The American Bankers Association outlined why it’s critical that legal, cannabis-related businesses have access to the regulated banking system as it urged the Senate to advance the SAFE Banking Act in testimony on July 23 before the Senate Banking Committee.
Joanne Sherwood, president and CEO of Citywide Banks in Denver, Colorado, and chair of the Colorado Bankers Association, testified on behalf of ABA. Sherwood explained how current federal law prevents financial institutions from banking any money derived from cannabis-related businesses and how a narrow, banking-specific remedy to the cannabis banking problem will reap immediate public safety, tax and regulatory benefits.
“Because cannabis continues to be illegal at the federal level, handling funds associated with cannabis businesses can be deemed money laundering,” Sherwood said. “That federal/state divide has particularly severe repercussions for banks and communities like mine, where the cannabis industry is fully operational, but it also impacts banks in every state.”
With limited access to banking services available, large amounts of cash remain onsite in many of the cannabis-related businesses which creates significant safety concerns for the communities where they are located. For example, on average, more than 100 burglaries occur at cannabis businesses each year in Denver according to the Denver Police Department.
“Providing a mechanism for the cannabis industry to access the regulated banking system would help those businesses and their surrounding communities by reducing the high volume of cash on hand, thereby reducing instances of cash-motivated crime,” Sherwood said.
Additionally, since many cannabis businesses do not have a bank account, they are forced to pay their taxes in cash at local IRS offices. Processing paper-based returns costs the IRS nearly 17 times more compared to an e-filed return — a cost borne by taxpayers. Cash-based taxpayers are also more likely to under-report income than those who receive payment by check or those subject to third-party reporting or withholding.
“Banking the cannabis industry is a straightforward way to ensure that businesses have the means and motivation to remain fully tax compliant,” Sherwood said.
The SAFE Banking Act, which is currently before the Committee for consideration, would help address this urgent problem. The bill specifies that proceeds from a state-licensed cannabis business would not be considered unlawful under federal money laundering statutes or any other federal law and directs FinCEN and the federal banking regulators to issue guidance and exam procedures for banks doing business with legitimate cannabis-related businesses.
“Although the SAFE Banking Act does not cure all of the cannabis-related banking challenges, it would help the 33 states that have legalized cannabis in some form to make their communities safer, collect their taxes, and regulate their cannabis markets effectively,” Sherwood said. “ABA supports the SAFE Banking Act and urges the Committee to markup and advance this legislation as soon as possible.”
For a copy of Sherwood’s full written testimony, click here. To view ABA’s detailed new white paper on the potential public benefits of banking cannabis businesses, click here