One Step Closer to Cannabis Banking Regulation?

The Democratic-majority House is wasting no time in opening talks about a hot topic in the banking industry: cannabis.

A hearing is scheduled on Wednesday, February 13 titled “Challenges and Solutions: Access to Banking Services for Cannabis-Related Businesses” before a subcommittee of the House Financial Services Committee. Maxine Waters (D-CA), the new Financial Services Committee Chairwoman, stated that “it’s inevitable we are going to have to talk about” the cannabis banking issue after the recent midterm elections saw another three states legalize it to some extent.

Treasury Secretary Steven Mnuchin, Federal Reserve Chairman Jerome Powell and Comptroller of the Currency Joseph Otting have all made comments recently on the need for clarification regarding banking cannabis-related businesses (or marijuana-related businesses, MRBs).

While cannabis is legal to some extent in 33 states (10 for recreational purposes), it is still illegal at the federal level, keeping many financial institutions from banking MRBs. Five years ago, the Obama administration’s Treasury Department issued a memo, the Cole Memorandum, which essentially stated the Justice Department would not enforce federal prohibition on institutions that banked cannabis businesses, except in certain circumstances. Former Attorney Jeff Sessions revoked the Cole Memo soon after he was appointed within Donald Trump’s administration. Attorney General nominee William Barr stated in his confirmation hearing in January 2019 that he wouldn’t go after institutions offering banking services to MRBs. But neither the Cole Memo nor Barr’s recent statement was enough of a green light for most financial institutions.

Banks looking to avoid banking MRBs altogether might want to look deeper into their customer base. They might already be banking an MRB without knowing it. Cannabis businesses, just like any other business, pay rent to a landlord, buy receipt paper for their registers, purchase shopping bags for customers, buy light bulbs to see around their stores. You get the picture. Just like any regular business, MRBs do business with a lot of other businesses – and potentially current customers, meaning banks are already banking MRBs to some extent, albeit a small one.

Banking cannabis-related businesses isn’t just leaving money on the table for the government and financial institutions. It’s leaving large quantities of money (read: cash) on the table, in registers, and in other unsecured places, opening these businesses to higher rates of physical crime (theft, robberies, etc.).

Rep. Denny Heck (D-WA), who introduced cannabis banking legislation with Rep. Ed Perlmutter (D-CO) for the past several Congresses, said, “When we introduced this bill six years ago, we warned that forcing these businesses to deal in cash was threatening public safety. No hearing was given.”

Now they have their hearing. And while this is the first hearing on the topic, don’t expect it to be the last. There are reports that preparations are underway for a full committee markup on legislation to make it easier, and legal, for banks to start serving cannabis businesses.

Until then, it is at the discretion of each individual institution on how they want to handle banking these businesses, knowing the state and federal laws. If an institution does plan to bank MRBs, they need to create an open dialogue with their regulator and ensure their policies and procedures are strong and offer full transparency.