    [House Hearing, 116 Congress]
    [From the U.S. Government Publishing Office]

                        CHALLENGES AND SOLUTIONS: ACCESS

                            TO BANKING SERVICES FOR

                          CANNABIS-RELATED BUSINESSES

    =======================================================================

                                    HEARING

                                   BEFORE THE

                      SUBCOMMITTEE ON CONSUMER PROTECTION
                           AND FINANCIAL INSTITUTIONS

                                     OF THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                         ONE HUNDRED SIXTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                               FEBRUARY 13, 2019

                                   __________

           Printed for the use of the Committee on Financial Services

                                Serial No. 116-2

              CHALLENGES AND SOLUTIONS: ACCESS TO BANKING SERVICES

                        FOR CANNABIS-RELATED BUSINESSES

                        CHALLENGES AND SOLUTIONS: ACCESS

                            TO BANKING SERVICES FOR

                          CANNABIS-RELATED BUSINESSES

    =======================================================================

                                    HEARING

                                   BEFORE THE

                      SUBCOMMITTEE ON CONSUMER PROTECTION
                           AND FINANCIAL INSTITUTIONS

                                     OF THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                         ONE HUNDRED SIXTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                               FEBRUARY 13, 2019

                                   __________

           Printed for the use of the Committee on Financial Services

                                Serial No. 116-2

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                _________

                    U.S. GOVERNMENT PUBLISHING OFFICE

    35-631 PDF                WASHINGTON : 2019

                     HOUSE COMMITTEE ON FINANCIAL SERVICES

                     MAXINE WATERS, California, Chairwoman

    CAROLYN B. MALONEY, New York         PATRICK McHENRY, North Carolina,
    NYDIA M. VELAZQUEZ, New York             Ranking Member
    BRAD SHERMAN, California             PETER T. KING, New York
    GREGORY W. MEEKS, New York           FRANK D. LUCAS, Oklahoma
    WM. LACY CLAY, Missouri              BILL POSEY, Florida
    DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
    AL GREEN, Texas                      BILL HUIZENGA, Michigan
    EMANUEL CLEAVER, Missouri            SEAN P. DUFFY, Wisconsin
    ED PERLMUTTER, Colorado              STEVE STIVERS, Ohio
    JIM A. HIMES, Connecticut            ANN WAGNER, Missouri
    BILL FOSTER, Illinois                ANDY BARR, Kentucky
    JOYCE BEATTY, Ohio                   SCOTT TIPTON, Colorado
    DENNY HECK, Washington               ROGER WILLIAMS, Texas
    JUAN VARGAS, California              FRENCH HILL, Arkansas
    JOSH GOTTHEIMER, New Jersey          TOM EMMER, Minnesota
    VICENTE GONZALEZ, Texas              LEE M. ZELDIN, New York
    AL LAWSON, Florida                   BARRY LOUDERMILK, Georgia
    MICHAEL SAN NICOLAS, Guam            ALEXANDER X. MOONEY, West Virginia
    RASHIDA TLAIB, Michigan              WARREN DAVIDSON, Ohio
    KATIE PORTER, California             TED BUDD, North Carolina
    CINDY AXNE, Iowa                     DAVID KUSTOFF, Tennessee
    SEAN CASTEN, Illinois                TREY HOLLINGSWORTH, Indiana
    AYANNA PRESSLEY, Massachusetts       ANTHONY GONZALEZ, Ohio
    BEN McADAMS, Utah                    JOHN ROSE, Tennessee
    ALEXANDRIA OCASIO-CORTEZ, New York   BRYAN STEIL, Wisconsin
    JENNIFER WEXTON, Virginia            LANCE GOODEN, Texas
    STEPHEN F. LYNCH, Massachusetts      DENVER RIGGLEMAN, Virginia
    TULSI GABBARD, Hawaii
    ALMA ADAMS, North Carolina
    MADELEINE DEAN, Pennsylvania
    JESUS ``CHUY'' GARCIA, Illinois
    SYLVIA GARCIA, Texas
    DEAN PHILLIPS, Minnesota

                       Charla Ouertatani, Staff Director
         Subcommittee on Consumer Protection and Financial Institutions

                      GREGORY W. MEEKS, New York, Chairman

    DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri,
    NYDIA M. VELAZQUEZ, New York             Ranking Member
    WM. LACY CLAY, Missouri              FRANK D. LUCAS, Oklahoma
    DENNY HECK, Washington               BILL POSEY, Florida
    BILL FOSTER, Illinois                ANDY BARR, Kentucky
    AL LAWSON, Florida                   SCOTT TIPTON, Colorado, Vice
    RASHIDA TLAIB, Michigan                  Ranking Member
    KATIE PORTER, California             ROGER WILLIAMS, Texas
    AYANNA PRESSLEY, Massachusetts       BARRY LOUDERMILK, Georgia
    BEN McADAMS, Utah                    TED BUDD, North Carolina
    ALEXANDRIA OCASIO-CORTEZ, New York   DAVID KUSTOFF, Tennessee
    JENNIFER WEXTON, Virginia            DENVER RIGGLEMAN, Virginia

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on:
        February 13, 2019............................................     1
        February 13, 2019............................................    59

                                   WITNESSES
                          Wednesday, February 13, 2019

    Barnette, Corey, Owner, District Growers, LLC & Metropolitan
      Wellness Center, Inc...........................................    17
    Deckard, Gregory S., President, CEO, and Chairman, State Bank
      Northwest, on behalf of the Independent Community Bankers of
      America (ICBA).................................................    15
    Franklin, Maj. Neill (Ret.), Baltimore City & Maryland State
      Departments; and Executive Director, Law Enforcement Action
      Partnership (LEAP).............................................    11
    Ma, Hon. Fiona, California State Treasurer.......................     9
    Perlmutter, Hon. Ed, a Representative in Congress from the State
      of Colorado....................................................     6
    Pross, Rachel, Chief Risk Officer, Maps Credit Union, on behalf
      of the Credit Union National Association (CUNA)................    13
    Talcott, Jonathan H., Chairman of the Board, SAM, Inc. (d/b/a
      Smart Approaches to Marijuana, Inc.)...........................    18

                                    APPENDIX

    Prepared statements:
        Barnette, Corey..............................................    60
        Deckard, Gregory S...........................................    62
        Franklin, Neill..............................................    68
        Ma, Hon. Fiona...............................................    71
        Pross, Rachel................................................    77
        Talcott, Jonathan H..........................................    87

