Public safety and the problems of doing business in cash took center stage on Tuesday during an unprecedented US Senate committee hearing that could be a major step in solving one of the cannabis industry’s biggest headaches: banking.
The Senate Committee on Banking, Housing, and Urban Affairs hearing, titled “Challenges for Cannabis and Banking: Outside Perspectives,” brought lawmakers, financiers, and an anti-legalization lobbyist together to discuss the possible pitfalls and benefits of implementing the SAFE Banking Act, which would provide legal protection to financial institutions serving the cannabis industry.
In his opening remarks, Senator Mike Crapo, the Idaho Republican who chairs the committee, said that because of fear of retribution from federal authorities, “many banks have stopped providing financial services to members of these lawful industries for no reason other than political pressure, which takes the guise of regulatory and enforcement scrutiny.”
Senator Sherrod Brown, the Ohio Democrat, then added some context, with an emphasis on how workers in the industry are affected by a lack of banking services. “The legal cannabis industry is one of the fastest growing in the United States and employs hundreds of thousands of people, many of whom are represented by unions like the United Food and Commercial Workers International Union.”
“No matter how you feel about marijuana itself,” he underscored, “we have a duty to look out for the workers in this industry and the communities they represent.” In concrete terms, Brown argued that forcing workers to “operate in the shadows” not only “puts a robbery target on the backs of workers,” but also adversely affects their socioeconomic stability.
“Getting paid in cash means it’s difficult to get a credit card, prove your income to get a loan, or even keep your personal bank account,” Brown said. “That can force workers to turn to shady outfits like payday lenders and check cashing services that charge high fees and interest rates.” Those, in turn, he said, can “trap people in a cycle of debt and make low income people even poorer. Companies or workers that have found a bank willing to handle new business often pay high fees, and are limited to only the most basic financial services.”
When addressing the Committee, Colorado Repubican Senator Cory Gardner also pushed Congress to act with urgency, as the legalization of cannabis only continues to gain traction at the state level, meaning more state-legal businesses operating without banking services due to the conflict between state and federal law.
“Thirty three states have legalized medical marijuana. Eleven allow regulated adult use,” he continued. “It’s happening in the bluest of blue states, the reddest of red, and, in Colorado, the purplest of purples.”
Gardner named several others and continued, “It’s the states that are leading on this issue, and the federal government has failed to respond. It has closed its eyes and plugged its ears and pretended and hoped the issue will just go away. But it won’t.”
The disconnect between federal and state cannabis laws, Gardner added, “has become, as Attorney General [Bill Barr] has testified, both intolerable and untenable.”
Gardner became a champion of the cannabis industry in early 2018, when he blocked judicial court nominees in response to then-Attorney General Jeff Sessions’ move to rescind Obama-era protections for the cannabis industry. Gardner ended the nomination freeze when he said he felt that the Department of Justice was acting in “good faith” on protections for the cannabis industry.
Gardner talked about his own evolution on cannabis law reform.
“I’ve been a skeptic about cannabis legalization,” Gardner said. “It’s no secret that I opposed legalization in Colorado,” he added, citing his concerns about youth use and public safety. “I was leery of breaking with the federal government. I was uneasy about adding another intoxicant into our culture, and I did not and still do not want to encourage my own children to use marijuana. Several years into legalization in Colorado, I can say, though, that the sky has not fallen.”
It’s happening in the bluest of blue states, the reddest of red, and, in Colorado, the purplest of purples.
Senator Cory Gardner, on cannabis legalization
What the SAFE Banking Act will do, said Senator Jeff Merkley, a Democrat from Oregon, is ameliorate the current situation. For example, he said, Oregon’s Department of Revenue “has one location that accepts cash—just one location—so business owners in the western part of the state often have to drive five or more hours with tens of thousands of dollars in cash just to pay their taxes. The cash creates a genuine public safety problem,” one that gets repeated throughout the country.
Recently, Merkley said he saw this firsthand when accompanying Oregon businessman, Tyson Elmer, on a trip to Salem to pay his tax bill. According to the Senator, Elmer had to make a quarterly payment of seventy thousand dollars, which he transported in a backpack. When they got to the capital, said Merkley, the businessman “turned it over on a table. It just kind of spread out across the whole table and fell onto the floor.
“That’s a lot of money to be carrying around in a backpack,” Merkley said.
Testifying on behalf of the Credit Union National Association, which represents state and federal credit unions and their 115 million members across the country, Rachel Pross, Chief Risk Officer at Maps Credit Union, noted that “even financial institutions that choose not to bank the cannabis industry still risk unknowingly serving these businesses.”
“Cannabis businesses don’t operate in a vacuum,” she added, “and indirect connections are hard to avoid . . . Locking lawyers, landlords, plumbers, electricians, security companies, and the like out of the nation’s banking and finance systems serves no one’s interests.”
“Statistics show that cash-only businesses increase the risk of crime,” she continued. “A 2015 analysis by the Wharton School of Business Public Policy Initiative found that, in the absence of being banked, one in every two cannabis dispensaries were robbed or burglarized—with the average thief walking away with anywhere from twenty thousand dollars to fifty thousand dollars in a single theft.”
Joanne Sherwood, President and CEO of Citywide Banks in Denver, Colorado, then testified on behalf of the American Bankers Association, reiterating Pross’s points, contending that indirect connections to cannabis revenues will continue to prevent various businesses from accessing of banking services. “Even banks in states like Idaho and Nebraska, where cannabis has not been legalized for any purpose, still face significant compliance challenges that must be addressed,” she said.
But not all agree. Pointing to financial institutions that “have no position on cannabis legalization,” Garth Van Meter, Vice President of Government Affairs at Smart Approaches to Marijuana (SAM), said: “They say that they are not taking a position on legalization, but they want to profit from depositing federally illegal proceeds.”
Van Meter then added: “SAM believes no one should be locked up or have the rest of their life ruined just because they got caught with a joint. But we also should not create another new addiction-for-profit industry in the model of Big Tobacco. The fundamental question before us today is whether we want to promote and increase drug use during an addiction crisis or discourage drug use and help people find recovery and healing. By skipping ahead to a technicality over banking rules, the marijuana industry is hoping to gain many of the benefits of federal legalization, without a debate over the public health effects.”
He placed particular emphasis on a product being offered by Acreage Holdings, “former House Speaker Boehner’s new gig.”
“Notice the name of the marijuana strain,” Van Meter told the committee: “’Thin Mint Girl Scout Cookies.’ Let that sink in for a second. Those are the responsible operators in the industry. I can show you plenty of examples from irresponsible operators that are much much worse.”
This prompted Senator Crapo to ask: “So, are you arguing for a tougher federal regulatory system … or are you arguing that there simply continue to be a nationwide ban on marijuana products?”
Van Meter responded: “We think that legalization equals commercialization, and there isn’t really a way to stop that. So, from that standpoint, I think there is a benefit to keeping marijuana federally illegal. At the state level, we think there are important regulations that should be put in place—on potency, on product forms—as a start.”
In support of the SAFE Banking Act, John Lord, CEO and owner of one of Colorado’s largest cannabis companies, LivWell Enlightened Health, said “The current situation is especially challenging for small businesses. While we’re able to absorb the additional costs associated with cash management and exorbitant fees, many mom and pop shops are not.”
