House lawmakers introduce safe harbor law for pot banking

On the heels of the first-ever congressional hearing on the issue of cannabis banking, H.R. 1595, the Secure and Fair Enforcement (SAFE) Banking Act of 2019 was introduced on March 7. It is the leading bipartisan legislation to address regulatory concerns that hinder the traditional banking system from serving cannabis-related businesses.

The bill is supported by Independent Community Bankers of America. Washington community banker Greg Deckard testified before the House Committee on Financial Services in favor of the SAFE Act in February.

“The current conflict between state and federal law has created a cloud of legal uncertainty for community banks [and] inhibited access to the banking system for cannabis-related businesses,” Deckard said. “ICBA urges this committee to consider legislation that would create a federal safe harbor for banks that offer direct or indirect services to cannabis-related businesses that comply with state law.”

While current FinCEN guidance provides some assurance that banks are complying with AML requirements, without a statutory safe harbor, “bankers rationally fear that the politics could shift against cannabis in an instant,” Deckard said.

Such a shift has already taken place. In the 2013 Cole Memo, the Justice Department reaffirmed its commitment to enforcing the Controlled Substances Act, while establishing a set of priorities which did not include a focus on marijuana banking in states where the drug was legal. That memo was rescinded in 2018 by then-Attorney General Jeff Sessions, although the Treasury kept the FinCEN guidance in place. Recently confirmed AG William Barr has signaled a return to softer stance yet again.

With the most recent farm bill, hemp and hemp-derived products will be legal once the USDA approves a state’s plan to regulate the industry in that state; growers and sellers would then have to conform to that plan. Hemp is a species of cannabis without psychoactive components, which offers a variety of industrial and health-related uses.

Outside of hemp, banking marijuana businesses is a murkier proposition. At the state level, cannabis is legal either recreationally (10 states and D.C.) or medicinally (an additional 23 states, including Minnesota), but still a controlled substance federally. (Minnesota Republicans just voted down a measure to legalize recreational marijuana in the state.)

Under FinCEN guidance, banks are legally allowed to work with marijuana-related businesses. Few do, whether because of the associated risks, the extra due diligence required or the mountain of paperwork involved. The number of SARs blossomed from 1.3 million in 2010 to about 3 million in 2017, although there’s no way of knowing how many of those are cannabis-related.

Sometimes banks avoid the related risks by creating internal policies which forbid accounts for customers involved in marijuana. Such derisking can occur not only for the accounts of cannabis companies themselves, however, but their employees and others connected with them, such as one California lawyer whose account was closed because he represented marijuana companies.

What will banks do with the accounts of state and local governments which receive tax revenue from the marijuana industry? Colorado is set to receive more than $1 billion in pot taxes this year.

“Both conservatives who dislike costly regulation and progressives who favor state-legalized cannabis ought to be able to agree and fix it,” said Aaron Klein, a fellow in economic studies at the Brookings Institution in a recent op-ed in the Los Angeles Times.

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