A group of Democratic lawmakers has written a letter to federal financial regulators calling on them to update rules that hinder cannabis business owners with past convictions for marijuana-related crimes. In the letter to the Treasury Department, 20 Democratic Senators and members of the House of Representatives wrote that the proposed change “would be an important step to promote fairness in the provision of financial services to marijuana businesses that participate in state-sanctioned marijuana activity.”

Under current guidance from the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) first issued in 2014, banks and credit unions are asked to consider a business owner’s past marijuana-related convictions as “red flags” that could affect the business’s eligibility for loans and other financial services. The guidance does not include exceptions for businesses that are operating in compliance with state law in states that have legalized cannabis.

In their letter dated November 14, the Democratic lawmakers say the federal guidance is unfair and fails to account for the legalization of cannabis at the state level. They note that the policy could cause a business operated by someone with a marijuana possession conviction to be ineligible for financing, despite efforts in some states to expunge past convictions. 

“Under this red flag guidance, a marijuana business owner with a marijuana conviction may be permitted to participate in a state licensing program on paper, but in practice may be unable to access a bank loan to grow her business because she is considered a high-risk customer,” the lawmakers wrote in the letter.

The letter was addressed to Treasury Secretary Janet Yellen and FinCEN Director Andrea Gacki. It was signed by Congressional Democrats including Senators Elizabeth Warren and Edward Markey of Massachusetts, Jeff Merkley and Ron Wyden of Oregon, Raphael Warnock of Georgia, Cory Booker of New Jersey, Chris Van Hollen of Maryland, Amy Klobuchar and Tina Smith of Minnesota, Brian Schatz of Hawaii, Bernie Sanders and Peter Welch of Vermont and John Fetterman of Pennsylvania. 

The letter was also signed by members of the House, including Representatives Earl Blumenauer and Val Hoyle of Oregon, Barbara Lee and Katie Porter of California, Jan Schakowsky of Illinois, Eleanor Holmes Norton of Washington, D.C. and Becca Balint of Vermont.

Current Policy Continues Disproportionate Harm of Prohibition

The lawmakers noted in their letter that the current policy “disproportionately harms Black- and Brown-owned businesses, whose owners are more likely to have a marijuana-related conviction, though they are not more likely to have violated marijuana use laws.” They asked that FinCEN update its guidance to reflect the changing cannabis policy at the state level, calling for those who have been pardoned or convicted of an act that is no longer a state crime to have full access to financial services without receiving a red flag from their bank or credit union.

“The updated guidance should clarify that if a marijuana-related act has been expunged, pardoned, is no longer illegal under state law, or is not disqualifying for obtaining a state marijuana license or permit (i.e. ‘state-sanctioned marijuana activity’), then financial institutions should not consider that offense a ‘red flag’ when conducting customer due diligence of marijuana businesses,” the lawmakers wrote.

“This would be an important step to promote fairness in the provision of financial services to marijuana businesses that participate in state-sanctioned marijuana activity,” the letter continues.

Cannabis Industry Applauds Proposed Policy Change

The letter seeking an end to red flag designations for cannabis business owners with previous weed-related convictions was welcomed by representatives of the regulated marijuana industry. Bri Padilla, executive director of The Chamber of Cannabis, said that “we wholeheartedly support the proposed policy changes to current Treasury Department guidance.”

“With legal cannabis markets in 38 states, it is safe to say that the guidance is not only outdated, it actively hinders the ability of cannabis licensees, especially minority-owned operators and small business owners to engage in and effectively participate in the cannabis economy,” Padilla said in a statement from the industry group to High Times. “Such a shift will be a small but critical step in rectifying the disproportionate impact on communities of color due to past cannabis-related convictions.”

Jeffrey M. Zucker, co-founder and president of Denver-based cannabis industry consulting firm Green Lion Partners, said that if adopted, the proposed policy change would be another milestone in the federal government’s slow evolution on cannabis policy, which got a boost earlier this year when the Department of Health and Human Services called on the Drug Enforcement Administration to reclassify marijuana under federal drug laws.

