House Appropriators Tackle Marijuana Banking Issues

The Treasury Department and some other federal agencies would be prohibited from spending money to penalize banks for doing business with state-regulated marijuana companies, under a House Appropriations bill lawmakers pushed ahead Monday night.

It’s doubtful that the bill on its own will drastically expand the limited banking services that are now available to cannabis retailers, growers, and other businesses in the sector, given that the measure does not cover the Justice Department and its law enforcement agencies.

But marijuana industry advocates and others say the provision is a sign that Congress could be moving toward enacting more extensive marijuana banking legislation—like the Secure and Fair Enforcement, or SAFE, Banking Act, which recently cleared a House committee.

“This is incrementalism at its finest,” said Justin Strekal, political director for NORML, a group that advocates in support of marijuana legalization. “It would provide an increased level of certainty for banking institutions to provide services.”

“The SAFE Banking Act is a bigger step forward,” he added. “Ultimately the policy prescription is to remove cannabis from the Controlled Substances Act.”

Jaret Seiberg, a managing director with the Cowen Washington Research Group, wrote in a policy note published Monday that the appropriations provision should provide a window to include the full SAFE Act in a broader spending package.

“What this language does not do, in our view, is properly protect banks that want to service cannabis firms,” he added. “As such, it is unlikely to alter bank behavior or provide cannabis firms with the ability to accept credit and debit cards.”

In addition to the banking-related language, the bill would also lift a restriction on the District of Columbia using local funds on activities tied to legalizing and regulating marijuana.

The “rider” blocking that spending in recent years was initially sponsored by U.S. Rep. Andy Harris, a Maryland Republican, shortly after District voters approved a measure to legalize cannabis in 2014.

It has created a situation where it is legal to possess and use limited amounts of marijuana in D.C., but there is no system in place for regulated, recreational retail sales.

“Stripping the Harris rider from the D.C. appropriations, I think, is huge,” said Morgan Fox, a National Cannabis Industry Association spokesman. “The city and its residents have wanted to regulate sales. And Congress has steadfastly prevented it from doing so.”

The House Financial Services and General Government appropriations bill that contains the provisions was released on Sunday. On Monday night, a subcommittee approved the legislation, sending it to the full House Appropriations Committee. 

The bill covers Treasury, the Judiciary, the Executive Office of the President, and other independent agencies, such as the Small Business Administration and the Securities and Exchange Commission.

"This appropriations effort is likely to be the first real marker of where every member of Congress stands on cannabis policy in the House of Representatives this session,” Strekal said.

“It's going to be indicative of future votes," he added.

Whether appropriators in the Republican-controlled Senate will adopt either House position related to marijuana policy in their spending legislation is not yet certain. Sen. Richard Shelby, the Alabama Republican who chairs the Senate Appropriations Committee, is not known as a strong advocate for marijuana legalization.

Marijuana is now legal for medical use in 34 states. Illinois lawmakers on Friday passed a recreational marijuana legalization measure, which would make it the 11th state to legalize state-regulated, recreational pot use for adults.

Under the federal Controlled Substances Act, however, cannabis remains classified as an illegal drug. This has caused most banks and credit unions to steer clear of the growing, multi-billion dollar industry amid fears that they could run into problems with federal authorities.

As a result, marijuana businesses, even in states with regulated sales, are handling large sums of cash, raising concerns about the possibility of crimes like robberies, and creating complications when businesses go to pay taxes and fees.

State officials, including treasurers and attorneys general, have urged Congress in recent months to address this issue by taking up legislation like the SAFE Banking Act.

The American Bankers Association has also voiced support for the legislation. The group says banks are caught in the rift between federal law and state laws.

"As the legal state-cannabis industry continues to grow, the indirect connections to cannabis revenues—from real estate owners, security firms, utilities, law firms and employees of cannabis businesses, as well as investors—will also continue to expand," the association said in a letter to Senate lawmakers in April.

“Without greater clarity, that entire portion of economic activity—estimated by some to be in the tens of billions of dollars—in legal cannabis states will continue to be marginalized from the banking system,” the letter added.

Nobody was available with the bankers association on Monday to comment on the House appropriations bill.

The aim of the SAFE Banking Act is similar to that of the banking provision in the spending legislation. But the standalone bill is more comprehensive and lawmakers would not have to renew it each year as part of the appropriations process.

Federal banking regulators under the SAFE Banking Act would be barred from penalizing banks for providing financial services to marijuana businesses that are operating legally under state laws, or from prohibiting them from offering services to the companies.

The bill would also block federal authorities from terminating or limiting a bank’s federal deposit insurance solely because the bank is working with clients in the regulated marijuana sector.

And it would also create a “safe harbor” from criminal prosecution and liability and asset forfeiture for banks and their employees who provide financial services to the industry.

“We really need permanent standalone legislation in the form of the SAFE Banking Act to pass,” Fox said.

Referring to the House appropriations bill banking provision, he added: “This is not a substitute for the SAFE Banking Act. This would just be a temporary stopgap measure.”

The SAFE Banking Act passed out of the House Financial Services Committee in March and a companion bill in the Senate now has 29 co-sponsors, five of them Republicans. Whether Senate lawmakers will bring the bill up for committee hearings or a vote is not yet clear.

“Never have we had more congressional activity on cannabis this early in a legislative session,” Strekal noted.