The congressional body invited witnesses from UFCW, SAM, Dama Financial and Cannabis Regulators of Color Coalition to speak.
Federal cannabis banking reform made its big debut in the U.S. Senate Banking Committee—but for an examination, not a vote.
Committee Chairman Sherrod Brown, D-Ohio, and Ranking Member Tim Scott, R-S.C., welcomed six witnesses May 11 to testify on the Secure and Fair Enforcement (SAFE) Banking Act of 2023—legislation that would allow federally regulated financial institutions to work with state-legal cannabis businesses that often operate in cash under the plant’s status as a Schedule I drug.
While previous versions of the legislation passed seven times with wide bipartisan support in the U.S. House since 2019, SAFE Banking has been absent of Senate action the past two congresses, notably with former Majority Leader Mitch McConnell, R-Ky., and current Majority Leader Chuck Schumer, D-N.Y., unwilling to push for a pathway for the bill to arrive on the floor of the upper chamber as a standalone measure.
The latest version of the bill was introduced April 26 by a group of bipartisan House and Senate lawmakers.
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Thursday’s discussion in the Banking Committee marks the first major headway for the legislation in the Senate. The committee’s meeting was titled “Examining Cannabis Banking Challenges of Small Businesses and Workers.”
Included as witnesses to testify were:
In his opening remarks, Sen. Brown said banking is critical for small cannabis businesses that already face hurdles getting their operations off the ground.
“Like any business, they need to apply for licenses and raise capital,” he said. “That’s hard to do when you don’t have a bank account or, if you do, one that might come with a lot of fees without full access to the banking and payment system. Legal cannabis businesses are forced to operate in the shadows. They can’t access SBA loans and know that even if they try to apply for a bank loan, they may go through all the costs and efforts only to be denied.”
As a result, many small businesses rely on friends and family for funding, they deal with large sums of cash, and sometimes entrepreneurs hire third-party service providers that take a hefty cut from their already slim profit margins, Brown said.
“That puts a robbery target on the banks and workers and can make it harder to combat money laundering,” he said.
Money laundering was a contentious topic during the meeting, where some lawmakers and testifiers said they believe the SAFE Banking Act would make this illicit activity worse, not better.
Sen. Scott pointed to the fact that proceeds from cannabis-related businesses are subject to U.S. anti-money laundering laws.
“The Department of Justice and national law enforcement groups have expressed concerns that [the] SAFE Banking Act would create loopholes in our money laundering laws,” he said, “making it harder to catch criminals that traffic weapons, fentanyl and even people—much harder—which is a consequence that we must eliminate if this bill becomes law.”
In his testimony, Sen. Merkley said an industry that now supports more than 400,000 jobs and accounts for more than $25 billion in sales each year in states where cannabis is legal should enjoy the same abilities to access the basic necessities offered to all other business types in the U.S., whether that’s banking, credit card accounts, payroll or other financial services.
Because the majority of depository institutions and credit unions aren’t willing to take on the risks of possible prosecution under federal law, they largely refuse to work with industry players, Merkley said. And the effects of this reality trickle down beyond plant-touching businesses, he said. Ancillary businesses, from soil to lighting providers, are at risk, too, of losing their banking services, he said.
“Forcing legal businesses to operate in a cash economy is terrible for accountability, but it’s great for crime,” Merkley said. “It has left these businesses, and all that are connected to them, open to violent crime, open to money laundering, employee theft, tax fraud and more. And, Ranking Member Scott, I wanted to mention there is nothing like a cash economy to facilitate money laundering. The lack of electronic records in this world makes it really easy to move money that shouldn’t be moved.”
Sullivan, whose Dama Financial company helps many of the roughly 700 financial institutions that service the cannabis industry, according to FinCen, said the SAFE Banking Act needs more teeth and must provide a tougher framework than existing guidance before becoming law.
Dama often partners with banks that would like to provide cannabis companies access to banking but do not always have the resources or the expertise to run a high-risk, cash-intensive business and/or banking program on their own, Sullivan said.