                  Additional Material Submitted for the Record

    Meeks, Hon. Gregory:
        Written statement of the American Bankers Association........    97
        Written statement of Kevin Murphy, Chairman and CEO, Acreage
          Holdings...................................................   102
        Written statement of Americans for Safe Access...............   107
        Written statement of the American Property Casualty Insurance
          Association................................................   110
        Letter to Chairwoman Waters from the California Credit Union
          League and the Nevada Credit Union League..................   116
        Congressional Research Service report entitled, ``Marijuana:
          Medical and Retail--Selected Legal Issues,'' dated April 8,
          2015.......................................................   118
        Congressional Research Service report entitled, ``The
          Marijuana Policy Gap and the Path Forward,'' dated March
          10, 2017...................................................   161
        Letter to Hon. David Scott and Hon. Blaine Luetkemeyer from
          Eaze Solutions, Inc........................................   209
        Written statement of the Independent Insurance Agents and
          Brokers of America.........................................   230
        Written statement of John Kagia, Chief Knowledge Officer, New
          Frontier Data..............................................   232
        Written statement of Lauren R. Kohr, Senior Vice President
          and Chief Risk Officer, Old Dominion National Bank.........   238
        Written statement of Nick Kovacevich, Chairman and CEO,
          KushCo Holdings, Inc.......................................   243
        Letter to Hon. Gregory Meeks and Hon. Blaine Luetkemeyer from
          the National Association of Federally-Insured Credit Unions   245
        Written statement of Aaron Smith, National Cannabis Industry
          Association................................................   247
        Written statement of Paul Armentano, Deputy Director,
          National Organization for the Reform of Marijuana Laws.....   290
        Written statement of the Reinsurance Association of America..   294
        Written statement of Becky Dansky, Executive Director, Safe
          and Responsible Banking Alliance...........................   296
        Letter to Hon. Gregory Meeks from Jim King, Senior Vice
          President, Corporate Affairs, and Chief Communications
          Officer, ScottsMiracle-Gro Company.........................   301
        Letter from a groups of State Attorneys General..............   303
        Letter to Hon. Ed Perlmutter and Hon. Dennis Heck from
          Surterra Wellness..........................................   306
        Letter to Chairwoman Maxine Waters and Ranking Member Patrick
          McHenry from Trulieve......................................   311
    Lawson, Hon. Al:
        Letter from Florida Department of Agriculture and Consumer
          Services Commissioner Nicole ``Nikki'' Fried...............   312
    Luetkemeyer, Hon. Blaine:
        Written statement of David H. Carpenter, Legislative
          Attorney, Congressional Research Service, dated February
          13, 2019...................................................   313
        Letter to Senator Paul Ryan and Senator Mitch McConnell from
          the Faith & Freedom Coalition, dated December 6, 2017......   326
        Letter to Hon. Rodney Frelinghuysen, Hon. John Culberson,
          Hon. Nita Lowey, and Hon. Jose Serrano from members of the
          law enforcement community, dated May 16, 2018..............   328
        Letter to Hon. Rodney Frelinghuysen and Hon. Nita Lowey from
          the Major Cities Chiefs Association, dated June 8, 2018....   330
        Letter to Hon. Rodney Frelinghuysen and Hon. Nita Lowey from
          the National Fraternal Order of Police, dated May 17, 2018.   331
    McAdams, Hon. Ben:
        Letter from the State of Utah, Office of State Treasurer,
          dated February 11, 2019....................................   333
    Ocasio-Cortez, Alexandria:
        Letter from Hon. Fiona Ma providing additional information
          for the record.............................................   335
    Perlmutter, Hon. Ed:
        Amendment language...........................................   338
        Letter from Bruce Nassau, Partner, Lit Dispensary............   339
        Written statement of A. Marc Perrone, President, United Food
          and Commercial Workers International Union.................   340
        Written statement of Gaynell Rogers..........................   343
    Porter, Hon. Katie:
        Written statement of Lindsay Robinson, Executive Director,
          California Cannabis Industry Association...................   344
        Written statement of Henry Wykowski..........................   348
    Williams, Hon. Roger:
        Responses to questions for the record from Gregory S. Deckard   351
        Responses to questions for the record from Rachel Pross......   352

                        Challenges and Solutions: Access
                            to Banking Services for
                          Cannabis-Related Businesses

