarified later, after receiving backlash for his first statement; but it must be done right, as a hook within a bill with a grander scope. “A good bipartisan bill like the banking bill is a necessary sweetener to get people to move along on the equitable justice elements that are really critical.”
If banking reform is passed alone and first, it would immediately lead to relief for many within the legal marijuana industry, but it could mean the difference between the passage or failure of legalization itself. To this end, Schumer and his camp are gambling on the success of the Cannabis Administration and Opportunity (CAOA) Act, which should be introduced before the end of the current session and include not just banking reform, but also common-sense reform of our drug laws and wide-reaching social justice provisions. Whether a piecemeal or a comprehensive approach works best, only the future can tell.
