Important Cannabis Banking Bill Advances

An important bill concerning cannabis and banking advanced out of committee yesterday, meaning the proposed legislation will go to the full U.S. House of Representatives for a vote. After days of debate and numerous attempted amendments by Republican lawmakers to delay the bill, HR 1595 was ultimately approved by the House Financial Services Committee by a 45 to 15 vote. The bill addresses the issue of the vast majority of banks that refuse to allow cannabis businesses to open bank accounts, leaving the industry largely a cash business. The bill now faces a vote in the House before it is sent to the Senate for a vote. It will be far more difficult to pass in the Senate than the House, since the Senate is Republican controlled. But don’t write off the bill just yet––the 2018 Farm Bill that legalized hemp last year was passed by the Senate by an 86 to 11 vote, and Republicans are increasingly taking the cannabis industry more seriously.

What HR 1595 Does

Representative Maxine Waters, chairwoman of the House Financial Services Committee, said that the bill “addresses an urgent public safety concern for legitimate businesses that currently have no recourse but to operate with just cash. The bill goes even further though as a result of an amendment by Rep. Ed Perlmutter to require the federal government to study diversity and inclusion in the industry. Rep. Waters said, “However, I also consider this bill as part of a holistic approach toward providing criminal justice reform to those who have been harmed by criminalization of marijuana, and should not by any means be the only bill the House takes up on the important issue of cannabis reform,” she said.

HR 1595 creates a safe harbor for banks by prohibiting the federal government from taking any adverse action against any bank for providing financial services to any “cannabis-related legitimate business or service provider.” The safe harbor provision further prohibits the federal government from discouraging banks from providing such services.

“Cannabis-related legitimate business” is defined within the bill essentially as any cannabis company (being one that produces, sells, transports, or distributes cannabis or cannabis products) that operates “pursuant to a law established by a State or a political subdivision of a State, as determined by such State or political subdivision[.]” So basically, cannabis business that operate lawfully within states that have legalized cannabis.

Another provision within the bill exempts financial transactions made by legitimate cannabis businesses from 18 USC 1956 (and 1957) from being considered an “unlawful activity” solely because it’s done by a cannabis company, which essentially means that cannabis companies aren’t laundering money simply by doing business.

HR 1596 states banks will not be held liable based on federal law simply for providing services to cannabis businesses.

Finally, the bill directs the Financial Institutions Examination Council and other banking regulators to develop guidance and procedures for banks to provide financial services to cannabis businesses.

At a mere 13 pages, the bill is quite short for proposed federal law, but that has no bearing on whether it will be effective. Should the bill become law, will it be enough to get major banks to start taking cannabis business clients? That will be up to the banks. They may still choose to not take on the cannabis industry until cannabis is legalized federally. But given that HR 1595 protects banks from liability for taking cannabis clients, and prohibits the federal government from punishing the banks for doing so, we think banks may then be ready to capitalize on the growing multi-billion dollar industry.

Being voted out of committee is a big hurdle that the vast majority of proposed bills do not make, but this bill is still a long way from becoming law. There’s a very good chance that HR 1595 will be passed by the House, as it currently has 152 co-sponsors, roughly a third of the House. But this bill is far from becoming law. But it will still have to be passed by the Republican-controlled Senate, and there are plenty of procedures the Republicans could throw at it to prevent it from even coming to a vote. But we take reform one day at a time and in every way that it comes. Yesterday’s vote on cannabis banking was progress.