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Momentum for Fixing Marijuana's Banking Problem Is Higher Than Ever

The SAFE Banking Act passed a congressional committee on Thursday, meaning it’s already made it farther in the legislative process than the previous version.

A customer pays cash for marijuana at a store in Denver.
(AP/Brennan Linsley)
Last Updated March 28 at 11:38 a.m. ET

New Jersey will likely be the next to legalize recreational marijuana, which would make it the 11th state (plus the District of Columbia) to do so. Medical marijuana is legal in an additional 22 states, meaning that more than half the country permits some form of the drug.

And yet, most growers and sellers can’t get a bank account for their business.

Because the drug is still illegal under federal law, any bank that handles marijuana money can be charged with money laundering. This forces the industry to deal with large amounts of cash, making the businesses targets for violent crime and making it difficult for states to track and collect the tax revenue they're owed.

But, there appears to be more momentum than ever before for addressing this issue.

This month, the SAFE Banking Act was introduced in Congress. It would prevent federal banking regulators from punishing banks for working with legal cannabis businesses.

This is the second time a bill like this has surfaced, but this year, there are 138 bipartisan cosponsors in the House. That’s a notable improvement from 2017 when there were only 95 cosponsors. The SAFE Banking Act passed the U.S. House Financial Services Committee on Thursday, meaning it’s already made it farther in the legislative process than the previous version.

Advocates of the bill, including state treasurers, are optimistic.

“I definitely think it has more momentum this time,” says Illinois State Treasurer Michael Frerichs, who leads the National Association of State Treasurers' bipartisan group supporting the act. “We understand there will always be some opposition to marijuana. ... But we think attitudes are changing.”

Still, even if it passes the Democratic-controlled House, it’s unclear how much traction the legislation would have in the Republican-controlled Senate.

In the meantime, states are seeking out their own solutions.

Some have considered opening state-run banks to serve marijuana businesses. But a report from California deemed the idea extremely risky.

In Illinois, where only medical marijuana is legal, Frerichs is pushing legislation similar to the SAFE Banking Act -- it would prohibit state financial regulators from penalizing or discouraging banks and credit unions from serving cannabis businesses.

Last year, sales in Illinois totaled $136.5 million. If an Illinois business does manage to get banked, the fees are exorbitantly high. Frerichs says he spoke with one grower who pays $25,000 per month (on top of transactional fees) to keep an account with a bank.

“I asked, ‘How can you afford that?’ He said he couldn’t afford not to,” Frerichs recalls.

He says the problem will only get bigger if Illinois joins the growing wave of states legalizing recreational marijuana. Newly-elected Democratic Gov. J.B Pritzker has voiced his support for recreational marijuana, and a bill is now pending in the legislature.

Elsewhere, New York lawmakers are debating legalization but appear unlikely to pass it this year.

The New Jersey Legislature was expected to vote on full legalization this week but delayed the vote til at least June. Passage would mean that 83 million people -- more than one-quarter of the country -- live in places where pot is legal for people over the age of 21.


In Other Public Finance News This Week:


The 5 States Most and Least Dependent on the Feds

Red states tend to be more reliant on federal money than blue ones. That’s according to WalletHub’s annual ranking of the most and least federally dependent states.

The top five dependent states, in descending order, are: New Mexico, Mississippi, Kentucky, West Virginia and Alabama. Kansas, Delaware, New Jersey, Utah and Illinois, meanwhile, are the least dependent.

WalletHub looked at how much states receive in financial assistance, grants and in federal contracts. States’ own economic growth was also a factor.

The rankings provide fuel for the argument that wealthier states, which tend to be more liberal, subsidize poorer states, which tend to be conservative. While that helps balance equity to some extent, many poorer states keep their taxes proportionally lower than wealthier states, University of Alabama law professor Susan Pace Hamill told WalletHub. In addition, poorer states are more likely to rely on regressive tax policies, which disproportionately burden lower-income residents.

“The current system of wealthier states subsidizing poor states with regressive structures indirectly validates those structures,” Hamill says, “which is also inequitable and encourages bad tax policy.”

 This appears in "The Week in Public Finance" newsletter. Subscribe for free.

Liz Farmer, a former Governing staff writer covering fiscal policy, helps lead the Pew Charitable Trusts’ state fiscal health project’s Fiscal 50 online resource.
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