One of the witnesses invited to testify at the Senate Committee hearing scheduled for Wednesday is actively calling attention to the banking challenges facing the marijuana industry under the federal prohibition, and urges Congress to pass bipartisan reforms.
While the chairman of the Senate Banking Committee, Sen. Tim Scott (R-SC), insisted that the debanking conversation will center on “federally legal” enterprises that have lost financial services—presumably excluding cannabis businesses that are federally illegal—the Brookings Institution’s Aaron Klein took the opportunity to address the unique industry problem in written testimony submitted for the hearing.
Klein made it clear that under federal guidelines, banks must fill out SARs (suspicious activity reports) if they want to do business with marijuana-related businesses operating in states where the drug is legal. Klein emphasized the costs of reporting and argued that these are “passed on back to consumers and business both in general and those businesses who have been the subject of SARs.”
Take into consideration the reports required for banking someone who is employed by a licensed cannabis company in your state. He said that because cannabis is illegal in federal law, the banks should flag their workers’ accounts and report them extensively. Failure to report or less reporting than expected can lead to regulatory fines, and sanctions. Many banks find that these costs do not justify the service they provide, and therefore deny it to customers and businesses.
It is the same for cannabis businesses licensed by state authorities. According to a Maryland report, only three state-licensed banks and credit unions will open accounts for cannabis companies. These institutions charge $20,000 annually just to maintain and open a simple account. These costs are a reflection of both the lack of competition in the banking industry and the heavy regulatory burden that banks and credit Unions have to bear due to the numerous filings needed by these companies.
Klein wrote in his testimony that many cannabis firms have been debanked, and they are now forced to work with cash. (Payment processing companies do not want to be debanked because of their service for cannabis companies.) This has made these businesses targets for criminals.
“What are the benefits of reporting and filing SARs on cannabis businesses by banks? Google Maps is an easier and cheaper way for law enforcement to locate cannabis companies. You can find out who the owners of these businesses are by going to state capitals where substantial documents have been filed.
The witness made a number of other recommendations to the committee, such as improving and passing Secure and Fair Enforcement Banking Act (SAFE) in order to prevent financial institutions being punished by federal regulators for their involvement with cannabis businesses that are legalized on state level.
Klein stated that the SAFE Banking Act passed by the Banking Committee in 2013 would help debank cannabis. The bill does not address the issue of SARs, the unproductive and costly filings associated with the banking of state-licensed marijuana companies. I am afraid that its impact will be less than what the proponents had hoped.
He urged the Committee “to either combine SAFE Banking and broader SARs Reform or enhance SAFE Banking” to solve the issues with SARs being filed by state-licensed marijuana businesses.
Meanwhile, congressional researchers recently released a report detailing the subject of debanking—while making a point to address how the marijuana industry’s financial services access problem “sits at the nexus” of a state-federal policy conflict that complicates the debate.
In September 2023, under Democratic control the Banking Committee approved a revised version of SAFE Banking Act. Stakeholders have hoped that the topic will come up again when the committee discusses debanking on Wednesday, in addition to the written testimonies.
While marijuana workers and associations of the cannabis industry have reached out to the Committee with stories about losing their bank accounts because they are associated with cannabis it is unclear whether this will prompt the anti-cannabis chairman to address the issue, since he opposes the SAFE Banking Act, and has stressed that the hearing will be focused on “legal enterprises”.
The SAFE Banking Act is expected to be filed again this session—but that introduction is “not imminent” as some recent reports have suggested, a spokesperson for the GOP House sponsor of the last version told MEDCAN24 last month.
Staffer Dave Joyce’s (R-OH), said, “While an introduction date is not imminent we will have a better idea of the timing in the coming weeks.”
With Republicans now in control of the House and Senate—and leadership having historically opposed even modest cannabis legislation, including the banking bill—there are open questions about the prospects of advancing marijuana reform this session.
Some are still hopeful that the measure allowing cannabis companies to access banking services will be passed, particularly after President Donald Trump endorsed the idea on his campaign trail.
Separately, the Government Accountability Office (GAO) announced in December that it’s convening focus groups comprised of marijuana businesses to better understand their experiences with access to banking services under federal prohibition.
Cannabis banking is still a problem for the industry, despite the fact that the issue was not resolved under the last administration.
A Senate source told MEDCAN24 in December that Republican House and Senate leadership “openly and solely blocked” then-Senate Majority Leader Chuck Schumer’s (D-NY) attempt to include the bill in a government funding bill as the session came to a close.
Sens. Elizabeth Warren (D-MA) and Tommy Tuberville (R-AL) had challenged the idea that there was enough GOP support for the SAFER Banking Act to pass on the Senate floor during the lame duck session.
Warren accused certain Republican members of overstating support for the legislation within their caucus, while also taking a hit at Trump for doing “nothing” on cannabis reform during his time in office as he makes a policy pivot ahead of the election by coming out in support of the marijuana banking bill and federal rescheduling.
John Hickenlooper, a Democratic Senator from Colorado (CO), recently argued that the primary obstacle in getting the Marijuana Banking Bill passed is the absence of Republican support. And he said if Trump is serious about seeing the reform he recently endorsed enacted, he needs to “bring us some Republican senators.”
Prior to becoming House speaker, Rep. Mike Johnson (R-LA) consistently opposed cannabis reform, including on incremental issues like cannabis banking and making it easier to conduct scientific research on the plant.
Meanwhile, on the one-year anniversary of a Senate committee’s passage of the SAFER Banking Act in September, the Congressional Budget Office (CBO) released an analysis on the economic impact of the reform, including the likely increase in federally insured deposits from cannabis businesses by billions of dollars once banks receive protections for servicing the industry.
Separately, the CEO of the financial giant JPMorgan Chase said recently that the company “probably would” start providing banking services to marijuana businesses if federal law changed to permit it.
GOP Congressman withdraws amendment aimed at undermining Marijuana Reclassification Process