                                  ----------

                          Wednesday, February 13, 2019

                 U.S. House of Representatives,
                    Subcommittee on Consumer Protection
                            and Financial Institutions,
                               Committee on Financial Services,
                                                       Washington, D.C.
        The subcommittee met, pursuant to notice, at 2:15 p.m., in
    room 2128, Rayburn House Office Building, Hon. Gregory W. Meeks
    [chairman of the subcommittee] presiding.
        Members present: Representatives Meeks, Scott, Velazquez,
    Clay, Heck, Foster, Lawson, Tlaib, Porter, Pressley, McAdams,
    Ocasio-Cortez, Wexton; Luetkemeyer, Lucas, Posey, Barr, Tipton,
    Williams, Loudermilk, Budd, and Riggleman.
        Ex officio present: Representatives Waters and McHenry.
        Also present: Representatives San Nicolas and Davidson.
        Chairman Meeks. The Subcommittee on Consumer Protection and
    Financial Institutions will come to order.
        Without objection, the Chair is authorized to declare a
    recess of the subcommittee at any time.
        Also, without objection, members of the full Financial
    Services Committee who are not members of this subcommittee are
    authorized to participate in today's hearing.
        Today's hearing is entitled, ``Challenges and Solutions:
    Access to Banking Services for Cannabis-Related Businesses.''
        I now recognize myself for 5 minutes to give an opening
    statement.
        Let me just say to Ranking Member Luetkemeyer and members
    of this subcommittee, welcome to the first hearing of the
    Consumer Protection and Financial Institutions Subcommittee.
        Chairwoman Waters has set an ambitious agenda for the
    Financial Services Committee, which I look forward to working
    on and advancing. Our subcommittee has much work to do, and I
    look forward to working with all of you in a productive and
    bipartisan way to do the work we were sent here to do by the
    American people.
        Our committee is powerful not only because it touches our
    country's largest companies and Wall Street financial
    institutions but because its focus is to promote the economic
    well-being of Main Street, consumers, and investors.
        This subcommittee, in particular, has jurisdiction over
    important issues that directly impact every one of our
    constituents--issues that keep many parents up at night as they
    consider their family's finances. And, as is the case with
    today's hearing, these are issues that directly impact
    businesses of all sizes across the country.
        As we saw during the financial crisis, when financial
    institutions fail or fail in their responsibilities, Main
    Street suffers. However, when financial institutions are
    successful while being responsible and true stakeholders in
    their communities, Main Street and the American economy wins.
        Turning now to the subject of today's hearing, I welcome
    our witnesses and thank them for taking the time to provide
    valuable testimony on an important issue that has received far
    too little attention.
        There has been a rapid and dramatic shift in the legal
    treatment of cannabis, led by voters at the local and State
    level. Nearly every American now lives in a State where
    cannabis has been decriminalized to some extent and legal
    business activity is permitted to varying degrees.
        In New York, for example, Governor Andrew Cuomo is on the
    verge of enacting legislation to legalize recreational
    marijuana, which would have many benefits for the State of New
    York and its economy and law enforcement.
        But Federal drug laws and bank regulations have not evolved
    to reflect this new reality at the State and City level.
    Indeed, while the Justice Department's Cole Memo provided some
    guidance on the DOJ's focus on organized-crime aspects of the
    cannabis trade, Attorney General Sessions' reversal on this
    practice led to major disruption and uncertainty. It was
    encouraging to hear Attorney General-nominee Barr state that,
    if confirmed, he intended to follow the guidance of the Cole
    Memo.
        Similarly, the FinCEN guidance on banking activity as it
    relates to cannabis helped provide a beginning of clarity for
    banks. The absence of a broader, permanent regulatory framework
    continues to keep nearly all banks out of this growing
    industry, despite a clear interest. As a result, entrepreneurs
    operating legally within the bounds of State and local laws
    bear the burden of a punitive Tax Code, high compliance
    hurdles, the lack of basic financial services, and significant
    security risk.
        Today's hearing will allow us to begin consideration of
    draft legislation to bring transparency and accountability, and
    to address a major driver of violent crime in this space.
        As we do so, I wish to recognize the work of our colleagues
    Mr. Perlmutter from Colorado, Mr. Heck from Washington, Mr.
    Stivers from Ohio, and Mr. Davidson from Ohio, who have worked
    on a bipartisan basis on legislation which I believe can pass
    and get to the President's desk for signature.
        This bill, the SAFE Banking Act, is one of several
    opportunities we will have in this committee to pass meaningful
    legislation to allow financial institutions to better serve our
    constituents and address important matters of consumer
    protection.
        Before I close, I want to remind all of my colleagues as
    well as the witnesses that this hearing is specifically about
    banking and financial services for cannabis-related businesses.
    We will not litigate the Controlled Substances Act, the
    benefits of medicinal cannabis, or any other issues that are
    outside of the jurisdiction of this committee.
        I now recognize Ranking Member Luetkemeyer for his opening
    statement.
        Mr. Luetkemeyer. Thank you, Mr. Chairman.
        Before I begin, I would like congratulate Mr. Meeks on his
    role as our chairman of this subcommittee. We have served
    together on this committee for nearly a decade, and while we
    may not always agree on everything, I am confident we will be
    able to find common ground in many instances.
        And I look forward to working with you, sir.
        Today we are discussing an issue that we can all agree must
    be addressed. As changing State laws spur the formation of
    thousands of cannabis-related businesses across the country, I
    have heard from many banks and credit unions who are facing the
    decision of whether they can or cannot get involved with these
    businesses.
        For the last 6 years, I have fought alongside my colleagues
    on this committee to ensure all legal businesses in the United
    States have access to financial services. Operation Choke
    Point, which sought to deprive legal businesses of the services
    they need to survive, has seen bipartisan opposition over the
    years. Today, however, we are having a very different
    conversation. Today we are discussing the merits of allowing
    federally illegal businesses to access banking services.
        First and foremost, we must remember we are dealing with an
    illegal industry at the Federal level. As far as I know, the
    House Financial Services Committee does not have jurisdiction
    over descheduling a drug. And, in my opinion, we are putting
    the cart before the horse by addressing this issue here in the
    Consumer Protection and Financial Institutions Subcommittee
    before the drug is descheduled.
        But I do welcome the broader conversation.
        The biggest question we face is what would happen if this
    proposed legislation was actually signed into law. How do we
    separate legal growers from bad actors attempting to access
    financial services?
        Our current anti-money-laundering regime is already
    woefully inadequate, and until we modernize the Bank Secrecy
    Act and anti-money-laundering regulations, it would be
    irresponsible to open up our financial institutions to another
    major challenge.
        Similar questions arise regarding FDIC insurance and the
    movement of money between States that have not legalized
    marijuana.
        In this committee, the question of when to allow States the
    prerogative to make decisions for themselves seems to be on a
    case-by-case basis. My colleagues who are morally opposed to a
    legal service, such as small-dollar loans, will fight tooth and
    nail to ensure the States have no leeway to make their own
    decision. Yet, here we are acquiescing to the decision of some
    States fighting to provide banking services to a federally
    illegal industry.
        The bottom line is that the law, not personal preferences,
    must dictate the accessibility of financial services. And as
    long as marijuana is illegal at the Federal level, attempts by
    this committee to legalize the banking of it will create more
    confusion than clarity.
        There is a solution to this. The hemp industry solved this
    problem last fall. They descheduled the drug, and now they can
    grow, manufacture, and distribute their drug. Opioids is a
    grown chemical that we now allow for medicinal purposes but we
    do not allow for recreational purposes.
        The DOJ has confused this situation by being unwilling to
    support descheduling and yet not being willing to enforce the
    Federal law. This is like having a stoplight at a major
    intersection right out here on Pennsylvania Avenue and the
    light gets turned off. What do you have? Confusion and chaos.
    And that is what we have today in the banking industry.
        And while Mr. Perlmutter has a solution, I am concerned
    that it is going to create more confusion than it solves. The
    reason for the light, just like the reason for laws, is to put
    structure in our society so things can take place, so that
    businesses can operate. And yet here we are because enforcement
    is not in place to make this happen.
        Now, throughout my life, as I have gone through the
    educational system, civics classes have always said that
    Federal law trumps State law. And until that changes, until the
    Supreme Court says that the Constitution is a list of
    suggestions instead of the law, I believe that we probably
    can't do much today other than realize that we have a problem
    and that we can solve it by descheduling the drug. Then we can,
    I think, go on to Mr. Perlmutter's solution.
        With that, I do have another--if the chairman will permit
    me just 1 minute here, I would like to thank the witnesses who
    are coming later on today for taking the time to testify, and I
    look forward to a very robust discussion.
        Unfortunately, we are missing an important voice on the
    matter today.
        Mr. Chairman, it has been a longstanding practice of this
    committee to allow the Minority a second witness when the
    Majority has five or more witnesses. Today, the new Majority
    has decided to deviate from this practice, which has been in
    place since Barney Frank's chairmanship.
        The Minority identified two well-qualified experts who were
    willing to testify today. It is unfortunate that this committee
    will miss the opportunity to hear testimony from and question
    one of our nonpartisan expert attorneys from the Congressional
    Research Service (CRS).
        David Carpenter has prepared testimony which addresses the
    impact of the SAFE Banking Act, and what impact it could have
    on Federal law, and Mr. Carpenter's testimony gives an overview
    of the existing landscape as it relates to marijuana banking.
    It also highlights the regulatory and supervisory uncertainty
    that could result from passage of the SAFE Banking Act.
        Mr. Carpenter's role with CRS is to take a middle-ground,
    nonpartisan stance and provide nonbiased, factual answers to
    any of the committee's financial banking concerns.
        Without objection, I ask unanimous consent that Mr.
    Carpenter's testimony be entered into the record.
        With that, I will yield back.
        Chairman Meeks. Without objection, it is so ordered.
        [The prepared statement of Mr. Carpenter can be found on
    page 313 of the appendix.]
        Chairman Meeks. I now acknowledge Mr. Heck for 2 minutes
    for an opening statement.
        Mr. Heck. Thank you, Chairman Meeks.
        To my colleagues, the witnesses, and guests in the
    audience, I want to thank you all for coming to this vitally
    important hearing.
        I want to take note, however, that you are late. We are all
    late. It has been 6 years since, under the leadership of
    Congressman Perlmutter--and I am very grateful to be joined in
    this effort by Congressmen Stivers and Davidson--that we have
    introduced this bill and pounded the table and warned about the
    risk to public safety from all-cash businesses. We asked for
    hearings, and we were met with silence.
        And in the time since, we have reintroduced the bill every
    year. We have renewed our warnings. We have sent letters. We
    have held rallies. And, yes, we have even disrupted markups.
        But today, after 6 years, we finally have a hearing. And it
    comes too late--too late to prevent dozens of armed robberies
    in my home State of Washington; too late for Travis Mason,
    whose picture you see before you, a 24-year-old Marine veteran
    in Aurora, Colorado, who reported for work as a security guard
    at the Green Heart Dispensary on June 18, 2016, and was shot
    dead that night by an armed robber; too late for his widow,
    Samantha; too late for his three small children--the twins,
    Aidyn and Daisy, and their baby brother, Julian.
        Travis reported to work that day, I want you to know, full
    of excitement, because he had recently learned he was going to
    be able to take the test for which he had been studying hard,
    for the Denver Police Department at the upcoming July 12th
    exam.
        Nearly every witness today has testimony about the
    dangerous position we put store owners and their employees in
    by forcing them to do all of their business in cash. But we,
    right here, today, this committee, can fix this.
        And so I look forward to hearing from the witnesses and
    taking their comments to refine our discussion draft and then
    moving swiftly to markup and to the House Floor. We have the
    power in this committee to prevent murders and armed robberies,
    and we must use it. We must use it now, because we are already
    late.
        Thank you, Mr. Chairman. I yield back.
        Chairman Meeks. I now yield 2 minutes to the ranking member
    of the full Financial Services Committee, the gentleman from
    North Carolina, Mr. McHenry.
        Mr. McHenry. Thank you, Mr. Chairman. And thanks for
    holding this hearing today.
        I consider Representative Perlmutter to be a person of
    goodwill, a serious legislator who wants to fix problems.
        Ed, congratulations on this hearing today. I know you have
    worked hard on this.
        But regardless of where you fall in this cannabis debate,
    on the issue of marijuana, we have conflicting State and
    Federal law that we have to resolve. And that conflict between
    State and Federal laws creates enormous confusion, especially
    for financial institutions.
        For any statute to work, we have to look at current Bank
    Secrecy Act statutes as well as anti-money-laundering rules,
    know-your-customer requirements, and suspicious activity report
    filing requirements. At a minimum, they have to be adapted in
    order for this proposed statute to work. There is an enormous
    amount of work that has to go into making this achieve the
    outcome that it seeks.
        If we want to engage in that process, I think you will find
    folks of goodwill on both sides of the aisle. This includes law
    enforcement, those people who are enforcing and going through
    suspicious activity reports and analyzing the data on money
    laundering. I think those folks have to be included in this
    process as well.
        But we need to have wider inputs, not a limited, one-panel
    conversation, in order to move to a markup that will come to a
    good result for the 33 States that have undertaken something
    that is expressly counter to what is current Federal law.
        And we have to understand this is a wider discussion than
    just our Financial Services discussion, that this is a larger
    societal discussion, in order to achieve the outcome that
    Congressman Perlmutter and many others want to see result from
    legislation.
        I yield back.
        Chairman Meeks. We will now turn to our witnesses. For our
    first panel, I welcome the testimony of Representative
    Perlmutter of Colorado.
        Representative Perlmutter has been one of the earliest
    champions in Congress for addressing the issue we are
    considering today. And as a Colorado Member of the House, and
    longstanding member of the Financial Services Committee, Mr.
    Perlmutter has an excellent grasp of the issues at play and has
    worked diligently to build a bipartisan coalition, in
    partnership with our colleagues here today--Mr. Heck, Mr.
    Stivers, and Mr. Davidson--in drafting the SAFE Banking Act. He
    is now recognized for 5 minutes to testify.

