By: Nabil Rodriguez, Esq. & Victor Fox*
On Tuesday July 23, 2019, the United States Senate Committee on Banking, Housing, and Urban Affairs hosted a hearing to discuss national safety implications relating to federal regulations that force cannabis businesses to operate on a cash basis. The roughly two hour hearing, titled “Challenges for Cannabis and Banking: Outside Perspectives” consisted of two panels. The first panel featured Colorado Senator Cory Gardner and Oregon Senator Jeff Merkley. The second panel featured Nevada Senator Catherine Cortez Masto, Maps Credit Union Chief Risk Officer Rachel Pross, Citywide Banks CEO Joanne Sherwood, VP of Government Affairs and Smart Approaches to Marijuana Garth Van Meter, and Livwell CEO John Lord.
The hearing began with opening remarks from Senate Banking, Housing, and Urban Affairs Committee Chairman and Idaho Congressman, Mike Crapo, followed by Banking, Housing, and Urban Affairs Ranking Member and Ohio Congressman Sherrod Brown. The Ohio Congressman noted:
“The legal cannabis industry is one of the fastest growing in the United States. It employs hundreds of thousands of people, many of whom are represented by unions like the United Food & Commercial Workers International Union. These Americans work hard to support themselves and their families, just like workers in any other industry, and they deserve the same rights and protections. Yet, in states like Ohio, these workers and businesses find it difficult to access the banking system. And that puts them and the Americans they do business with at risk. No matter how you feel about marijuana itself, we have a duty to look out for all the workers and communities we represent. This problem doesn’t just affect the cannabis industry. It also affects people that you might not think of. Plumbers, welders, and electricians service retail locations and other facilities. We can’t continue to ignore this industry and the thousands of workers and communities it affects.”
In the first panel, Congressman Gardner focused his remarks on the benefits of legalized cannabis practices by highlighting Colorado’s billion dollar cannabis tax infusion, while also dispelling common misconceptions surrounding legalized recreational marijuana by pointing towards Colorado’s record low marijuana usage rate amongst teens. Congressman Gardner concluded these points by underscoring how the cannabis industry’s lack of banking services has not only created a danger to those operating within the industry, but also drains resources from financial institutions by demanding increased security and personnel to process bulk cash transactions.
Congressman Merkley concluded the panel by highlighting the need to respect states’ rights. Merkley addressed how this issue has even affected the hemp industry because certain banking provisions broadly address cannabis as a whole.
The hearing then shifted towards the second panel where Maps Credit Union Chief Risk Officer Rachel Pross provided further context on how deep cannabis banking issues run. Pross opened her remarks by reiterating that the interconnected nature of the U.S. economy prevents cannabis businesses from operating within a vacuum. As a result, the rift between federal and state cannabis laws implicates almost every business when cannabis employees spend their paychecks, or even when cannabis businesses purchase basic operational supplies such as light bulbs, storage containers, etc. Pross also mentioned how easy it is for cash heavy businesses to extend their financial activity outside of state lines for money laundering purposes. According to Pross, cooperation between credit unions and local police officers has been the most effective remedy towards combatting this issue because of the data Credit Unions are able to provide.
Aside from the potential for money laundering, forcing any business to hold bulk quantities of cash poses significant safety issues. According to Pross, one in every two cannabis dispensaries has been robbed or burglarized with the average theft ranging from $20-50K. She noted that the discord between federal and state laws is driving the cannabis industry into murky areas, which defeats a fundamental benefit of cannabis legalization: transparency.
While the majority of testimony highlighted problems with current approaches and supported changing federal laws to address these issues, others panelists such as Garth Van Meter, VP of Smart Approaches to Marijuana, were skeptical. Van Meter expressed concerns over what federal initiatives such as the SAFE Banking Act would accomplish. Particularly, Van Meter stated that providing cannabis businesses with federal banking services would only further current issues because organized crime or cartel members would continue to operate in cash. However, other panelists such as Livwell CEO John Lord were able to rebut this theory by siting personal experiences to the contrary.
The second panel concluded with testimony from Nevada Senator Catherine Cortez Masto and Citywide Banks CEO Joanne Sherwood. Congresswoman Masto’s testimony focused on her previous experience acting as Nevada Attorney General. Specifically, Masto stated how the current federal climate facilitates criminal activity and generates support for federal initiatives such as the SAFE Banking Act among state Attorney Generals. Lastly, Joanne Sherwood discussed how the absence of federal cannabis guidance creates unnecessary barriers for research entities, such as state universities, from conducting marijuana related research because of their reliance on federal funding.
Despite some back and forth, the hearing concluded with unanimous support for the committee’s decision to host the hearing. Congressman Crapo acknowledged arguments presented on both sides and reiterated the importance of working together to implement solutions. Ultimately, the shared personal experiences and testimony expressed by panelists supporting federal reforms such as the SAFE Banking Act undoubtedly delivered a loud and clear message: the need for reform can no longer be ignored.
For more information on the implications of federal cannabis banking reforms, please reach out to a Greenspoon Marder attorney today.
*Victor Fox is not an attorney