John Minchillo/AP Photo
Cannabis flowers are sold at a marijuana dispensary in New York, January 24, 2023.
Loosening up banking restrictions for the multibillion-dollar cannabis sector has been the flickering light at the end of the congressional tunnel for countless marijuana businesses. They calculated that such reforms might deliver them from the netherworld that they’ve operated in since states began legalizing medical and recreational marijuana years ago. Now, that beacon may get snuffed out for reasons unrelated to the legislation that made it out of a Senate committee for the first time ever last week.
Unfortunately, the Secure and Fair Enforcement Regulation (SAFER) Banking Act shares its moment with the first time in history that a Speaker of the House has been removed from office. If Senate Majority Leader Chuck Schumer manages to persuade the full Senate to pass the bill, which is also a question mark, its prospects, if and when that bill goes back to the Chamber of Maximum Legislative Carnage, are unforeseeable.
Although the House passed the SAFER Banking Act seven times between 2019 and 2022 (with the backing of majorities of Republicans when the measure came up for consideration as a stand-alone bill), the grumbling about the current Senate version had already started before the defenestration of Speaker Kevin McCarthy.
As Capitol Hill limps along, cannabis businesses and the states that support them are stuck in legal limbo. In June, Mastercard ordered financial institutions that process payments for cannabis businesses to “terminate the activity.” The company was increasingly concerned about consumers’ use of its debit cards to purchase cannabis, since it is illegal under federal law. State government agencies also continue to run into problems. In Maryland, which saw recreational marijuana use legalized this summer, a state official recently teamed up with Wells Fargo on some verbal jujitsu to describe cannabis revenues in a way that the bank could avoid using the word on its federal tax returns. Maryland officials also ran into problems trying to collect license fees when they had to give up on using a state vendor to process them, and turned to another business that could not offer the full suite of services that the state needed.
Cannabis businesses and the people who work for them are in the perilous gray area between state-sanctioned businesses and federal law, which make them more susceptible to becoming magnets for crime. On a single June night in Oakland, California, criminals broke into three businesses; at one, individuals used a forklift to get into a microgrow cannabis operation. Black-market activity has also proliferated. Western Massachusetts is grappling with increases in illegal grow sites and the robberies and deaths associated with them.
Cannabis employees also run into problems with car loans and are unable to get federal home loans; if they can get a conventional loan, they can be subjected to higher interest rates. SAFER would provide them with some relief. The act would enable financial concerns such as banks, credit unions, and the community development financial institutions (CDFIs) and minority depository institutions (MDIs) that handle many small-business accounts to provide services that are difficult if not impossible to come by now.
Banks evaluate a number of risks in determining whether to provide services to a customer or client. Bank regulators are required to make sure banks follow appropriate risk management and follow all applicable laws, including those related to combating money laundering and illicit finance. SAFER does not change those requirements.
Cannabis businesses and the people who work for them are in the perilous gray area between state-sanctioned businesses and federal law.
SAFER would include a “safe harbor” for financial institutions, ensuring that as long as business is conducted in a “safe and sound manner,” banking regulatory agencies cannot get between a legitimate business and financial services based on personal beliefs or personal motivations. That is, they cannot require these institutions to close accounts based on reasons such as reputational risk.
A number of lawmakers, however, are concerned some of the regulatory monitoring provisions recall Operation Choke Point, an Obama administration initiative. As part of that operation, beginning in 2013, the Justice Department moved against banks and online payment companies involved in fraudulent activities. Bank regulators also warned financial institutions under their purview to avoid certain suspicious customers or move to shut down certain customers due to “reputational risk,” that is, the stigma associated with a particular product or industry. Payday loan companies scamming customers were the primary targets, but some businesses that had nothing to do with illegal activities got caught up in the enforcement dragnet. The program ended in 2017, but the initiative has been conflated by Republicans with overzealous regulation.
The House bill, known as the SAFE Banking Act, passed in July of last year and removed the more stringent enforcement provisions that dissatisfied Republicans fearful that the provisions might be used against businesses in unrelated sectors like gun manufacturers and dealerships. The Senate wanted stronger language and compromised by giving bank regulators additional powers, which may damage the consensus that solidified around the House-originated bill. Add in the House leadership cesspool, budget machinations, and a second shutdown threat to this dynamic, and it is impossible to know whether a majority can form to support some version of SAFER in the House.
To bring along Democrats concerned about restorative justice measures, Schumer has linked its passage to another bill, Harnessing Opportunities by Pursuing Expungement (HOPE). Like SAFER, HOPE advances a moderate criminal justice proposal. The bill would fund a Justice Department grant program that would allow state and local governments to implement technology upgrades to facilitate mass expungements for people convicted of possessing marijuana under state laws. The linking of banking measures to criminal justice reforms emerged two years ago when Sen. Cory Booker (D-NJ) argued that both sets of reforms needed to move together. “For me, 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,” Booker said at the time.
But the SAFER plus HOPE compromise failed to satisfy Sen. Raphael Warnock (D-GA). In the 14-to-9 vote to move the bill out of committee, Warnock was the only Democrat to vote no. He contended that the restorative justice elements were weak, that there was nothing to prevent further cannabis sector consolidation, nor would any industry proceeds be required to benefit communities that bear the brunt of the country’s drug prosecutions.
“This bill will make life safer for bankers, for businesses and financial institutions—some of whom have been profiting from the cannabis industry illegally for years. Which is ironic given many of the regular folks that illegally sold or used cannabis are sitting in jail cells right now,” Warnock said. “My fear is that if we pass this legislation, if we greenlight this new industry and the fees and the profits to be made off of it without helping those communities, we will just make the comfortable more comfortable.”
There are at least nine and perhaps as many as 17 Republican votes for the legislation when it comes to the Senate floor. Sen. Steve Daines (R-MT), who heads the National Republican Senatorial Committee and whose state legalized cannabis last year, backs the bill. The American Bankers Association also supports the measure.
The Department of Health and Human Services has recommended moving cannabis from Schedule I (which includes heroin, LSD, ecstasy, and others) along to Schedule III of the Controlled Substances Act. That would enable people to obtain cannabis by prescription. The Justice Department, through its Drug Enforcement Administration, has the final say on whether to move cannabis to a less restrictive schedule or to legalize it. In the increasingly unlikely event that Congress passes SAFER plus HOPE before the legislative calendar runs out for the year, what that development would mean for DEA decision-making, if anything, is unclear.
