A Republican majority in the U.S. House of Representatives doesn’t have to – and shouldn’t – be an obstacle to ending harmful laws that hobble legitimate marijuana businesses and the banks and credit unions that serve them.
Regulators have, to date, bowed to the will of the people in each of the 37 states where recreational or medical marijuana is legal, and not imposed penalties on depository institutions for generating profits from federally illegal activities.
In a worst-case scenario, of course, an overzealous regulator appointed by a puritanical, new president throw such policies out the window. But even though such an about-face would be an assault to this nation’s democracy, it’s a distinctly outside possibility, and focusing concerns on this issue miss the real harms current law causes.
First, federal sanctions on marijuana money force legitimate businesses to operate largely on cash. This creates security risks, audit problems and logistical headaches, yes, but also creates enormous potential for money laundering if a business or its financial institution slips up in the difficult job monitoring the flow of bills. It’s far from fail-safe.
Second, these federal laws penalize anyone working in the marijuana industry. Because their income comes from a federally illegal source, they must seek out dedicated lenders for everyday things like car loans, mortgages and bank accounts. It’s not fair, especially when these businesses are otherwise entirely above-board, and are held to high standards by existing anti-money-laundering rules, plus state accounting and product-safety regulations few other industries must meet.
Third, the existing federal regulatory regime hurts marijuana businesses’ ability to grow – in one example, business loans often must only be secured by a marijuana business’ physical assets, limiting their size – and prevents them from deducting operating expenses from their federal taxes. This, despite dozens of states deciding that their marijuana industries should be both legal and an important part of reversing decades of harm the “war on drugs” has done to communities of color.
It’s not as if removing the threat of federal sanctions will turn the marijuana industry into a financial Wild West. If anything, federal banking regulators will likely craft a dedicated regulatory regime that could ultimately enhance scrutiny of the industry.
And legislators ought not fear measures like the proposed SAFE Banking Act a situation where megabanks might be able to crowd out the same local banks and credit unions that serve the legal marijuana industry and who are particularly burdened by existing federal law. The logistics of keeping up with 37 different regulatory regimes and bulking up their branches’ ability to handle cash – something they’ve moved far away from in recent years – will likely be a deterrent.
Fortunately, leading Democrats like Sen. Elizabeth Warren confirmed to Banker & Tradesman they still carry the torch for what should be common-sense reforms. Some of their Republican colleagues in the House also appear to share their opinions. Let’s hope marijuana reform is one area both parties can agree on this session.
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