     STATEMENT OF THE HONORABLE ED PERLMUTTER, A REPRESENTATIVE IN
                  CONGRESS FROM THE STATE OF COLORADO

        Mr. Perlmutter. Thank you, Mr. Chairman, Ranking Member
    Luetkemeyer, and members of the subcommittee.
        Today's hearing is a big deal. It is a big deal for
    thousands of employees and businesses across this country who
    have been put at risk because they have been forced to deal in
    piles of cash while Congress stuck its head in the sand for the
    last 20 years.
        Forty-seven States plus the District of Columbia have
    spoken and have legalized some form of recreational or medical
    marijuana, including cannabinoid oil; 318.2 million people live
    in these 47 States. That is 97.7 percent of the population,
    including every State represented by every member of this
    Financial Services Committee.
        Colorado and Washington voters were among the first States
    to legalize medical and recreational marijuana. And I want to
    thank Representative Heck for his partnership through the years
    on this. And I also want to thank my friends, Steve Stivers and
    Warren Davidson, for their support and cosponsorship of the
    SAFE Banking Act.
        Our Federal laws were designed to prevent illicit activity
    and help law enforcement do their jobs. The fact is the people,
    the voters in States and localities all across the country are
    legalizing some level of marijuana use, and we need these
    marijuana-related businesses and employees to have access to
    our banking system.
        It will improve transparency and accountability and help
    law enforcement root out illegal transactions to prevent tax
    evasion, money laundering, and other white-collar crime. Most
    importantly, though, it will help reduce the risk of violent
    crime in our communities. These businesses and their employees
    become targets for crime, robbery, assault, and more by dealing
    in all cash.
        Mr. Heck mentioned Travis Mason, a young security guard and
    former Marine who was killed in a robbery in Aurora, Colorado.
    Another recent robbery in Denver saw the assailant put a gun
    into the employee's mouth and walk out with over $20,000 in
    cash. We have received dozens of other stories from marijuana
    businesses all across the country who have faced similar crimes
    and have had their bank accounts closed and have had to deal in
    cash only.
        These stories are why we have drafted the SAFE Banking Act.
    This bill would create a safe harbor for financial institutions
    and their employees who choose to do business with a marijuana
    company.
        It would protect ancillary businesses, like real estate
    owners, accountants, vendors, and contractors, by clarifying
    that the proceeds from legitimate cannabis businesses are not
    unlawful under money-laundering laws or any other banking law.
    And it maintains the flexibility of the Financial Crimes
    Enforcement Network (FinCEN) by requiring continued filing of
    suspicious activity reports.
        Our bill helps put these transactions into the system,
    which helps law enforcement do their job to catch the real bad
    guys.
        In summary, Mr. Chairman, if someone wants to oppose the
    legalization of marijuana, that is their business. But the
    American voters have spoken and continue to speak, and the fact
    is you can't put the genie back in the bottle. Prohibition is
    over.
        Our bill is focused solely on taking cash off the streets
    and making our communities safer. And only Congress can take
    these steps to provide this certainty for businesses and
    financial institutions across the country.
        And, with that, I yield back.
        Chairman Meeks. Thank you, Mr. Perlmutter.
        I now will empanel panel number two.
        But first, I yield to the chairwoman of the full Financial
    Services Committee, the gentlewoman from California, Ms.
    Waters, for 1 minute.
        Chairwoman Waters. Thank you very much.
        Mr. Chairman and members, I am prepared to raise a few
    questions. But, actually, I want Mr. Perlmutter to know that
    the real reason that I came to this hearing today is I just
    wanted to witness his moment in the sun on this issue based on
    all of the time and effort that he has put into dealing with
    the cannabis issue and the way that he has educated all of us
    and everything that he has done in Colorado that gives him the
    experience to be able to lead on this issue.
        So to Mr. Perlmutter in particular, and Mr. Heck, and
    others, thank you so very much.
        I want to address a question to the Honorable Fiona Ma,
    California State Treasurer.
        Ms. Ma, thank you for coming today.
        And I want to know if it is okay at this point in time or
    do you want to wait until after they actually make their
    statements and--
        Chairman Meeks. Yes, let them testify, and--
        Chairwoman Waters. Thank you very much.
        Chairman Meeks. --then we will open for questions.
        Let me introduce and welcome the witnesses today. And I
    will introduce them all now, and then we will go one by one.
        Our first panelist is the Honorable Fiona Ma, who is the
    Treasurer of the State of California.
        Ms. Ma has a distinguished career in politics and in public
    service. Among her many achievements, she has served as
    majority whip and speaker pro tem in the California State
    Assembly. And as State Treasurer, she is responsible for the
    stewardship of the State of California's finances.
        As State Treasurer and a member of the State Board of
    Equalization, Ms. Ma has had a unique vantage point to
    understand firsthand the challenges to State governments and to
    businesses of addressing the lack of banking services for
    cannabis-related businesses and the difficulty in addressing
    this issue at the local and State level without Federal action.
        Next, is Major Neill Franklin, who is the executive
    director of the Law Enforcement Action Partnership (LEAP).
        Mr. Franklin retired as a 34-veteran of both the Maryland
    State Police and the Baltimore Police Department, where he
    oversaw 17 separate drug task forces. He has served as an
    official representative for the Law Enforcement Action
    Partnership since 2007 and as executive director since 2010.
        Mr. Franklin's testimony is especially important as we
    consider the serious safety and security risks that emerge from
    the absence of banking services to cannabis businesses,
    effectively making them an all-cash business.
        And I will yield to Mr. Heck to introduce our next witness.
        Mr. Heck. It is my pleasure, Mr. Chairman--thank you--to
    introduce Greg Deckard, who is the president, CEO, and chairman
    of State Bank Northwest in Spokane, Washington. He is also the
    past chair of the Independent Community Bankers of America's
    (ICBA's) Policy Development Committee and currently chairs the
    Legislative Issues Committee. He is, in addition to all of
    that, the past chairman of the Community Bankers of Washington
    State.
        I want you to know three quick things about him. Number
    one, he braved incredible weather to get here. We are calling
    it the ``Northwest Snowmageddon.'' Number two, he has the
    phenomenally good taste to share my particular support and
    obsession with Gonzaga basketball. And, number three, he is not
    just a friend of mine, he is a good friend.
        We are honored to have him here. He is everything you would
    hope and think a community banker would be.
        Thank you, Mr. Chairman.
        Chairman Meeks. I would also like to introduce Ms. Rachel
    Pross, who is the chief risk officer for Maps Credit Union of
    Oregon and is speaking today on behalf of the Credit Union
    National Association (CUNA).
        Ms. Pross has an accomplished career in credit unions and
    was a Credit Union Times Woman to Watch honoree in 2014 and was
    awarded the NWCUA's Young Credit Union Professional of the Year
    in 2015.
        Ms. Pross brings a unique perspective to this hearing,
    representing one of the very few banks willing to provide
    financial services to cannabis businesses, and, therefore,
    speaking firsthand of the challenges of navigating and
    complying with the existing regulatory and oversight framework.
        Then, we have Mr. Corey Barnette, the owner of District
    Growers Cultivation Center and Metropolitan Wellness Center.
        Mr. Barnette is, as I said, the owner of the District
    Growers Cultivation Center and Metropolitan Wellness Center.
    And, by his own description, Mr. Barnette is an engineer-
    turned-investment-banker-turned-venture-capitalist.
        In 2008, he participated in the acquisition of the San
    Diego Medical Collective, a dispensary in San Diego,
    California, which they grew to become one of the largest in San
    Diego, serving over 16,000 patients and producing a third of
    the medicine provided.
        Mr. Barnette sold the California business and founded
    District Growers in Washington, D.C., and also acquired the
    Metropolitan Wellness Center, becoming the largest dispensary
    operator in Washington, D.C.
        And as a small-business owner and one of the few minority
    business owners of cannabis businesses, Mr. Barnette brings a
    unique perspective as an operator dealing with the realities of
    lack of access to financial services.
        And, finally, we have Mr. Jonathan H. Talcott, who is a
    partner at Nelson Mullins, where he is the chair of the
    Securities Practice Group. He previously chaired the Corporate
    and Transactional Group and served as managing partner of the
    Washington, D.C., office.
        He has worked on a variety of public and private security
    offerings, including initial public offerings, secondary
    offerings of common stock, senior subordinated and high-yield
    debt offerings, and trust preferred securities offerings, and
    has worked on more than 100 offerings, raising in excess of $10
    billion during the course of his career.
        Mr. Talcott is also chairman of the NGO Smart Approaches to
    Marijuana, which advocates against the use of marijuana.
        Each of you will be recognized for 5 minutes. And, without
    objection, your written statements will be made a part of the
    record.
        Now, I welcome the testimony of Ms. Ma.

