Due to the stark disconnect between federal and state laws, banking still remains a huge problem within the industry. Many of the issues can be sourced back to 2013 when the United States Department of Justice implemented an investigation into businesses they believed were most at risk for fraud and money laundering, in an operation they called “Operation Choke Point”.
Operation Choke Point allowed the government to pressure the financial industry into cutting off banking and financial services to these businesses. Although the operation was disbanded in 2017 due to its negative impacts on legal businesses, its effects can still be felt today.. These include lack of safe banking access and excessively high fees if they can get a bank on board, difficulty receiving loans, limitations on the ability to research cannabis at federally funded institutions due to the fear of federal funding being removed, and more.
This has been one of the largest impediments to growth in the cannabis industry. So, on Tuesday, July 24th, the Senate Banking, Housing, and Urban Affairs Committee held a highly anticipated hearing on the issues of banking within cannabis.
The hearing had two witness panels…
The first panel included two SAFE Banking Act sponsors, Senator Cory Gardner (R-CO) and Senator Jeff Merkley (D-CA).
Senator Cory Gardner’s inclusion in the hearing signaled bipartisan support for the passage of some form of legislation to protect cannabis businesses, despite poor attendance of Republican lawmakers at the hearing. He emphasised that the “cannabis issue” is not going to go away if 93% of Americans support legalization in some form, adding that despite widespread political disunity, Americans are surprisingly united on the issue.
He called the current disconnection between state and federal laws “intolerable and untenable”. He highlighted that he too initially opposed legalization in Colorado but as his state has garnered over $1B in tax revenue and he's seen the positive effects legalization has had.. He also reminded the Senate that the $1B tax revenue that Colorado earned is 100% illegal under federal law and subject to investigation at the will of the federal government. He also highlighted that banking restriction lead to large amounts of cash on hand, creating a public safety and health hazard and recalled the story of a 24 year old ex-marine who was shot on security duty at a dispensary.
Senator Jeff Merkley echoed much of the states rights argument put forth by Sen. Gardner. He argued that the federal government is making life as miserable as possible for legal cannabis industry operators and that the current state of Federal “chaos” on the matter is great for organized crime and money laundering -but horrible for law abiding legal vendors and workers. He emphasized that the safety of operators is put at risk when companies are conducting themselves legally under state passed legislation. As an example, he discussed how operators in Oregon transported $80 million in cash duffle bags and backpacks to the IRS.
The second witness panel included a number of industry operators within the banking sector and one dispensary owner, as well as a representative from Smart Approaches to Marijuana (SAM), a cannabis prohibitionist organization.
Rachel Pross, the Chief Risk Officer of Oregon based Maps Credit Union began with a reminder to the senate that while many are tempted to believe that the concerns voiced on the panel only affect legal states, cannabis businesses do not operate in a vacuum. Every time a cannabis employee in Washington uses their paycheck to purchase groceries at a company like Walmart, based in Arkansas, Walmart is implicated in a federally illegal activity. Further, companies like Walmart may also sell lightbulbs and other ancillary products to cannabis companies.
She further underscored public safety concerns, bringing to light that statistics show cash only businesses have an elevated risk of crime, as shown in a 2015 a study conducted by Wharton
She emphasized that clear federal legalization on the matter could also help law enforcement by providing them the data investigators need to track suspicious activity, which is not currently possible when industries are not banked.
Joanne Sherwood, President and CEO of CityWide Banks and also the Chair of the Colorado Bankers Association emphasized that any person that derives revenue from the cannabis businesses - including investors, landlords, and plumbers - are at risk under the current lack of clear federal legislation on the matter and the indirect connections of cannabis revenues will only continue to expand. Sherwood argued that access to banking would improve efficiency in taxes and compliance, as well as improve federal and state oversight of financial activities.
Garth Van Meter Vice President of Government Affairs at Smart Approaches to Marijuana (SAM) supplied a counter argument to the implementation of Federal legislation. He and his organization believe that holding a hearing on banking is premature and “by skipping ahead to a technicality over banking rules, the marijuana industry is hoping to gain many of the benefits of federal legalization without a debate over the public health effects,” centering most of his argument on the effects of high potency cannabis products. Arguing that “if the marijuana industry was concerned about research, then I don’t think they would be selling some of these extremely high potency products.” This comment prompted Senator Schatz (D-CA) to say “Well hang on, I’m concerned about research, I’m going to allow you to answer the questions, but I’m not going to allow you to take a pot shot at the people that you’re testifying with.” Schatz, as well as numerous other senators, emphasized that the “states have spoken”.
The final panelist was John Lord, Owner and CEO of LivWell located in Colorado and also the Chair of Cannabis Trade Federation. Despite the reputable status of his company, banks and credit unions are still reluctant to serve his business, forcing him at one point to rent out a former bank vault to store money. He then told a story of a time he had to walk into the Denver branch of the IRS with $3 million in cash to pay his taxes. He argues that this poses a significant public and employee safety risk and is not unique to him and his company. Further, the inability to access banking and other services, such as chance the deduct expenses, significantly affects the ability of small businesses to operate. Adding that his personal tax rate sits at 80% and current insurance is far from enough to help businesses survive a rough patch as he is not able to fully ensure all of his dispensaries and business.
This hearing was a huge step in the fight to legalize cannabis nationwide and one of many set to occur in the weeks to come.
For more on this hearing:
Read Marijuana Moment’s analysis here
Learn more about the SAFE Banking Act here
Learn more about the STATES Act here