April 8, 2019 at 5:00 am ET
The House Financial Services Committee recently voted to advance legislation that would provide federal protection for financial institutions serving state-authorized marijuana and ancillary businesses. The SAFE Banking Act — a bipartisan bill — now goes to the full House for consideration, where House members and then senators will have an opportunity to bring marijuana from an underground industry to Main Street.
Whether one supports the legalization of marijuana or not, the industry is here — and here to stay. Medical marijuana is now legal in 33 states — including my home state of Maine — and recreational use has also been legalized in 10 of them. By 2025, cannabis businesses are expected to generate $25 billion in annual revenues — a compound annual growth rate of nearly 15 percent.
Yet the industry is kept largely in the shadows. An estimated 70 percent of legal cannabis businesses have no relationship with a financial institution and thus use cash for all transactions, including payroll.
Banks have traditionally steered clear of servicing the marijuana industry, fearing legal trouble from a federal government that still considers marijuana illegal. The difficulty of assessing the prosecutorial risk is just far too great for most community banks to take on.
This raises obvious security questions and a litany of criminal concerns. Indeed, stories of criminal wrongdoing have become all too common across America.
In California, a pair of thieves beat and robbed a courier carrying about $9,000 in cash from San Diego cannabis businesses. In Washington, police have reported multiple marijuana-related robberies, including the shooting of a cannabis shop employee by thieves.
In Colorado, they are approaching the three-year anniversary of Travis Mason’s murder while working as a security guard at a Colorado marijuana dispensary. A U.S. Marine and father of three, Mason was killed when at least two thieves stormed the Green Heart Dispensary in search of cash. His murder remains unsolved.
The status quo is simply unsustainable. The current conflict between state and federal law has created a cloud of legal uncertainty for community banks like mine, which are uniquely positioned to service cannabis-related businesses but are currently at risk of federal sanctions for doing so. Because the possession, distribution or sale of marijuana remains illegal under federal law, any contact with money that can be traced back to state marijuana operations could be considered money laundering.
Staying away from marijuana is easier said than done: In addition to growers and retailers, America is home to countless vendors, landlords and employees that are indirectly tied to the marijuana industry. Even if a community bank serves such entities and individuals, it encounters legal risks that are virtually impossible to identify and avoid.
These regulatory burdens may not cripple America’s largest financial institutions, but they can wreak havoc on community banks in rural states like Maine. For that reason, hundreds of community banks nationwide have steered clear of the marijuana industry.
The SAFE Banking Act would carve out an exemption from federal sanctions for all financial institutions — including community banks — that hope to serve cannabis-related businesses in states where marijuana is legal. In these states — and only these states — federal regulators would no longer be able to threaten a bank’s deposit insurance, discourage the provision of banking services, or take any other prejudicial action solely because marijuana is involved (directly or indirectly).
Let’s be clear: Safe harbor from federal sanctions is not designed to introduce bankers to new clients or swell bank deposits. Cannabis banking is not about the bottom line; it is about financial security and public safety. As Rep. Ed Perlmutter (D-Colo.) — the bill’s sponsor in the House — recently explained, “The SAFE Banking Act will get cash off our streets, reducing the risk of violent crime and making our communities safer.”
States that have legalized marijuana have also set aggressive tax rates on marijuana sales, but the collection of those taxes is wishful thinking, with so much activity completed in cash. Transferring that sales activity to traditional payment systems in the banking industry will reduce the flow of cash in the marijuana business and allow for more effective tax collection on those sales.
Whatever one thinks of marijuana’s progression in our society, it is here on Main Street now, and all of that cash — billions and billions of dollars worth — is currently on our streets, exposing millions of Americans to criminal activity. People like Travis Mason, his family and countless other victims bear the consequences.
Getting that cash into the banking system is of paramount importance. Without financial institutions to keep that money safe and secure, marijuana will continue to be an underground business that threatens public safety.
With community banks like mine involved, we can get that cash off our streets. I urge all members of Congress to help us do our duty.
Andrew Silsby is the president and CEO of Kennebec Savings Bank in Maine.
Morning Consult welcomes op-ed submissions on policy, politics and business strategy in our coverage areas. Updated submission guidelines can be found here.