Bankers lend support to Safe Banking Act

Bankers lend support to Safe Banking Act

A bill pending in Congress could change the way business is done in the Arkansas marijuana marketplace. 

The Safe Banking Act, passed last year by the U.S. House, would create a safe harbor for banks, credit unions and even credit card companies to operate in the cannabis industry without fear of violating federal laws. 

The Safe Banking Act passed the House last year, as it has in previous sessions of Congress, and is being considered alongside other bills in a conference committee that includes Rep. Rick Crawford, who represents Arkansas’s 1st Congressional District. That committee will reconcile the bill with a Senate bill and possibly add it into a larger economic development bill called America Competes. 

Crawford voted for the bill last year, as did Rep. French Hill (2nd District) and Rep. Steve Womack (3rd District). Rep. Bruce Westerman (4th District) was the only Arkansas congressman to vote against the bill. 

As a former community banker, I know first-hand the uncertainty and confusion that can occur when there are inconsistencies between state and federal regulations and laws,” Hill said in a statement. “The SAFE Banking Act is a bipartisan solution that would provide businesses legally operating under state laws access to the banking system while providing clarity and legal certainty to financial institutions in the states and territories that have legalized some form of marijuana use. This proposal improves community safety and makes any illicit activity easier to identify and stop. Current federal law prevents banks from working with state licensed and compliant cannabis businesses, so many are forced to operate in an all-cash environment. This presents significant challenges to public safety, tax collection, and even our efforts to combat money laundering in Arkansas.”

Hill  was the only member of Arkansas’ congressional delegation to respond to requests for comment. Hill was the deputy assistant secretary of the Treasury for corporate finance under president George H.W. Bush and  the CEO of Delta Trust and Bank Corp. in Little Rock. 

U.S. Sens. John Boozman and Tom Cotton have not publicly taken a position on the bill and did not respond to requests for comment. 

While most of the state’s congressional delegation is mum on the issue, the state’s banking association is not. 

Lorrie Trogden, president of the Arkansas Bankers Association, said her organization supports the bill, because it will help Arkansas banks that tell her they want to offer services to the cannabis industry. 

As 37 states have legalized marijuana in some form, banks are stuck in a confusing place, Trogden said. On one hand, marijuana consumers are spending billions of dollars — even more than they spent at Starbucks last year— but marijuana is still illegal federally. 

Banks operating in what Trogden calls a “chasm” between state and federal law risk criminal penalties and could even lose their charter and FDIC insurance, she said. 

And it’s not just the plant-touching businesses that present problems to banks, Trogden said. Businesses that provide services to plant-touching businesses such as electricians, plumbers, landlords and even attorneys fall into this category. 

“Technically, banks are not supposed to bank those businesses either, because any income, derived from a federally illegal business is still money laundering,” Trogden said. 

Trogden said the conference committee is considering stuffing the Safe Banking Act language into a larger economic development bill called America Competes. 

“Obviously, we are lobbying for that one to stay in,” Trogden said.

Trogden said her organization has no position on marijuana legalization but believes the businesses should be able to access the banking industry. 

“We have no moral stance whatsoever on whether marijuana should be legalized or not,” Trogden said. “Our only stance is if you have these billions of dollars in this industry that are out there, let’s get them out of the shadow system and into the banking system,” Trogden said.  

The bill may have support from at least one of Arkansas’ senators. 

“Senator Boozman seemed very receptive to it,” Trogden said while noting Cotton had expressed some concerns. 

The American Bankers Association sent a letter of support to Sen. Chuck Schumer (New York) and Sen. Mitch McConnell (Kentucky). 

While the Safe Banking Act would create a “safe harbor” for financial institutions, it is unlikely to reduce the wide range of regulations those institutions face when operating in the industry, according to Dan Roda, CEO of Little Rock cannabis finance company Abaca.

The bill could open up lending to cannabis businesses and could even allow for credit card companies Visa and MasterCard to get in the industry, he said.  

“We don’t think the regulatory hurdles are going to go away,”Roda said. “But by creating this legal safe harbor, you do at least remove some of the existential risk and, in doing so, you at least create the opportunity potentially for credit card processing and other financial services to begin to be opened up to the industry.”

Roda said the conference committee could last throughout the summer and he believes the bill has a 50-50 shot at passing, although he thought the same before attempts failed in the past. If it doesn’t get added to the America Competes bill, Roda believes there will be a renewed effort to pass the Safe Banking Act on its own before the November midterm elections.