On March 6, 2020, the American Bankers Association (“ABA”), on behalf of the banking industry in 49 states and Puerto Rico, sent a letter to leaders of the Senate Banking, Housing and Urban Affairs Committee (the “Committee”) urging them to advance a bill that would expand banking access for legal marijuana businesses, the Secure and Fair Enforcement Banking Act of 2019 (the “SAFE Banking Act,” S. 1200).
In September 2019, the U.S. House of Representatives overwhelmingly passed H.R. 1595, the SAFE Banking Act. The SAFE Banking Act would allow banks to serve marijuana-related businesses in states where the activity is legal. It does not facilitate marijuana sales in states that have chosen not to legalize the drug.
In its letter the ABA stated that, while their members do not take a position on the legalization of marijuana, they are committed to serving the financial needs of their communities. The letter explained, “thirty-three states covering 68 percent of the nation’s population have legalized marijuana for medical or adult-use, and the issue could appear on as many as 10 state ballots this November.” Current federal law, including the Controlled Substances Act, prevents banks from providing services to marijuana businesses without fear of federal sanctions. As a result, according to the ABA, local marijuana businesses and service providers to such businesses are forced to operate on an all-cash basis, which in turn creates serious “public safety, revenue administration and legal compliance concerns in local communities.”
The ABA additionally noted that the impact on the economies of local communities could be significant. Revenue paid to service providers for marijuana businesses (including law firms, accountants and contractors) is technically money derived from illegal activities, and thus could be considered money laundering. This, in turn, raises the central question of whether financial institutions can provide banking serves for these ancillary businesses. The ABA argues that “without a change to federal law, that entire portion of economic activity in legal marijuana states may be marginalized from the banking system.”
The ABA letter asked Committee leadership to “evaluate and address this pressing banking problem,” noting that it is within the Committee’s power to resolve. The letter added, “Doing so will reap immediate public safety, tax and regulatory benefits while Congress continues to grapple with broader decisions about national drug policy.”
The ABA’s letter is not the first such letter Committee leadership has received with respect to this legislation. On January 21, 2020 the four lead sponsors of the H.R. 1595 also wrote a letter urging the leaders of the Committee to take action on the SAFE Banking Act in the Senate.
The Congressmen noted that they shared the Senate’s goal of preventing bad actors and cartels from accessing the financial system. However, “witnesses at both House and Senate hearings testified the 2014 FinCEN Guidance Regarding Marijuana-Related Businesses is an important framework for depository institutions choosing to serve marijuana clients.” If the Senate were comfortable relying on this guidance and passed the Safe Banking Act, banks could provide services to ancillary businesses.
The Congressmen emphasized that the legislation was not about the legalization of marijuana, which many of those who voted for the SAFE Banking Act in the House don’t support. Rather, the legislation was in the interest of regulatory certainty and public safety. The Congressmen view the bill as a “constructive step forward” in providing regulatory certainty to banks, credit unions and other financial institutions. The Congressmen also cited armed robberies of marijuana businesses in the Denver metro area and burglaries at local marijuana businesses, which hit a three-year high in 2019, as evidence for the need to move away from cash-only businesses and towards marijuana businesses utilizing the services of regulated financial institutions.
Regardless of whether the Senate takes action on the SAFE Banking Act, state governments are acting on this issue. For example, on October 3, 2019, California’s Department of Business Oversight issued guidance for state-chartered banks and credit unions that maintain financial service relationships with marijuana-related businesses. California’s recent guidance notes that the state “will not bring regulatory actions against state-chartered banks or credit unions solely for establishing a banking relationship” with licensed marijuana businesses. Other states may follow California’s lead if Congress fails to enact legislation.