    STATEMENT OF THE HONORABLE FIONA MA, CALIFORNIA STATE TREASURER

        Ms. Ma. Thank you very much, Chairman Meeks, Chairwoman
    Waters, and members of this subcommittee. Thank you for
    offering me this opportunity to appear here before you today.
        My name is Fiona Ma. I am a licensed CPA who is proud to
    serve as California's 34th State Treasurer. As the State's
    banker, $2.3 trillion goes through my office. I oversee $85
    billion in bonds and $92 billion in short-term investments for
    the State as well as local governments.
        In addition, I chair 16 boards, commissions, and
    authorities that provide financing for our schools, roads,
    housing, levies, public facilities, and other crucial
    infrastructure projects that help better the lives of
    Californians.
        I began serving in government in 1995 as a staff member to
    the former California State Senator John Burton, who also
    served in the U.S. Congress. In 2002, I got elected to the San
    Francisco Board of Supervisors and moved on to serve as
    majority whip and speaker pro tem in the California State
    Assembly, passing 60 pieces of legislation under 2 Governors,
    and 3 speakers, during the Great Recession from 2006 to 2012.
        In 2014, I was elected to the State Board of Equalization,
    one of the two principal tax collection agencies in our State
    where cannabis dispensaries are supposed to collect and remit
    sales taxes. Duffel bags and sometimes suitcases of cash would
    arrive quarterly at some of our designated offices, and some
    folks had to drive 350 miles just to pay their taxes. I asked
    how much we collected from the cannabis industry, and my agency
    really didn't know since tax revenues are commingled and
    deposited with other cash tax payments.
        I participated in educational tours in Humboldt, Mendocino,
    and Trinity Counties in California, also known as the Emerald
    Triangle, where legal outdoor harvest can generate up to $474
    million annually in revenue. To better educate myself and my
    staff about barriers and challenges, we held public stakeholder
    meetings about transportation, track and trace, and banking.
    Many business owners didn't know the local and State filing
    requirements, and many didn't even file their tax returns. We
    were concerned with the public safety surrounding all-cash
    businesses and we heard many off-the-record stories.
        Eventually, it became starkly clear that the big elephant
    in the room was lack of banking access.
        Additionally, we traveled to Colorado, Washington, and
    Canada and met with executives of their respective tax
    collection departments to discuss their experience with this
    emerging industry around banking.
        According to the Colorado Department of Revenue, overall
    cannabis revenue has increased dramatically, from approximately
    $68 million in 2014 to over $266 million in 2018.
        Additionally, Washington State has also seen a significant
    tax collection increase of $130 million from 2016 to 2017, when
    the State collected $319 million in excise taxes. Sales of
    legal cannabis in Washington have skyrocketed, from $259
    million in Fiscal Year 2015 to $1.3 billion in Fiscal Year
    2017. To put that in perspective, that is a 500-percent growth
    in 2 years.
        Now, we get to California. With nearly 40 million residents
    and more than a million medical cannabis patients, California's
    market represents about a third of the North American cannabis
    market.
        In the first three quarters after legalizing adult-use
    cannabis in November 2016, we collected approximately $228
    million in tax revenue. The cannabis market in California alone
    is expected to exceed $5.1 billion in overall revenue in 2020,
    according to an Archive Market Research and BDS Analytics
    report.
        This same report highlighted that the legal cannabis market
    could triple over the next 4 years, being worth as much as $32
    billion globally. The U.S. will fuel a majority of this
    revenue, and it is critical that we accommodate the magnitude
    of this economic uptake with access to banking for this new
    State-regulated industry.
        And since I only have 5 minutes, I was going to talk about
    the medicinal industry starting in San Francisco, but I see
    that my time is short, so I would like to just say that we are
    here in support of some sort of safe harbor for banks engaged
    in this industry, which we strongly support.
        And as one of the Members mentioned, the Cole Memo was
    suspended, and it is and has been creating a lot of confusion.
        So, again, we supported the SAFE Banking Act, which was
    originally introduced in 2017 by Congressman Perlmutter. The
    SAFE Banking Act would provide a safe harbor for those
    federally regulated or federally insured banks and credit
    unions wishing to accommodate cannabis businesses in my State
    and 32 others which have approved the use of cannabis in some
    form or another. This is a necessary step, represents a
    positive evolution of public policy, and exhibits a commonsense
    approach to the problems I have described.
        So I would be happy to answer any questions. And we have
    submitted my testimony for the record. Thank you very much.
        [The prepared statement of Ms. Ma can be found on page 71
    of the appendix.]
        Chairman Meeks. I now recognize Major Franklin for 5
    minutes.

