Most banks choose to avoid any risk of running afoul of federal law
By Jeff McGaw
BridgeTower Media Newswires
They are still looking for Travis Mason’s killer.
The 24-year-old ex-Marine, husband and father of three young children was shot to death while working as a security guard at the Green Heart marijuana dispensary in Aurora, Co., on June 18, 2016.
The reward for the capture of his killer or killers has increased to $50,000, but after more than three years there are few clues.
Some 1,500 miles away from the scene of that crime, federal lawmakers in Washington D.C are attempting to fix a problem that they believe may well have contributed to Mason’s murder.
Gun law? Nope. Some lawmakers say federal law preventing banks from providing financial services to legal cannabis companies could be to blame.
—————
SAFE Act
On Sept. 25, the U.S. House of Representatives approved, by a 321-103 vote, the Secure And Fair Enforcement Banking Act, or SAFE Act, of 2019. The bill now goes to the U.S. Senate.
The Act prohibits federal banking regulators from penalizing banks that provide services, such as loans, checking accounts, and direct deposit, to a legitimate marijuana-related business.
Despite medical marijuana being legal in 33 states including Pennsylvania, and despite the drug being approved for recreational, or what the cannabis industry prefers to call “adult use” in 10 states, marijuana is still classified as a Schedule 1 drug under the Controlled Substances Act of 1970.
In the eyes of Uncle Sam, marijuana is as potentially deadly and addictive as LSD, heroin, ecstasy and bath salts, to name few, and has no therapeutic value.
There is no distinction in the law as it is written between a bank that loans money to the operators of an illegal meth lab and a bank that makes a loan to a state-licensed medical marijuana dispensary.
—————
Risk avoidance
As a result, most banks choose to avoid any risk of running afoul of the federal law.
“We are aware of the SAFE Act and are watching the regulatory environment closely,” said Mike Wilson, chief marketing officer for Member’s 1st Credit Union based in Lower Allen Township.
Members 1st is not currently doing business with the cannabis industry, according to Wilson.
“A culture of compliance will always be paramount as we focus on the safety and soundness of this member-owned institution,” he said. “Should the regulatory environment change, we would be able to adjust swiftly if or as needed.”
“Currently, use of marijuana is not recognized as legal by the federal government, and given this open jurisdictional issue, Citizens Bank does not do business with this industry segment, including ancillary businesses,” said Rory Sheehan, vice president of media relations for Citizen’s Financial Company, the parent of Citizens Bank of Pennsylvania. “Because we are a federally chartered institution, this applies to our entire footprint, including states where marijuana has been legalized.”
Like housecats staring at a tank of goldfish, most banks like what they see from an industry growth perspective, but they are keenly aware of the possible repercussions of diving in.
What they see is a U.S marijuana market estimated at around $12 billion in 2018, according to a new report by Grand View Research, Inc. The U.S. legal cannabis market is anticipated to have a compound annual growth rate (CAGR ) of 24.1% through 2025, the firm estimates.
The medical cannabis market, the largest sector of the industry, is estimated to expand at a CAGR of 12.7% by 2025 thanks to the increasing use of marijuana for the treatment of cancer and other medicinal conditions like Parkinson’s and Alzheimer’s disease, arthritis and other neurological conditions.
Green lighting
The Financial Crimes Enforcement Network (FinCEN) estimates that the number of marijuana-related businesses increased from 445 in June of 2018, to 715 in June 2019.
Of the over 5,300 banks, with some 84,000 bank branches in the U.S., only about 715 lenders, including 553 banks and 162 credit unions, are doing business directly with the cannabis industry, according to the latest figures from FinCEN.
Jonestown Bank & Trust in Lebanon, founded in 1873, is one of them.
That bank, with 14 branches and about $500 million in deposits, began offering services to the cannabis industry after being approached by some of its customers.
“We are certainly In favor of this act continuing through Congress,” said bank CEO Troy Peters. “And I believe that there is an appetite in the Senate to give some clarity to banks on this issue too,” he said.
“We (Jonestown Bank & Trust) aren’t lobbying in favor of marijuana being legal in any fashion,” he said. “We just want to safely bank the clients in our community that are engaged in legal businesses, as medical marijuana and hemp farming is in Pennsylvania. So far, our federal and state regulators have been very accommodative regarding our process.”
—————
Soft targets
In 2014, then U.S. Deputy Attorney General James Cole issued some guidelines stating, in effect, that the Department of Justice would focus its resources more on gangs, cartels and other drug-related criminal enterprises, and less on state-legal, licensed marijuana operations.
That provided some comfort for the few banks willing to venture into the cannabis market.
In January, 2018, however, now former Attorney General Jeff Sessions rescinded the Cole memo and the perceived assurances that G-men wouldn’t start kicking down bank doors started to evaporate.
As a result of the general angst over the federal statute, most banks stay out, and most cannabis businesses remain cash-only operations.
And that’s where the tragedy of Travis Mason comes in. His case is mentioned in a June report by the House Committee on Financial Services chaired by U.S. Rep. Maxine Waters.
The report notes that cash businesses, and people carrying cash, can be soft targets for crime, and such was the case for the Green Heart dispensary where Mason worked as a security guard.
Ancillary businesses like electricians, plumbers, insurance providers, and landlords are hampered by the cash-only transaction.
“The SAFE Banking Act would address this conflict by clarifying that state-authorized and regulated cannabis businesses, along with their service providers, may access the banking system, in part by creating a safe harbor for banks and credit unions to provide such services to these businesses,” the report said.
The act passed the house 321-103 with 229 Democrats, 91 Republicans, and one independent in support. Of the dissenters, 102 were Republican and one was a democrat, Rep. Terri Sewell from Alabama’s seventh district.
Seventeen of the 18 representatives from Pennsylvania, including Rep. Scott Perry, voted to approve the proposal. Only one, Rep. John Joyce, who represents Altoona, Johnstown, Somerset, Chambersburg, Gettysburg, Waynesboro and Hanover, all part of the 13th District, voted against it.
Neither Perry nor Joyce returned calls to the Central Penn Business Journal.
Caught in a trap
The rift between federal and state law has left banks trapped between their mission to serve the financial needs of their local communities and the threat of federal enforcement action.
Critics of the SAFE Act, however, say it doesn’t address the fact that, even if passed, marijuana remains illegal at the federal level. Critics also stated that the act failed to comprehensively address how federal financial regulators will enforce banking statutes and regulations, if at all.
Opponents also voiced concerns about the impact of the legislation on compliance and enforcement of federal acts like the Bank Secrecy Act and Suspicious Activity Reports, and on what the implications were for insurance companies, individual and institutional investors, and coordination between federal, state, and local law enforcement.
Not surprisingly, the American Banker’s Association supports the SAFE Act.
In a statement on its website, the association said “while ABA takes no position on the moral issues raised by legalizing marijuana, the growing number of states that allow its sale and use raises practical issues that must be addressed.
“ABA believes the time has come for Congress and the regulatory agencies to provide greater legal clarity to banks operating in states where marijuana has been legalized for medical or adult use. Those banks, including institutions that have no interest in directly banking marijuana-related businesses, face rising legal and regulatory risks as the marijuana industry grows.”
