An important issue for the future of marijuana businesses won crucial support this week on Capitol Hill. Several U.S. senators expressed support for giving banking access to the billion-dollar marijuana industry, which deals almost exclusively in cash.
Marijuana is legal in 33 states but still illegal under federal law, so any bank that handles marijuana money can be charged with money laundering. That threat makes it difficult for most growers and sellers to get a bank account for their business.
The comments at this week’s hearing before the Senate Banking, Housing and Urban Affairs Committee were largely focused on the SAFE Banking Act, which would prevent federal banking regulators from punishing banks for working with legal cannabis businesses.
“I think the case has been made pretty strongly to get cannabis banking issues resolved,” said Committee Chair Mike Crapo, an Idaho Republican who had previously stated that he wouldn’t address this problem as long as the federal government still regarded marijuana as a controlled substance. “This is an important and complex issue we need to get right.”
Some advocated for the bill even though they have less-than-enthusiastic feelings about the drug. “If this is an issue Congress could do anything about, we should do it,” said Sen. Jon Tester, a Montana Democrat. “Not that I’m any big supporter of it -- because I’m not. But we are representatives of the people.”
What the Hearing Covered
Testimony at Tuesday’s hearing touched on the problems that being a mostly cash-based industry creates.
In general, dealing in large amounts of cash makes marijuana businesses targets for violent crime and makes it difficult for states to track and collect the tax revenue they're owed.
The city of Sacramento, Calif., for example, estimates that cannabis dispensaries are underpaying their taxes by hundreds of thousands of dollars a year. The underpayment is likely due to poor recordkeeping or filing of inaccurate financial statements with local tax collectors.
Simply entering the cannabis industry is cost prohibitive to most people, said John Lord, CEO of LivWell Enlightened Health, one of the largest cannabis companies in Colorado. If they choose to work with cannabis businesses, banks charge a premium because they view the industry as high-risk. His company pays a fee of at least $3,000 a month just to have a bank account. But unlike other types of businesses, those fees aren’t federally tax deductible as standard business expenses. Lord estimates that his company’s effective tax rate is around 80 percent compared to the federal corporate tax rate of 21 percent.
What's more, bank loans are almost nonexistent for cannabis startups. “Currently unless you are high net worth or have access to high net worth individuals [for a loan], that’s the only way to get a start in this business,” Lord said.
Although several senators voiced support for the bill, some of them also raised concerns about helping businesses get richer while ignoring the social and economic inequities that the criminalization of marijuana has created.
“We can’t forget the thousands of individuals who have spent time behind bars for their involvement with marijuana,” said Sen. Tina Smith, a Democrat from Minnesota. “I think it would be wrong for Congress to act to protect businesses’ interests without also considering what we need to do to erase the unjust suffering caused by our criminal justice policies.” (Smith did not move to add an amendment at the hearing.)
That concern has dominated recent legalization debates in Illinois and New Jersey. Illinois’ groundbreaking law, for instance, could result in criminal record expungements for more than 750,000 people and provides financial aid to minorities in the marijuana industry.
More Momentum Than Ever
Crapo's turnaround is a signal that there is more momentum than ever for the issue in Congress. A companion version of the bill in the House of Representatives has been steadily collecting cosponsors, which are now up to 206, and has already passed a committee.
Many in the industry view Senate Majority Leader Mitch McConnell, an anti-cannabis Republican from Kentucky, as their greatest opposition to the bill's passage. But when a reporter asked Crapo after the hearing if he’d spoken to McConnell about the bill, the chairman said that he’s “spoken to almost all of our colleagues about this.”
The Marijuana Moment reported that Republican Colorado Sen. Cory Gardner, one of the bill’s co-sponsors, said after the hearing that he was confident the SAFE Banking Act could pass the full Senate. “It would pass with majority support, and I think it would have a majority of Republicans voting for it as well," he said.