“By acknowledging state laws that have legalized recreational marijuana, the federal government could align its guidance with the evolving landscape of cannabis legalization,” Zucker wrote in an email. “Federal commentary may encourage further investment and participation in the industry, driving economic growth and job creation.”

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Banking institutions are in a race to allow cannabis businesses ahead of imminent changes in the way cannabis is classified at the federal level, according to federal data. Cannabis remains prohibited at the federal level, but the U.S. Health & Human Services Department (HHS) recommendation to reclassify cannabis from a Schedule I to a Schedule III changes everything.

NORML reports that there’s a spike in the number of banking institutions that are filing to work with cannabis businesses as the fear of repercussions subsides. 

According to quarterly data provided by The Financial Crimes Enforcement Network (FinCEN),  a bureau of the United States Department of the Treasury, over 800 banks and credit unions have filed paperwork with the U.S. government acknowledging their relationships with licensed cannabis businesses.

FinCEN reports that 812 banks and credit unions reported that they are actively working with cannabis companies during the second quarter of the FY2023. That’s a record high since FinCEN first started tracking these numbers. It represents a significant rise from last year’s numbers, when they identified 553 banks—only 11 percent of all U.S. banks—and 202 credit unions.

FinCEN “issued guidance to clarify Bank Secrecy Act (BSA) expectations for financial institutions seeking to provide services to marijuana-related businesses (MRBs),” the report, which is available for download, reads. “This FinCEN guidance clarified how financial institutions can provide services to marijuana-related businesses consistent with their BSA obligations, and aligns the information provided by financial institutions in BSA reports with federal and state law enforcement priorities.”

FinCEN Types of Cannabis Businesses

“FinCEN’s 2014 Guidance specifies three phrases for describing a financial institution’s relationship to Marijuana-Related Businesses (MRBs) in SARs: 

• Marijuana Limited:  means the financial institution provides financial services to an MRB that the financial institution reasonably believes, based on its customer due diligence, does not implicate one of the Cole Memo priorities or violate state law.  
• Marijuana Priority:  means the financial institution provides financial services to an MRB that the financial institution reasonably believes, based on its customer due diligence, implicates one of the Cole Memo priorities or violates state law. 
• Marijuana Termination: means the financial institution deems it necessary to terminate a relationship with an MRB in order to maintain an effective anti-money laundering compliance program.”

NORML leaders discussed the topic with The Hill last May.  

“No industry can operate safely, transparently or effectively without access to banks or other financial institutions and it is self-evident that the players in this industry (smaller and minority-owned businesses in particular), and those consumers that are served by it, will remain severely hampered without better access to credit and financing,” NORML Deputy Director Paul Armentano told The Hill.

According to survey data compiled last year by Whitney Economics, over 70% of cannabis businesses that were asked said that the “lack of access to banking or investment capital” is their top challenge. 

FinCEN’s Marijuana Banking Update from March 2022 shows a steady increase in the number of banks and credit unions filing to cater to cannabis businesses. “As of 30 September 2021, FinCEN had received a total of 219,097 SARs using the key phrases associated with MRBs. Several of the SARs contain more than one key phrase, which accounts for the numbers for each key phrase being greater than the total,” the report reads.

“FinCEN received 172,501 SARs from filers using the key phrase ‘Marijuana Limited.’ FinCEN received 15,359 SARS from filers using the key phrase, Marijuana Priority. FinCEN received 42,791 SARs from filers using the key phrase ‘Marijuana Termination’.”

FinCEN began providing guidance to cannabis businesses in 2014 with the goal to to help banking institutions operate while cannabis remains illegal at the federal level.

Why Banks Are Changing Their Tune

Yahoo! News reported earlier this month that HHSrecommendation to reclassify cannabis from a Schedule I to a Schedule III drug could transform the cannabis industry and create new opportunities for banking institutions.

“Rescheduling cannabis to Schedule III may allow dispensaries to accept credit card payments,” Richard Laiderman, former head of global treasury for VISA and Co-Founder and chair of StandardC, said. Credit card payments may supplant cash transactions if this occurs, reducing the risks and costs associated with cash-only operations.”

