Even if the U.S. Senate were to pass a bill to make it easier for banks and credit unions to serve the emerging cannabis industry, questions remain over just how many financial institutions will act quickly on the opportunity.
Cannabis would remain illegal under federal law, and any related companies potentially could still face penalties for doing business with marijuana-related firms, said Rasul Raheem, Detroit-based senior counsel in the financial services practice at Dykema Gossett PLLC.
That means many banks and credit unions may still choose to avoid the risk of serving the industry, unless Congress ever amends the federal Controlled Substances Act and legalizes marijuana nationwide.
Until then, there remains the potential that the U.S. Department of Justice could someday alter its present stance of leaving any prosecutions up to the discretion of local U.S. attorneys and begin seizing assets and charging marijuana businesses, Raheem said.
“There’s instability in policy. It’s hard, particularly for the banks, to do business like that,” Raheem said. “I think that you’ll see more stick their toe in, but I think there will definitely be risk factors that banks will have to consider. It may be less risky, but there will still be risk.”
The Secure And Fair Enforcement (SAFE) Banking Act, which cleared the U.S. House last month, would prevent federal regulators from penalizing financial institutions that serve the industry in states such as Michigan that have legalized marijuana.
Should the legislation become law, state-chartered community banks are “probably going to be the most comfortable” and become early entrants in serving marijuana-related businesses, said Sean Livingston, a partner at Green Harvest Accounting LLC in Cedar Springs who works with medical marijuana operators.
“I certainly think it would be at least a few. We have a few that we’re aware of that work in this space already,” Livingston said. “The longer that people have to look at examples of banks that decide to operate (there), and see that there hopefully are not significant ramifications of that, and that the protections on paper do what they’re intended to do in practice, I do think you’ll see more and more jump into this, certainly.”
Advocates for the banking industry cheered the landmark passage in the U.S. House of the SAFE Banking Act on Sept. 25. Backers view the legislation as resolving a public safety issue for marijuana-related businesses that operate on a cash-only basis.
“Large amounts of cash that are sitting in these businesses today are a crime threat to the business and the surrounding residents. The (marijuana-related businesses) need access to traditional banking services and payment methods so we can get the cash out of these businesses,” said Mike Tierney, president and CEO of the Community Bankers of Michigan, an East Lansing-based trade group that backs the federal legislation.
The U.S. House passed the SAFE Banking Act on a bipartisan 312-103 vote and sent it to the Senate for consideration. Rob Nichols, president and CEO of the American Bankers Association, called the vote “a significant step forward for public safety, transparency and common sense.”
The ABA, the Independent Community Bankers of America and the Credit Union National Association are united in advocating for Senate passage of the bill. However,
Politico.com reported the day after the House vote that the Senate may take up its own version of legislation enabling banks to serve marijuana-related businesses.
Tierney said he’s “not optimistic” about action on the SAFE Banking Act in the Senate, where the issue “has not been a priority.”
“It was great that the House passed it and kind of tosses it over. We’ll see what they do,” Tierney said of the U.S. Senate. “It’s just a matter of whether it becomes a priority in the Senate.”
Offering safe harbor
The banking industry will continue to advocate for the legislation. The Community Bankers of Michigan and the Michigan Bankers Association expect to travel to Washington, D.C. with a group of members at the end of October and plan to lobby for the legislation, Tierney said. National industry trade groups also intend keep up efforts to persuade senators to pass the bill.
“It will continue to be pushed hard,” Tierney said.
Tierney also believes that more banks will serve marijuana businesses “if we can provide a safe harbor for them,” he said
The Community Bankers of Michigan now refers licensed marijuana businesses to the few Michigan banks that serve the industry. Those banks need to comply with existing federal guidelines, conduct extensive due diligence on clients, and meet ongoing reporting requirements.
Tierney credits the Michigan Department of Treasury with working with banks and other financial services providers that want to serve the cannabis industry.
“The Treasury Department has really partnered with the financial services industry on (marijuana-related businesses),” he said, citing the state’s interest in collecting taxes on marijuana sales and in keeping organized crime out of the industry.
“The state wants to collect its tax revenues, and having the money flow through the banks and through traditional payment methods helps to keep track of all revenues and expenses,” Tierney said.
‘Kicking the can’
The ultimate solution for banks to serve marijuana-related businesses without the present risk would come from legalizing marijuana nationally, said Raheem at Dykema Gossett. He describes existing Justice Department practices as a “gentleman’s agreement of how we’re going to handle this,” all of which is subject to change.
The SAFE Banking Act “addresses some of the problems, but not all of the problems,” he said. “They’re still kicking the can down the road until they can amend the Controlled Substances Act.”
Thirty-three states including Michigan allow cannabis for either medical or recreational uses by adults.