     STATEMENT OF MAJOR NEILL FRANKLIN (RET.), BALTIMORE CITY AND
    MARYLAND STATE POLICE DEPARTMENTS; AND EXECUTIVE DIRECTOR, LAW
                  ENFORCEMENT ACTION PARTNERSHIP(LEAP)

        Major Franklin. Chairman Meeks, Chairwoman Waters,
    distinguished members of the committee, thank you very much for
    the opportunity to present the views of the Law Enforcement
    Action Partnership (LEAP) in support of this legislation.
        LEAP's mission is to unite and mobilize the voice of law
    enforcement in support of drug policy and criminal justice
    reforms that will make our communities safer. ``LEAP envisions
    a world in which criminal justice and drug policies keep our
    communities safer.'' This is a quote directly from our website,
    and that quote is exactly what this hearing is about. It is
    about enacting policy that will dramatically enhance public
    safety within our communities.
        Representative Perlmutter addressed the wishes of the
    people, so I will move beyond that. I think we know what that
    is.
        This is not a niche business market. It is a significant
    part of our economy. Licensed marijuana businesses are
    legitimate contributors to our economy. It follows that
    regulated banking, vendor relations, payroll, and tax payments
    should be permitted as part of that legitimacy--a condition
    that will further serve to dismantle the illicit market's
    influence in this growing industry and help local economies.
        Current conditions, which require all-cash transactions,
    for the most part, in every aspect of the business encourage
    tax fraud, money laundering, and, most importantly, leave
    legitimate businesses vulnerable to theft, robbery, and the
    violence that accompanies those crimes. The SAFE Banking Act
    presents us with an opportunity to greatly assist in
    stabilizing the industry and enhancing public safety.
        As more legitimate businesses are established,
    opportunities for cash robberies will increase. As more
    dispensaries come online, securing cash onsite, transporting
    cash to secure locations and managing cash payrolls are
    necessities for this business.
        And criminal entities are quite adept at conducting high-
    level reconnaissance of businesses and their security protocols
    when they know that businesses will have tens of thousands and,
    in some cases, hundreds of thousands of dollars on hand.
        Although extremely important for business owners and the
    people they employ, my greatest fear is not the loss of profit
    due to theft. It is the potential for serious assaults and
    death to the people attempting to protect that cash who are
    merely responsible for it. I fear dispensary employees being at
    great risk.
        I fear for the safety of those transporting the cash, and I
    fear for the well-being of employees on payday. Two weeks of
    pay for one employee can easily exceed a couple or a few
    thousand dollars. That one employee trying to get home safely
    from work is an attractive soft-target score for any criminal,
    and it is a very easy target for those who know what to look
    for.
        Beyond any concern for protecting profit, we have a duty to
    protect the lives of community members working to earn a
    living. In 2012, Melinda Haag, the U.S. Attorney for northern
    California, said this, ``Marijuana dispensaries are full of
    cash and they're full of marijuana and everybody knows that.
    They are at risk of being robbed, and many of them are--''
        Here's an example. In October 2012, three people kidnapped
    the owner of a lucrative dispensary in Orange County,
    California. According to court documents, the assailants zip-
    tied the victim, tortured him, and drove him to a patch of
    desert where they believed that he buried large sums of money.
    When the kidnappers couldn't find it, they burned him with a
    blowtorch, cut off his penis, and doused him with bleach before
    dumping him along the roadside.
        And, yes, there is Travis Mason, as well, from Colorado.
        Casing the next target is about finding the softest target.
    And I know this. Four of my years in policing I spent
    interviewing hundreds of career criminals in our Division of
    Corrections in the State of Maryland, and I know what they look
    for. They look for that soft target, and the current conditions
    of this industry have created many soft targets.
        We, the police, teach target hardening when we conduct
    security assessments for businesses. Our advice to them is not
    to have large amounts of cash on hand, to make use of credit
    and debit card services, avoid routine trips to the bank, and
    to make use of armored car services. This valuable crime
    prevention 101 advice is literally useless to many marijuana
    business owners, making them attractive soft targets.
        What I testify to here today is rooted in experience and
    research. Any police officer who has worked the street or
    investigated enough robberies will testify to the same
    regarding any businesses forced to handle large amounts of
    cash.
        As I conclude, members of the committee, it is up to you
    and other Members of Congress to act upon this legislation
    establishing access to banking for legitimate marijuana
    businesses. The safety of thousands of employees, business
    owners, security personnel and police officers, and community
    members is in your hands.
        On behalf of myself and the Law Enforcement Action
    Partnership, I thank you for this opportunity. And, obviously,
    we support the SAFE Banking Act.
        Thank you.
        [The prepared statement of Major Franklin can be found on
    page 68 of the appendix.]
        Chairman Meeks. Thank you for your testimony.
        Ms. Pross?

      STATEMENT OF RACHEL PROSS, CHIEF RISK OFFICER, MAPS CREDIT
       UNION, ON BEHALF OF THE CREDIT UNION NATIONAL ASSOCIATION
                                 (CUNA)

        Ms. Pross. Chairman Meeks, Ranking Member Luetkemeyer,
    members of the subcommittee, thank you for this opportunity to
    testify.
        My name is Rachel Pross, and I am the chief risk officer of
    Maps Credit Union. Maps is a midsized financial cooperative in
    Salem, Oregon. I am testifying on behalf of CUNA, the Credit
    Union National Association. CUNA represents both State and
    Federal credit unions and their 115 million members in America.
        Maps has approximately $750 million in assets and serves
    over 65,000 member owners in the Willamette Valley of Oregon.
    As a community-focused organization, we have experienced
    firsthand the many challenges facing both financial
    institutions and State-sanctioned cannabis businesses seeking
    to operate within the financial mainstream.
        Though Maps has no position on cannabis legalization, we
    acknowledge that the Oregon voters have already spoken on that
    issue.
        Accordingly, after extensive research and risk analysis in
    2014, our member-elected volunteer board of directors voted to
    serve cannabis businesses for two primary reasons: first, to
    serve the underserved, which speaks to the credit union mission
    and philosophy as a not-for-profit financial cooperative; and,
    second, to enhance the safety of our community by removing
    large amounts of cash from the streets.
        To our knowledge, Maps is the only financial institution in
    Oregon that has continuously served the cannabis industry since
    2014. Today, we bank approximately 500 State-sanctioned
    cannabis businesses. That makes our program one of the largest
    in the United States.
        In terms of safety, statistics show that cash-only business
    only increases the risk of crime. This is especially true in
    the cannabis sector given the lack of access to just basic
    financial services.
        A 2015 study found that, in the absence of being banked,
    one in every two cannabis dispensaries were robbed or
    burglarized. Compare that to Maps Credit Union. In the past 2
    years, we have received over $500 million in cash deposits from
    cannabis businesses. And that is $500 million removed from
    Oregon's sidewalks that used to be carried around in backpacks
    and shoeboxes by legitimate, legal business owners in our
    State.
        Cannabis banking can be done safely and effectively. Maps
    Credit Union is the perfect example. As part of our initial
    evaluation and ongoing monitoring of cannabis-related accounts,
    we collect extensive corporate and financial records and
    conduct criminal background checks on all account signers. That
    information is scrutinized to ensure the activity on the
    account is completed in accordance with State laws and the
    FinCEN guidance.
        Maps has established a rigorous screening and compliance
    protocol and has invested considerably in the robust
    infrastructure required to appropriately monitor and maintain
    these high-risk accounts. Our team of dedicated professionals
    averages 1 employee for every 40 cannabis business accounts.
        Our Bank Secrecy Act and anti-money-laundering compliance
    program has been repeatedly reviewed by financial regulators.
    And we also obtain an independent external compliance audit of
    our program annually.
        Most importantly, Maps files quarterly suspicious activity
    reports, or SARs, on every cannabis-related business account.
    Today, over 90 percent of our SAR filings are related to
    cannabis businesses. We prioritize those SARs to identify any
    accounts we suspect could be engaged in illegal activities.
        Even financial institutions who choose not to bank the
    cannabis industry still risk unknowingly serving those
    businesses in States where cannabis is legal. Indirect
    connections are often difficult to identify and avoid because
    growers and retailers don't operate in a vacuum. Like every
    other industry, they work hand-in-hand with vendors and
    suppliers. These are Main Street businesses, like the printing
    company that makes a business card, the landlord that rents
    office space, and even the utility company that provides water
    or electricity.
        Under the existing status quo, a credit union that does
    business with any one of these indirectly affiliated entities
    could unknowingly risk violating Federal law.
        The SAFE Banking Act would protect financial institutions
    and the community. In the absence of a Federal law providing
    explicit legal clearance for financial institutions to provide
    banking services to the cannabis industry, it is highly likely
    that many of these businesses will be forced to operate in the
    underground economy. That increases the potential of lost tax
    revenue and crime. It also deprives law enforcement of
    important information about cannabis-related financial
    activity.
        In conclusion, we strongly believe that financial
    institutions should be permitted to lawfully serve businesses
    that engage in activities that are authorized under their State
    laws, even when such activity may be inconsistent with Federal
    law.
        We need Congress to provide financial institutions who
    choose to serve State-sanctioned cannabis businesses with a
    safe harbor. For that reason, credit unions support the SAFE
    Banking Act.
        Thank you for the opportunity to testify today.
        [The prepared statement of Ms. Pross can be found on page
    77 of the appendix.]
        Chairman Meeks. Thank you.
        Mr. Deckard?

