House Dems Pass Weed Banking Bill

Experts warn SAFE Banking Act could be a boon to drug traffickers

Marijuana plants at the Green Pearl Organics dispensary on the first day of legal recreational marijuana sales in California / Getty Images
September 25, 2019

Marijuana companies will be able to do business with banks under a proposal passed by the Democrat-controlled House of Representatives, despite concerns from drug policy experts that drug traffickers will benefit.

On Wednesday, the House voted 321-103 to approve the SAFE Banking Act, which allows recreational or medical marijuana businesses access to banks. The act prohibits federal banking regulators from taking punitive action, such as suspending deposit insurance, against banks for working with marijuana companies in states where the drug is legal.

The cannabis industry has long argued it should be able to engage with the financial industry like any small business selling legal products. The District of Columbia and 11 states have legalized marijuana for recreational use, while another 22 have legalized medical marijuana in some form. At the federal level, however, marijuana remains illegal, scheduled under the Controlled Substances Act, and therefore prohibited even for medical use.

The disparity between state and federal laws has created a legal gray area for companies, particularly financial institutions, to navigate. Banks have found themselves forced to turn away the money of state-legal marijuana businesses for fear of attracting the attention of federal regulators. In a letter sent earlier this month to congressional leaders, a group of 43 state banking associations claimed "the current conflict between state and federal law with regard to cannabis has created increasingly significant legal and compliance concerns for banks that wish to provide banking services to CRBs in jurisdictions where cannabis is legal." These concerns, they said, have forced legal businesses to operate primarily in cash.

The bill also commissions the Government Accountability Office to study "diversity and inclusion" in the marijuana industry, specifically looking at "barriers to marketplace entry, including in the licensing process, and the access to financial services" faced by women and minorities trying to start marijuana businesses. Senate Minority Leader Chuck Schumer's (D., N.Y.) legalization bill also encourages diversity in the marijuana market, providing funding for women- and minority-owned marijuana concerns.

Marijuana legalization advocates lauded the SAFE Banking Act. Justin Strekal, political director for the National Organization for the Reform of Marijuana Laws, said the bill represents a move towards federal legalization.

"Today's banking vote is significant because it provides House members with their first legislative opportunity to affirmatively recognize that the legalization and regulation of marijuana is a superior public policy to prohibition and criminalization," Strekal said in a statement. "Successful passage of The SAFE Banking Act is an important indication that the federal tide is turning and that the era of Congressional inaction is over."

The bill has garnered pushback from civil rights and medical organizations. In a letter to House and Senate leaders, a coalition of more than 30 groups—including representatives of physicians, law enforcement, and the Illinois NAACP—argued that now is not the right time to legalize marijuana. The letter pointed to the recent spate of "vaping" deaths, many of which have been associated with THC cartridges, as well as Surgeon General Jerome Adams's recent advisory about the risks of marijuana use.

"Today's high potency marijuana is fundamentally different from anything that existed before," the group wrote, citing research on the increased strength of marijuana in legal markets. "In light of the Surgeon General's Advisory and the marijuana vaping crisis, it would be irresponsible to change the law in ways that encourage increased investment in the marijuana industry without any guardrails for public health."

Dr. Kevin Sabet, president of the anti-legalization group Smart Approaches to Marijuana, said the bill is a "reward" to "Big Marijuana" and other interest groups.

"This is a gift to Big Tobacco, which has already invested billions into pot," Sabet said. "Granting this industry access to banks will bring billions of dollars of institutional investment from the titans of addiction and vastly expand the harms we are already witnessing."

David Murray, a drug policy expert at the conservative Hudson Institute, pointed out that legalization states are seeing an explosion in the illegal market, rather than the reduction in the black market many backers promise. The legal businesses often provide cover for other criminal activity, he argued. Murray added that easing banking oversight will enable money laundering.

"By having 'partnerships' with state-legal marijuana businesses, now provided by this bill with legitimate banking and finance capacities, [trans-national criminals] can merge their funds/products and launder proceeds from all of their transactions into legitimate financial instruments," Murray told the Washington Free Beacon.

The bill will now head to the GOP-controlled Senate. Sen. Mike Crapo (R., Idaho), who chairs the Senate banking committee, has promised to hold a vote on advancing marijuana banking legislation to the Senate floor, saying he wants to "thread the needle" on the issue.

Other Republicans are more skittish. Sen. John Cornyn (R., Texas) has said he wants a hearing on federal legalization before taking up a banking bill. Even if the bill makes it through committee, it may never get a full vote, as Senate Majority Leader Mitch McConnell (R., Ky.) has expressed little interest in moving forward on the issue.