Senate Holds Rare Hearing on Cannabis Banking

Jul 24, 2019 | Banks & Credit Unions, Congressional Legislation, Federal Regulation, News

The U.S. Senate Banking Committee led by Chairman Mike Crapo (R-ID) and Ranking Member Sherrod Brown (D-OH) held an unprecedented hearing on cannabis banking on July 23. The Senators focused their remarks on the Secure and Fair Enforcement Banking Act (SAFE Banking Act) and the STATES Act.

Currently, 47 states have legalized some form of cannabis, with 33 states allowing medical marijuana, and 11 allowing regulated adult use. The issue is that the federal government classifies marijuana as a Schedule 1 drug, meaning that the possession, distribution, or sale of it is illegal under federal law. This not only impacts the cannabis-related businesses, but also the business’ service providers, which can include electricians, accountants, plumbers, and lawyers. 

Financial service institutions, like banks or credit unions, often refuse to bank cannabis-related businesses or their service providers due to the possibility of enhanced regulatory scrutiny or federal forfeiture. This leads to these businesses frequently operating on cash. “That creates a genuine public safety problem,” Senator Cory Gardner (R-CO) said during testimony. “Stockpiles of cash make the industry a target for thieves.”

The SAFE Banking Act, introduced by Senator Jeff Merkely (D-OR) would restrict federal regulators from going after a “depository institution from providing financial services to a cannabis-related legitimate business or service provider or to a State, political subdivision of a State, or Indian Tribe that exercises jurisdiction over cannabis-related legitimate businesses.” 

Unfortunately, this bill ignores Tribal Sovereignty by defining a “cannabis-related legitimate business” as a business that operates in a state that has legalized marijuana. During testimony, Senator Merkley said, “By allowing banks and credit unions to service legitimate state-regulated cannabis businesses and tribes engaging in the cannabis industry in states where it is legal, this bill will help law enforcement protect our communities, and help local, state, tribal, and federal taxing agencies collect taxes due on state sanctioned cannabis sales” [emphasis added].

Omar Figueroa, a California lawyer told Cannabis Wire, “It makes tribal sovereignty contingent on state legalization…And that’s not the way tribal sovereignty works.”

The second bill, the STATES Act, was introduced by Senator Elizabeth Warren (D-MA). It would allow cannabis-related businesses and their service providers to operate without heightened regulatory scrutiny or the risk of forfeiture as long as the business was compliant with state law. It also states in regards to finance, “Compliant transactions are not trafficking and do not result in proceeds of an unlawful transaction.”

This bill also ignores Tribal Sovereignty by stating that a cannabis-related business, whether tribally-owned or not, is operating legally as long as it is legal under State law. 

In addition, there are also many unanswered questions. Franklin Snyder, a professor at Texas A&M School of Law asked, “If a state allows the manufacture of medical marijuana products, could a tribe allow recreational manufacture? If the state requires state licenses to be legal, would tribal producers have to get state licenses as well? If the state allows marijuana but the tribe doesn’t, could the tribe punish non-Indians marketing to tribal residents?” Snyder adds, “I don’t see a clear answer to questions like that in the text, and it’s very possible that no one has really thought about those issues.”

Fortunately, Tribes, States, and the United States Congress appear to have plenty of time to resolve some of the complications arising between Tribal and State law since most experts don’t believe either bill will pass this Congress. According to GovTrack, the SAFE Banking ACT has a 37 chance of being enacted while the STATES Act has only a 3 percent chance.

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