    STATEMENT OF GREGORY S. DECKARD, PRESIDENT, CEO, AND CHAIRMAN,
     STATE BANK NORTHWEST, ON BEHALF OF THE INDEPENDENT COMMUNITY
                       BANKERS OF AMERICA (ICBA)

        Mr. Deckard. Thank you, Congressman Heck, for the very kind
    introduction. It is very good to see you, Denny.
        Chairman Meeks, Ranking Member Luetkemeyer, and members of
    the subcommittee, I am Greg Deckard, president, CEO, and
    chairman of State Bank Northwest, a local community bank in
    Spokane, Washington, with $145 million in assets.
        I am testifying today on behalf of the Independent
    Community Bankers of America. I am pleased to provide the
    perspective of thousands of community banks, such as mine, that
    operate in the majority of States that have legalized some form
    of cannabis use.
        The current conflict between State and Federal law has
    created a cloud of legal uncertainty for community banks,
    inhibited access to the banking system for cannabis-related
    businesses, or CRBs, and created a serious public safety
    hazard.
        As you know, Washington and Colorado were the first States
    to legalize cannabis for recreational use in 2011. Today,
    Washington State has issued licenses for well over 500 cannabis
    retailers and over 1,000 growers.
        Every one of these businesses remains illegal under the
    Federal Controlled Substances Act, which puts cannabis in the
    same category as heroin or LSD.
        At this time, my bank has chosen not to serve CRBs. While
    this issue is complex, we have determined that the legal,
    compliance, and regulatory risks are simply too great for my
    bank. We owe it to our community to ensure that our bank
    remains solid and stable and that we remain in good standing
    with our Federal regulators.
        With regard to a bank providing cannabis-related financial
    services, FinCEN guidance does provide some assurances for
    banks that follow the agency's heightened suspicious activity
    reports, or SAR, guidelines. These SARs effectively charge
    banks with the ongoing monitors of the CRBs for law
    enforcement. Banking the cannabis industry is complex and goes
    well beyond the compliance associated with any other type of
    banking relationships.
        ICBA supports the SAFE Banking Act, a bipartisan bill
    sponsored by Representatives Perlmutter, Heck, Stivers, and
    Davidson, which would provide that, in States where cannabis is
    legal, Federal banking regulators may not threaten or limit a
    bank's deposit insurance, downgrade a loan, prohibit or
    discourage the provision of banking services, or take any other
    prejudicial action solely because a bank customer is a CRB,
    direct or indirect, as we have seen with Operation Choke Point.
        Without a statutory safe harbor for banks that serve legal
    CRBs, bankers feel the politics could shift against cannabis.
    The Justice Department's recision of the Cole Memo in 2018, for
    example, signaled abrupt disfavor of the legal cannabis
    industry and the banks that serve it.
        It is telling that banks that choose to serve CRBs are
    required to have an exit plan to unwind those relationships, a
    requirement that does not exist for any other category or
    service or industry.
        For community bankers, the risk extends beyond direct
    cannabis businesses to the licensed growers, processors, and
    retailers. Any vendor of a direct CRB is effectively an
    indirect CRB, which also presents a risk to banks. This could
    even include plumbers, landlords, or bookkeepers who offer
    their services to the broader public and whose customer base,
    knowingly or unknowingly, includes CRBs.
        For example, my bank cannot, without incurring additional
    risk and heightened compliance burden, serve our regional
    utility provider because it provides power to the CRBs, which
    raises a question: How many degrees of separation from cannabis
    do I as a banker have to investigate and monitor to ensure
    compliance with Federal law? Many bankers may not know that
    they are even involved with cannabis.
        I hope that I have given you a sense of the full scope of
    the legal and regulatory compliance quagmire faced by
    communities banks in States that have legalized cannabis. While
    a small number of institutions have chosen to assume the risk
    of serving CRBs, the cannabis industry remains cash-intensive
    and creates a potentially grave public service hazard.
        We recognize this is a complex issue for all stakeholders.
    However, an effective statutory safe harbor for banks that
    offer services to CRBs that comply with State law would offer
    the needed clarity for those banks that choose to bank CRBs, as
    well as for their examiners, and will serve the goal of
    enhancing public safety.
        ICBA urges this committee to consider the SAFE Banking Act,
    which would create such a safe harbor. ICBA supported this
    legislation in the last Congress and plans to support it again
    upon reintroduction.
        I would like to clarify, however, that our support for the
    SAFE Banking Act should not be viewed as support for
    legalization. ICBA, including myself, makes no moral or
    scientific judgments regarding cannabis use.
        Thank you again for the opportunity to testify today. We
    look forward to working with the committee to advance the SAFE
    Banking Act. I am happy to answer any questions you may have.
        [The prepared statement of Mr. Deckard can be found on page
    62 of the appendix.]
        Chairman Meeks. Thank you.
        Mr. Barnette?

      STATEMENT OF COREY BARNETTE, OWNER, DISTRICT GROWERS, LLC &
                   METROPOLITAN WELLNESS CENTER, INC.

