Lawmakers are set to take a critical vote that could pave the way for banks to work with marijuana companies

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Members of the House Financial Services Committee are set to vote on Wednesday on the SAFE Act, which would let banks work with state-legal marijuana businesses.
Marijuana is legal for adults over the age of 21 in ten states, and medically in 33. The federal government, however, considers marijuana a controlled, Schedule I substance.
That has put the industry in a gray area, forcing marijuana businesses to operate on an all-cash basis. Most banks are reluctant to do business with the sector, fearing prosecution under federal money laundering laws.

Members of the House Financial Services Committee are set to hold a critical vote on a bill that would pave the way for banks and other financial institutions to work with marijuana companies in the US.

The Secure and Fair Enforcement Banking Act (SAFE Act), written by Colorado Democrat Rep. Ed Perlmutter, would specifically prohibit federal regulators from terminating or limiting a bank’s deposit insurance coverage or charter for working with marijuana businesses in states where marijuana is legal.

The bill would also prohibit regulators from discouraging lenders from working with marijuana businesses in states where the drug is legal.

During the session on Wednesday, lawmakers on both sides of the aisle that supported the issue acknowledged that it’s a first step to addressing public safety concerns around cash-only cannabis businesses, but that more action needs to be taking to remove cannabis from the federal Controlled Substances Act.

House Financial Service Committee chair Rep. Maxine Waters said cannabis businesses are forced to operate on an all-cash basis in an industry with "billions of dollars of transactions." Wall Street analysts estimate that marijuana could become a $75 billion industry in the US alone by 2030.

The bill would provide "what every other legitimate business takes for granted — the ability to access the banking system." Rep. Waters also highlighted the public safety aspect of the bill, saying that cash-only marijuana businesses were often targeted for theft, putting employees at risk.

North Carolina Rep. Patrick McHenry, an opponent to the bill, called it the "single largest rewrite of drug policy this Congress has ever taken," and submitted a New Yorker article by author Malcolm Gladwell, titled "Is Marijuana As Safe As We Think?" that discussed a recent book purporting to show a connection between marijuana and mental illness.

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Despite the widespread support for marijuana legalization in the US, the drug is stuck under a cloud of federal uncertainty.

Marijuana is considered a Schedule I substance by the US federal government, though it is legal for all adults over the age of 21 in 10 states and for medical use in 33. Most financial institutions, therefore, are unwilling to work with state-legal marijuana businesses over fears of having their federal charter stripped under federal money laundering laws.

That’s forced many otherwise law-abiding marijuana businesses to operate on an all-cash basis, putting the industry at risk for theft and fraud. While some financial institutions are starting to perform simple functions like opening checking accounts for marijuana businesses, it still remains difficult for many to receive loans, open lines of credit, and even get insurance and access to capital.

Some marijuana businesses in states like Colorado and Nevada have resorted to hiring armed guards to ferry around large quantities of cash to pay employees and vendors.

The SAFE Act, however, still has a ways to go before it becomes law. If the House Financial Services Committee votes to pass the bill, it will likely go to a wider House floor vote in May. After that, the bill would have to pass the Republican-controlled Senate, where it may face some opposition from the Senate Banking Committee Chairman, Idaho Republican Sen. Mike Crapo.

Though the bill is a good first step for what many in the cannabis industry say is much-needed banking reform, it is far from a federal legalization bill. The bill doesn’t contain any specific language that would protect investment banks that want to work with cannabis companies or allow companies that sell THC-containing products to tap capital markets and list on US exchanges, according to a note from Cowen.

In that regard, the advantage still lies in Canada, where marijuana is federally legal and pot companies are free to tap capital markets like any other legal business. But that hasn’t stopped the biggest US banks, including Citigroup, from strategizing around how to get into the industry. And some banks, like Goldman Sachs, have advised existing clients on deals with cannabis companies. (Goldman advised Constellation Brands on its purchase of an equity stake in Canadian marijuana company Canopy Growth).

For many US cannabis companies, the SAFE Act is the culmination of years of lobbying. Marijuana companies like Curaleaf have beefed up their lobbying presence in D.C. The company hired Ed Conklin, a 25-year veteran of McDonald’s and a seasoned lobbyist, to lead its efforts in Congress.

And there are other bills floating around Congress, including the bipartisan STATES Act — sponsored by Sens. Elizabeth Warren and Cory Gardner — which would go further than the SAFE Act by removing the state-federal conflict over marijuana by recognizing state’s rights on the issue and protecting marijuana businesses from federal prosecution, according to a report from the law firm Davis Polk.

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