Cannabis banking expert Robert Baron said, “While changes will inevitably occur, financial institutions looking to serve this market segment must implement risk management tools to evaluate and monitor cannabis businesses. This is where StandardC’s business underwriting & monitoring tools are perfectly suited to meet their Bank Secrecy Act and customer due diligence obligations.”

The HHS recommendation to reclassify cannabis from Schedule I to Schedule III would be a pivotal step—the first of its kind at the federal level—to make the cannabis industry safer for everyone.

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Oregon Gov. Tina Kotek recently rejected a bill that would have created a State Public Bank Task Force. The 19-person team would have studied the pros and cons related to a cannabis business banking solution in the form of a public bank and would have proposed recommendations for implementation. 

Chief sponsors included Rep. Mark Gamba, Rep. Jules Walters, and Sen. Jeff Golden, who introduced House Bill 2763 in January. The bill steadily made its way through the House and Senate and was passed by both by the end of June before it was vetoed by Kotek on Aug. 4.

In a press statement published on July 28 to cover her thoughts on “potential vetoes,” Kotek said that she took issue with HB-2763. “Reason for possible objection: While the Governor supports exploring the creation of a state bank, this bill has several logistical challenges, including directing the Oregon Business Development Department (OBDD), which already manages over 80 programs, to manage a new task force, establish an RFP process, and finalize a substantive report on an abbreviated timeline,” the notice stated.

Had HB-2763 been approved, it would have explored “potential benefits and harms from the bank to state and local jurisdictions and private industries,” as well as “governing and corporate structures for the bank” and other goals. Ultimately, the task force’s research would have served as a way to create a publicly controlled bank that would save public dollars, and “spur greater economic activity within this state.” The task force would have also provided a detailed report of its findings on or before September 2024.

Furthermore, both committees sought to “…analyze challenges and barriers to providing banking services to legal adult-use cannabis businesses and examine pathways to allowing banking services to the burgeoning cannabis industry in New York.”

Banking access for cannabis businesses is an issue nationwide, and other states have attempted to pass legislation to ensure the safety of cannabis business owners as well as further legitimize the industry.

In March 2022, Pennsylvania legislators Rep. John DiSanto and Rep. Sharif Street proposed a cannabis banking bill. “Access to financial and insurance services is essential for operating any business, and it is against the public interest to relegate a multi-billion-dollar industry to deal in piles of cash,” said DiSanto. “Banking this cash safely in Pennsylvania provides certainty for businesses, is a huge opportunity to grow our economy and should ultimately lower costs for medical cannabis consumers.” Former Pennsylvania Gov. Tom Wolf signed the legislation in July 2022.

Last October, Rep. Dan Donovan and former Indiana Pacers NBA athlete David Harrison proposed a banking solution called Token HiFi which would have offered a safe and reliable solution for cannabis banking services.

In December, the most recent attempt to get the Secure and Fair Enforcement (SAFE) Banking Act was introduced again, but it was left out of the National Defense Appropriations Act (NDAA). The Senate Majority Leader has led many efforts to get the bill passed, and although it has been met with opposition, progress continues to be made. “It’s a priority for me,” Schumer said about the bill last year. “I’d like to get it done. We’ll try and discuss the best way to get it done.”

At the time, Republican opponents such as Senate Majority Leader Mitch McConnell accused Democrats of including “unrelated” items in the defense bill. “Even now, House and Senate Democrats are still obstructing efforts to close out the NDAA by trying to jam in unrelated items with no relationship to defense,” said McConnell. “We’re talking about a grab bag of miscellaneous pet priorities—like making our financial system more sympathetic to illegal drugs, or the phony, partisan permitting-‘reform’-in-name-only language that already failed to pass the Senate this year.”

Earlier this year in May, the New York Assembly Standing Committee on Banks and the Assembly Standing Committee on Economic Development, Job Creation, Commerce, and Industry held a hearing to discuss its benefits. “Operating a cash-only business raises challenges including security, payroll, access to loan products, and recordkeeping,” the public hearing memo stated. “These challenges impact both the legal cannabis-related businesses and the banks seeking to provide services.”

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Eight recognizable contenders are looking to turn New Brunswick’s drowning Cannabis NB into a profitable operation.

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