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Pot banking bill's prospects fade amid broader legalization push

In a dramatic reversal, top Senate Democrats are abandoning targeted legislation to help banks and credit unions serve cannabis businesses as lawmakers launch a broader effort to legalize marijuana.


By Kate Berry

The conventional wisdom was that Democrats' 2020 electoral victories could overcome GOP objections to a pot banking bill, clearing its path to enactment. But now in control of both chambers of Congress, Democrats have unveiled a more sweeping proposal to decriminalize marijuana use, which they say should be the vehicle.


Some lawmakers have gone so far as to oppose the pot banking bill, saying it would be a mistake to support legislation that only benefits businesses without ending a drug enforcement regime that has hurt people of color.


"I will lay myself down to do everything I can to stop an easy banking bill that's going to allow all these corporations to make a lot more money off of this as opposed to focusing on restorative justice efforts," Sen. Cory Booker, D-N.J., said at a press conference this week.


Booker, Senate Majority Leader Chuck Schumer, D-N.Y., and Sen. Ron Wyden, D-Ore., unveiled a draft proposal of the Cannabis Administration and Opportunity Act. It would remove cannabis from the federal list of controlled substances, decriminalize marijuana and ensure that state-compliant pot businesses would have access to financial services.


But Senate Republicans have long opposed pot legalization and Democrats’ razor-thin majority in the Senate means a comprehensive marijuana bill like the one proposed Wednesday is dead on arrival. Any legislation requires 60 votes in the Senate.


"Sen. Booker was adamant that if it was a banking-only bill, it would not move forward," said Michael Busch, the president and CEO of the $200 million-asset Burling Bank in Chicago. "The message that came through is they want comprehensive reform and to remove the prohibition of cannabis at the federal level. But getting comprehensive reform is a more difficult lift than more narrow banking reform."


"The message that came through is they want comprehensive reform and to remove the prohibition of cannabis at the federal level."

Even Schumer admitted that Democrats didn't have the votes to pass the sweeping legislation.


"This is going to be a process, this is a draft bill," Schumer said at the press conference. "We don't have the votes necessary at this point but we have a large majority of our caucus for it. We are going to put our muscle behind it, our effort behind it and we are going to get this done ASAP."


Just minutes after the senators unveiled their proposal, White House Press Secretary Jen Psaki indicated that President Biden has not endorsed the draft language unveiled by the three senators.


"Nothing has changed, and there's no new endorsements of legislation to report today," Psaki said at a press briefing, according to reports.


It was Booker's comments in particular that appeared to spell trouble for the narrower cannabis banking bill. That legislation for years has been a big priority for the financial industry to help banks navigate the federal minefield of serving cannabis businesses in states that have legalized the substance.


“I’m telling you right now, if somebody tries in the Senate to do just a banking bill, they are going to ... do it so some people can get rich and not do something about the people who are languishing with criminal convictions," he said.


Booker was responding to a question about whether the Senate would pass pot banking legislation similar to the Secure and Fair Enforcement Banking Act, which passed the House in April with bipartisan support.


The SAFE Banking Act was itself a compromise to attract support from Republicans who oppose federal legalization of pot. The bill would prohibit federal banking regulators from penalizing banks and other depository institutions for providing banking services to cannabis businesses in states where marijuana is legal.


Schumer appeared to agree with Booker that pot banking legislation is off the table for now.


"A banking bill deals with a small part of this but not what needs to be done," Schumer said. "We need a broad, comprehensive bill.


When Democrats took control of the White House and Congress in January, the conventional thinking was that they would move quickly to pass pot banking reform. But Democrats' broader legalization efforts have turned the issue on its head.


Experts said lawmakers themselves know that sweeping marijuana reform will not pass.


“The likelihood of this bill going anywhere is pretty low,” said Tony Repanich, president and chief operating officer at Shield Compliance, a Seattle compliance management company that aids banks focused on marijuana-related businesses. "Finding 60 senators to agree to what Schumer is putting forward is challenging because the more you try to add to cannabis reform, the more you start losing [lawmakers] at the edges.”


"The likelihood of this bill going anywhere is pretty low," said Tony Repanich, president and chief operating officer at Shield Compliance, a Seattle compliance management company that aids banks focused on marijuana-related businesses.


Some policy experts said Schumer could be making a political tactic designed to help Democrats going into the 2022 midterm elections.


"This is a political process more than a policy process. This is about 2022. It is not about cannabis," wrote Jaret Seiberg, managing director at Cowen Washington Research Group, in a recent research note. "We doubt [Schumer] has decided yet whether it is better for Democrats keeping control of the Senate to pass a compromise on cannabis or to bait the GOP into killing cannabis legalization.”


Seiberg echoed Schumer's own remarks that it is unclear if all 50 Senate Democrats would vote for the bill, and that there is "only limited Senate GOP support.”


At this point, experts do not see any movement on a pot banking bill until the end of 2022. The Senate has far bigger issues to tackle than decriminalizing marijuana. Work still must be done on the infrastructure bill, a reconciliation recovery package, the debt ceiling and spending bills, among others, Seiberg said.


Still, the continued shift at the state level in favor of legalizing cannabis means pot banking will ultimately have to be addressed as more cannabis businesses proliferate and larger banks seek to serve them. Both New York and New Jersey legalized recreational marijuana use in the past year.


"We will continue to work with senators in both parties to move the SAFE Banking Act across the finish line," said Blair Bernstein, a spokesman for the American Bankers Association. “By following the House's lead and passing the strongly bipartisan SAFE Banking Act, the Senate can end the growing conflict between state and federal law when it comes to banking cannabis businesses and the many vendors and suppliers supporting those businesses. Importantly, this commonsense step to provide a legal safe harbor would also expand credit opportunities for minority business owners seeking to participate in this growing industry.”


So far, 36 states and four territories have authorized the use of marijuana for medical purposes and 17 states have authorized it for recreational use. But marijuana is still considered a prohibited substance under the federal Controlled Substances Act, and banks that provide services to cannabis businesses can be penalized under federal money laundering laws.


Bankers that serve marijuana businesses are hoping that the momentum that appeared to be building for pot banking is not completely dampened by the about-face in favor of broader decriminalization efforts.


"There's a good business opportunity argument to be made for community banks to bank this industry and there exists today a compliant path to banking legalized cannabis businesses."

"There’s a good business opportunity argument to be made for community banks to bank this industry and there exists today a compliant path to banking legalized cannabis businesses," said Busch, the Burling Bank CEO. "But a lot of bank boards don’t feel comfortable without legislation. This industry is very large and it needs to be banked by more strong banks that can adequately manage the compliance requirements."


This article originally published in American Banker.