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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