The US House Takes a Step Toward Banking Protection For Cannabis Businesses


The US House Financial Services Committee endorsed the Secure and Fair Enforcement Banking Act of 2019 on Thursday by a 45-15 vote, the most significant cannabis-related legislation to get this far in the history of Congress. The Act is expected to head soon to the full House of Representatives for consideration.

The SAFE Banking Act, HR 1595, would provide legal protection from prosecution for banks and federally-regulated creditors that do business with state-legal cannabis businesses. As it stands, cannabis businesses, even those with millions in revenue, operate almost entirely in cash because financial institutions don’t want to deal with the burdensome regulations and risks that come from engaging with an industry that remains illegal under federal law.

The industry has long worried about its banking problem. Heaps of cash create the possibility of  money laundering and a potential front for cartels or other illicit operations, as well as safety and logistical problems for those who own businesses or work in the industry. Businesses and employees have been robbed and, meanwhile, state-legal cannabis businesses struggle to comply with regulators and the Internal Revenue Service without access to a bank account.

The bill moves to the Rules Committee, where Democrats are likely to then move it on to the House floor. Those dates have not yet been scheduled.

Representative Ed Perlmutter, a Democrat from Colorado and the bill’s primary sponsor, added provisions to his original draft to require federal regulators and the General Accountability Office to issue reports that measure diversity—or lack thereof— in the cannabis industry. Advocates for cannabis legalization as a social justice issue say industry members and state lawmakers have failed to provide opportunities for people of color and in communities where America’s war on drugs has hit the hardest.

The SAFE Act has 152 co-sponsors, including 12 Republicans. While the bill has been touted as having the best chance to win over Republicans—and, thus, a chance at passing a GOP-controlled Senate—the hearing made clear that many on the right aren’t necessarily buying the bill’s supposed bipartisan appeal. Rep. Denny Heck, a Washington Democrat who is one of the bill’s co-sponsors, argued that the SAFE Act deserves bipartisan support in part because some states that have already legalized cannabis, and “the toothpaste is out of the tube.” Congress has a duty to try to solve the cannabis industry’s immediate banking crisis, he argued.

Perlmutter acknowledged that the bill doesn’t deal with many issues that have arisen from the state-federal conflict, including a lack of federally-funded research on cannabis and health effects. But he called his bill a “pragmatic” solution to one of the bigger problems plaguing a growing industry. “What we have done is draft a piece of legislation that is narrowly confined to the cannabis services industry,” he said.

But Republicans repeated the phrase “cart before the horse” innumerable times during an hours-long debate on the measure Wednesday. Lengthy exchanges with Democrats seemed to harden their position that the bill was doomed to fail and that endorsing any cannabis measure would result in a major health crisis.   

Representative Blaine Luetkemayer, a Missouri Republican who is the Finance Committee’s ranking member, listed a series of questions he said the bill fails to address, including how federal regulators would police banks and figure out which might be trafficking drugs or laundering money. Without clarity on those issues, the Republican said the bill was being pushed too quickly and is “irresponsible.” Others contended that cartels and other criminals could more easily launder money through the banking system if the bill were to pass, even though law enforcement and banking experts say the all-cash industry is ripe for abuse as it is.

Perlmutter said that regulators would be responsible for implementing best practices to police banks and root out bad actors. Under the bill, banks would still have to provide a greater amount of oversight for cannabis-related businesses than other clients.

Representative Leutkemayer also asked why Congress would seek to carve out legal protections for an industry that remains illegal under federal law. “This confounds me,” he said. “You’re going to have a federal tax on something the federal law says is illegal.” (Note: State-legal cannabis businesses already pay state and federal taxes—in cash).

Throughout Wednesday afternoon, Democrats rebuffed a series of amendments from Republican members of the committee. Democrats tried to keep the conversation on the subject of banking and cannabis, while Republicans pushed for a broader debate about the ills of the drug. Representative Patrick McHenry, Republican of North Carolina, had a New Yorker article about author Alex Berenson’s anti-cannabis book, Tell Your Children, entered into the official record.

Other Republicans sought to tighten the rules and regulations required by the bill, but Democrats argued that they were merely trying to delay the bill or create such burdensome regulations that banks still wouldn’t engage with cannabis businesses.

And then there was cannabis as culture wars debate, exactly what Democrats had hoped to avoid by focusing on a financial issue. One proposed amendment, for example, came from Representative Sean Duffy, a Wisconsin Republican, who sought to ensure that cannabis businesses across the country were not placed within 1,000 feet of schools and other places where children go, mirroring language he admitted he “stole” from Washington state, where cannabis is legal for adult use. “I hope we would consider the kids of America,” he said.

The SAFE Act is a top priority of cannabis industry groups, including the National Cannabis Roundtable, which is associated with former Republican House Speaker John Boehner, who has become perhaps the industry’s best-known cheerleader for the profit that can be made in cannabis businesses. He has encouraged the end of prohibition so that Wall Street investors can profit.

Those optics aren’t sitting well with Democrats. Representative Maxine Waters, a California Democrat who chairs the House Committee on Financial Services, said during the hearing that the SAFE Banking Act would be passed by the House’s Democratic majority as part of a package of legislation that would address “racial and social inequities.”

Senator Cory Booker and others have said in recent weeks that Congress should not legalize cannabis without dealing with equity issues—ensuring that the profits and benefits of the new industry include communities with fewer resources, the communities most slammed by the war on drugs. Waters echoed that concept. “As the bill moves forward it must be part of a holistic approach,” she said. “Congress must take the long view. We will also comprehensively work with our colleagues on the Judiciary Committee on a series of mairjuana-related reforms.”

Ensuring that stakeholders in the increasingly wealthy cannabis industry aren’t the only ones that gain from legalization was discussed at a subcommittee hearing on the SAFE Act last month. “It does not look like the people who are reaping the profits of this [state-legal cannabis] are the people who were directly impacted,” New York Democratic Representative Alexandria Ocasio-Cortez said at that hearing, comments highlighted by the advocacy group Drug Policy Alliance and others.

In between that hearing and this week’s discussion, Perlmutter told Cannabis Wire that he added a provision to address the issue. The new version of the SAFE Act would require annual reports from both federal banking regulators and the Governmental Accountability Office to assess and measure “access to financial services and barriers to marketplace entry for potential and existing minority-owned and women-owned cannabis-related legitimate businesses,” according to a House summary of the measure.   

Dan Riffle, Ocasio-Cortez’s, policy advisor, told Cannabis Wire that a number of groups have been working “behind the scenes” to ensure that the SAFE Act isn’t the only cannabis-related reform passed this Congress and that diversity and inclusion is at the center of House Democrats work on the issue. Riffle said the SAFE Act should “move as part of a broader package that also addresses those systematic racial and gender disparities in the industry.”

While some credit unions and banks have been willing to give cannabis businesses bank accounts, most do not want to deal with the requirement to file what’s called a Suspicious Activity Report with the U.S. Treasury for every transaction, which would still be required upon passage of the SAFE Act, and could potentially keep many financial institutions away.

After Representative Bill Huizenga, a Michigan Republican, said regulators should have more time than the bill’s called for 180-day window once the SAFE Act is passed to issue new rules and regulations for cannabis businesses, regulators, and banks to follow for cannabis-related accounts. Perlmutter seemed exasperated at the call for anything that would delay cannabis businesses being able to access banks.  

“We’ve already had some murders. We’ve lost people, we’ve had the robberies. This has got to end,” he said. “I think we need to move this along.”

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