Main Street Matters Blog

What's Next for Cannabis Banking

Oct 16, 2019

aaron-stetter-150pxBy Aaron Stetter

Following a successful grassroots advocacy campaign, the House of Representatives recently passed ICBA-supported legislation to create a cannabis banking safe harbor.

As the first national banking trade group to support this legislation and to testify before a congressional committee on its behalf, ICBA applauded the House for its vote, though questions remain about the bipartisan bill's outlook. Here are answers to a few of them.

What does the bill do?

The Secure and Fair Enforcement Banking Act (H.R. 1595/S. 1200) would create a safe harbor for financial institutions and ancillary companies that serve cannabis-related businesses in states where cannabis is legal.

As ICBA details in a new one-page summary and frequently asked questions, the legislation provides that in these states, federal banking regulators may not threaten or limit a bank’s deposit insurance, downgrade a loan, prohibit or discourage the provision of banking services, or take any other prejudicial action solely because it serves a cannabis-related business.

What's at stake?

ICBA and community bankers support opening the traditional banking system to cannabis-related businesses to address regulatory compliance concerns, reduce cash-motivated crimes, increase the efficiency of tax collections, and improve cannabis industry transparency.

As ICBA community banker Greg Deckard testified before the House Financial Services Committee earlier this year, the current conflict between state and federal law has created a cloud of legal uncertainty for community banks. This has inhibited access to the banking system for cannabis-related businesses and created a serious public safety concern with an entire industry dependent on cash.

Community banks aren't alone in pushing for reform. Treasury Secretary Steven Mnuchin has called for a bipartisan solution to conflicting state and federal laws, telling Congress in April that the IRS has built rooms to hold cash from cannabis-related businesses that lack access to the banking system. Federal Reserve Chairman Jerome Powell has testified that “it would be great to have clarity” from Congress on how banks and insurers can serve these businesses.

What happened in the House?

The House voted 321-103 on Sept. 25 to pass its version of the bill, which is also known as the SAFE Banking Act. Ninety House Republicans, almost half of their entire House delegation, voted in favor of the bill. The strong bipartisan vote was due in no small part to consistent ICBA and community banker support for the measure.

ICBA last year became the first national banking trade group to adopt a resolution on cannabis banking and support the measure, which swiftly gained momentum in Congress. The House bill had more than 200 bipartisan co-sponsors, while the Senate version now tops 30. As the lead House sponsor—Rep. Ed Perlmutter (D-Colo.)—wrote on Twitter, passage would not have been possible without the early support of ICBA and community banks.

What about the Senate?

The bill has been viewed as more of a longshot in the Senate, with several senators less inclined to wade into the waters of cannabis or cannabis banking. But the clouds have lifted somewhat in recent weeks. The strong House vote sent a powerful bipartisan message to the upper chamber.

Based on concerns for the business community that may be serving cannabis-related businesses, Senate Banking Committee Chairman Mike Crapo (R-Idaho) has pledged that his committee would take up the SAFE Banking Act or a similar bill "as soon as we can." Crapo supports an ICBA-supported provision in the House bill that would bar federal regulators from discouraging financial institutions from serving legal but politically disfavored industries, an initiative known as Operation Choke Point.

Another provision in the House bill to ease regulations on hemp businesses could garner the crucial support of Senate Majority Leader Mitch McConnell (R-Ky.), who has been a strong advocate for hemp, a cousin of cannabis without psychoactive effects that was legalized in the 2018 farm bill.

So what's next?

The big question is whether mounting political discord will get in the way of a Senate vote and an eventual path to a White House signature. To continue advancing this important legislation, ICBA encourages community bankers to use its Be Heard grassroots action center to urge the Senate to bring the bill to the floor for a vote.

While the SAFE Banking Act continues to face hurdles, there is nevertheless growing pressure for final passage. ICBA will continue doing all it can to keep up the momentum on this important legislation to improve regulatory consistency and public safety.

Aaron Stetter is ICBA executive vice president of policy and political operations.