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Cannabis Banking Hearing Leaves Regulatory Cloud of Smoke

February 22, 2019
Read Time: 0 min

On February 13, the House Financial Services Committee hosted its first hearing on cannabis banking regulation which left a lot of questions still high on bankers’ minds. “Challenges and Solutions: Access to Banking Services for Cannabis-Related Businesses” was intended to start the conversation around federal regulation of banking marijuana-related businesses (MRBs).

The main issue is that 33 states currently allow legal cannabis use to some extent while it remains completely illegal at the federal level. This means banking MRBs to any extent is still risky and opens a financial institution up to violations of the Bank Secrecy Act (BSA). The main part of this recent hearing focused on Rep. Ed Perlmutter’s (D-CO) draft of the “Secure and Fair Enforcement Banking Act of 2019” (SAFE Banking Act), which drew on the equivalent of the bill introduced in 2017 but added two sections in response to the Department of Justice’s repeal of the Cole Memorandum guidance.

The two additions included:

  • “Sec. 3: Treatment of Proceeds Under Federal Law” which addresses the federal criminal money laundering statutes and clarifies that money from a transaction conducted by a legitimate cannabis-related business is not considered proceeds from unlawful activity.
  • “Sec. 7: Guidance and Examination Procedures” – requests uniform guidance and exam procedures for financial institutions that provide banking services to MRBs from the Federal Financial Institutions Examination Council (FFIEC).

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Both the Credit Union National Association (CUNA) and the Independent Community Bankers of America (ICBA) testified in the hearing regarding the challenges and pressures financial institutions face in the on-going clash between state and federal regulators on the topic. Both organizations also commented on how their members are currently providing banking services to MRBs and comply with the 2014 FinCEN guidance on the rescinded Cole Memo, or “BSA Expectations Regarding Marijuana-Related Businesses.”

Another big issue discussed during the hearing is one that many financial institutions wonder themselves: Just how far down the commerce line does an MRB go? Cannabis-related businesses need to pay rent and utilities, buy point-of-sale systems, and purchase display cases, just like any other commerce brick-and-mortar. The businesses selling these products to MRBs can technically fall under the MRB title themselves. So where does the federal government draw that line?

While no solid answers came out of the hearing, another issue on the forefront of the financial industry’s collective mind was brought up. Rep. Blain Luetkemeyer (R-MO), the senior Republican member of the subcommittee, said that before the government tackles something as large and challenging as banking cannabis businesses, they need to overhaul the anti-money laundering (AML) system and modernize the BSA.

For now, the industry will have to wait for the collective smoke to settle before getting any real answers on banking cannabis businesses.

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