To understand the true source of funds from a potential cannabis client, Dama “drills down” to 10% of ownership—under Ultimate Beneficial Ownership rules—and performs on-site inspections and risk assessments that encompass and compare residual risks through the lifecycle of any bank-to-business relationship, she said.
“We reject a fair number of businesses from qualifying for our services because they’re not transparent with us or they do not meet our diligent standards,” Sullivan said. “Because of these experiences, we believe the SAFE Banking Act should be stronger and encompass a more stringent statutory framework. We cannot simply rely on consistent guidance without more robust legislation from Congress.”
At a minimum, a financial institution should follow enhanced rules regarding board-approved risk limits, deposit ratios, and reporting criteria when limits are approached or breached, she said.
Packer, who spoke on behalf the Cannabis Regulators of Color Coalition and Drug Policy Alliance, said the SAFE Banking Act needs to put more focus on the “F,” which stands for “fair.” Specifically, small operators and minority-owned operators often struggle to find the same access to capital as their peers in the cannabis industry, Packer said.
“Regulators see access to banking as an opportunity to promote public safety, economic opportunity, and support the implementation of an effective regulatory system,” Packer said. “While access to banking is an important issue for many stakeholders, small businesses, workers, and state and local regulators alike, there’s no better example than the existing banking industry to illustrate the reality that access to banking isn’t necessarily fair access to banking.”
Sabet, who advised the Bill Clinton, George W. Bush and Barack Obama administrations, said the SAFE Banking Act would only further normalize cannabis, which is not what the nation needs during a time of mental health challenges and current suicide rates.
“The idea that this committee decided to spend its time turbocharging the marijuana industry right now, given everything else going on [with banking], I think is unfortunate,” he said. “And we’re spending your important time talking about how we can turn our kids into a great national experiment—an experiment rigged towards addiction, misery and our next public health calamity.”
Sabet failed to mention in his testimony that the legal age to purchase adult-use cannabis is 21 years—the same as alcohol—in the 22 states that have reformed their prohibition laws.
Daines, who represents Montana, which launched adult-use cannabis sales in January 2022, said while opponents of his sponsored legislation claim the bill will help grow the $25-billion cannabis market, “the real size of this market is estimated to be a hundred billion dollars,” meaning roughly 75% of the market is attributed to illicit activity, he said.
Allowing cash from legal, regulated businesses to enter the banking system will help law enforcement more easily distinguish legitimate actors and focus more of their resources on prosecuting the illicit market, which poses greater threats to public safety, Daines said.
While Daines did not support legalizing adult-use cannabis in his home state of Montana, he said he respects the 57% of voters who did support legalization in the 2020 election.
“The people and states across this country have spoken, and it’s abundantly clear that the status quo is not only untenable; it’s very dangerous,” he said. “The SAFE Banking Act is a commonsense bill that can and should pass and would immediately improve the public safety threats we’re seeing on the ground in our states.”
After the witness testimonies, Daines, who also serves as a member of the Banking Committee, questioned fellow witness Oyefeso, whose UFCW organization represents unionized cannabis workers across the country, asking him about what the senator referred to as “the human factor” of the current unsafe banking equation.
In his testimony, Oyefeso touched on the physical dangers of cannabis employees being robbed at gunpoint at their cash-heavy places of work. Oyefeso told Daines in the questioning period that the environment for cannabis workers is not getting any safer.
“It’s getting more dangerous,” he said. “Criminals now realize there’s more and more possibilities of robbing large amounts of cash. Now, workers, if your dispensary doesn’t have a security team, people with guns standing there, you have to worry when you’re closing at night: Are people going to rush in and rob you?”
The UFCW has members who get paid in cash and worry about leaving work on payday and getting robbed because a former worker knows when that payday occurs, Oyefeso said. Some of those workers, like pharmacists, make $68 an hour and sometimes go home with $2,000 cash in their pockets, he said.
“So, there is your weekly take-home that you could lose in a night. There is your life you can lose,” Oyefeso said. “You go to work, you have a good job, you want to go home to your family. And because it’s not banked, you have that risk every night.”
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