        Mr. Barnette. Chairman Meeks and members of the committee,
    thank you for inviting me today to discuss banking services to
    the cannabis industry.
        My name is Corey Barnette. I have lived here in Washington,
    D.C., since 1999 and I currently own District Growers
    Cultivation Center and the Metropolitan Wellness Dispensary,
    both of which are licensed and located here in Washington, D.C.
        The medical cannabis industry in Washington, D.C., is
    incredibly, incredibly well-regulated. There are mandatory
    licensing, background checks, financial disclosures, video
    surveillance, alarm systems, seed-to-sale tracking, RFID tags,
    child-resistant packaging, labeling and testing regulations,
    and routine and random inspections. The same is the case
    throughout many States that have these laws.
        In essence, our businesses are safe. Our owners are well-
    vetted and should be a welcome addition to efforts to dismantle
    cannabis prohibition.
        However, we are crippled by Federal regulations on banking
    that serve to stifle sanctioned operators while simultaneously
    buttressing the illicit markets that regulators are actually
    targeting.
        The issue of access to banking is acutely concerning to
    business owners like me. A large majority of the country has
    access to legal medical cannabis, and 10 States, including
    Washington, D.C., have legalized cannabis for adult use.
    However, there is still no federally approved system for
    businesses to perform typical duties like pay salaries, service
    customers using credit cards, access working capital loans, pay
    bills, or, effectively, pay taxes.
        The current system serves to create a public safety
    disaster. It advantages the illicit markets. It hassles
    employees and service providers seeking to do business with the
    industry. It makes tax collection overburdensome and serves
    highly to stifle the growth of the industry altogether.
        In terms of safety, business owners are often forced to
    operate completely in cash, making the businesses and their
    customers incredibly vulnerable to robberies and threats. Many
    dispensaries have hired on-site armed security guards, maintain
    excessive on-site security infrastructure, and utilize armored
    cars and armored trucks in order to transport cash. However,
    the problem of large cash reserves anywhere creates an enormous
    headache and a significant threat to the public safety.
        For the Federal Government, the system is a disaster too.
    Like my firm in the past, many cannabis businesses bounce from
    bank to bank, opening accounts, only to have them randomly
    closed within weeks. As a result, law enforcement and
    regulators struggle to preserve and insure a system that is
    transparent. Payment of Federal and State taxes is made
    difficult. Ancillary service providers are unable to work with
    the industry because they don't want to take excessive amounts
    of cash. And many employees have had their bank accounts closed
    and are often denied basic services that we all enjoy, like
    getting a mortgage, using credit cards, or having personal
    banking services, just simply for working in the industry.
        It should be noted that the absence of the participation of
    banks is also particularly hard on small and minority-owned
    businesses. Mom-and-pop businesses and minority-owned
    businesses traditionally look first to bank loans as a method
    of financing the start and the growth of their businesses.
    Without bank participation, the hurdle to entry is
    substantially higher for this segment of owners. Restrictions
    on banking serve to create a barrier that only the wealthy can
    overcome.
        In short, nobody benefits from the system, with the
    exception of private security firms and the super-wealthy
    operators that exist out there.
        Fixing the banking issue is a crucial part of fixing the
    broken system of cannabis prohibition, but it is far from the
    only issue we need to resolve. In recent years, I have been
    involved in numerous campaigns, and have spoken on many panels,
    including here in Congress, about the need to increase
    diversity in the cannabis industry. Despite cannabis arrests
    falling largely on the backs of people of color, this vibrant
    industry has often closed its doors to those very same
    communities.
        Congress should tackle the banking issue. I applaud the
    efforts around the SAFE Banking Act. But it should also do so
    in a way that includes other reforms, like the need for
    expungement of criminal records, investments in communities
    impacted most by the war on drugs.
        Banking is an important piece of the puzzle, but it is only
    a small step on the road to dismantling cannabis prohibition.
    We have to be bold if we are to solve problems for the
    communities that we serve.
        Thank you.
        [The prepared statement of Mr. Barnette can be found on
    page 60 of the appendix.]
        Chairman Meeks. Thank you for your testimony.
        And last but not least, Mr. Talcott, you are recognized for
    5 minutes.

     STATEMENT OF JONATHAN H. TALCOTT, CHAIRMAN OF THE BOARD, SAM,
            INC. (d/b/a SMART APPROACHES TO MARIJUANA, INC.)

        Mr. Talcott. Chairman Meeks and Ranking Member Luetkemeyer,
    thank you very much. I am honored to give testimony about the
    SAFE Banking Act of 2019.
        I wanted to say that I thoroughly agree with everything
    that Ranking Member Luetkemeyer said. I also wanted to say that
    I am very how--do I put it? I am the only one here who is
    opposed to the SAFE Banking Act, and I feel a little lonely
    having to address some of the issues. So I am going to try to
    get through them quickly.
        Chairman Meeks was kind enough to introduce me.
    Unfortunately, he focused on my law firm. Actually, I am not
    speaking on behalf of my law firm. I am speaking on behalf of
    Smart Approaches to Marijuana. We are a 501(c)(3) that is
    dedicated to educating people about the dangers associated with
    marijuana and its legalization.
        I have also served the community banking community for a
    long, long time, as a lawyer both at Nelson Mullins and at
    Alston & Bird. I also work with investment banks, many of whom
    would like to get into this business.
        Finally, I also worked at a bank. I worked at JP Morgan for
    a period of time and worked as a regulator during the savings-
    and-loan crisis at the Office of Thrift Supervision.
        I have heard a lot of conversations up here about the
    dangers associated with cannabis and having it sold when there
    is money that is going to change hands in the form of cash. I
    wanted to say I also speak on behalf of people who have been
    the victims of cannabis, who have been the victims of
    marijuana.
        I am here, actually, because I got involved in this issue
    because my little sister, Mary, started smoking pot after my
    father died. She developed schizophrenia, and she died young at
    the age of 42. I am also here on behalf of my cousin, who
    picked up a pot-smoking habit in high school that led her to
    opioids, and she died of a heart attack at the age of 20.
        As anybody knows who has read Alex Berenson's recent book,
    there are a lot of dangers associated with cannabis. As a
    matter of fact, it is very well-established that smoking
    marijuana can, in a small subset of people who do so, develop
    psychosis, and psychosis often leads to violence and violent
    crime.
        I would like to take one moment to say what I think of the
    drafting of this particular legislation. I was told that that
    is one place I should focus my attention.
        As you can see from my submitted testimony, I think you
    really need to address the Controlled Substances Act and its
    prohibition on marijuana, its scheduling of it as a Schedule I
    drug, before any of the proposed changes and safe harbors would
    be effective.
        Suffice it to say, there is probably universal agreement on
    the fact that the Controlled Substances Act as a Federal law,
    as Representative Luetkemeyer said, preempts all the State
    laws. So, technically, everybody who is involved in the
    cannabis industry nationally now is committing a Federal
    felony.
        Until that is changed, any changes to the Bank Secrecy Act
    (BSA) or, related, the anti-money-laundering statutes (AMLs),
    won't get us very far. I think that that is kind of--I don't
    want to give you a roadmap to how to make this work, but if
    everybody in this room wants legalization to go forward, the
    place to start is with the Controlled Substances Act.
        I also want to point out that, if this legislation were to
    pass, it would do nothing more than reinforce a trend that has
    already occurred in those States that have legalized.
        We have a serious problem with the black market in every
    State that has announced that it is legalizing pot for
    recreational use. There is a shadow economy going on that is
    using the front of legitimacy to make money illegally. This is
    why tax revenues in certain States are less than they should
    be. After all, if you didn't pay taxes when you were selling
    pot illegally before, why should you pay taxes now?
        So we see, in Oregon, they estimate that 70 percent of the
    transactions were to have occurred on the black market. Even
    Governor Hickenlooper in Colorado talked about the problems
    with the black market. You even have problems in California,
    where Mexican drug cartels are propping up black-market
    marijuana farms all across northern California.
        I think that it is worth mentioning these things because we
    need to be very careful about how we proceed in this area. If
    we want to discourage the black market, which I think we all
    want to do, then we need to be much more straightforward about
    how we approach this issue. We need to change the scheduling of
    marijuana, if that is what people want to do, and then go about
    putting in place the appropriate banking regulations.
        I think that it is important, as a last point, to say that
    I don't think everybody in the country wants marijuana to be
    legalized for recreational use. As a matter of fact, most
    surveys that include the option of decriminalization show that
    it is a minority of people who would like recreational
    marijuana. I think what it really comes down to is this is a
    public health issue, not a banking law issue.
        Thank you have very much.
        [The prepared statement of Mr. Talcott can be found on page
    87 of the appendix.]
        Chairman Meeks. Thank you.
        I ask now, without objection, to enter into the record 22
    statements from various associations, credit unions, banking
    associations, State attorneys general, and banking alliances.
        Without objection, it is so ordered.
        And I now recognize myself for 5 minutes for the purpose of
    asking questions.
        Let me start out with Ms. Pross and Mr. Deckard.
        What do you see as the most immediate impact for your
    respective organizations if and when passage of the SAFE Act or
    its equivalent is passed?
        Ms. Pross. Thank you, Mr. Chairman.
        I think the most immediate impact that we would see is a
    significantly reduced legal risk. That is something that we
    deal with every day, knowing that we have this tremendous legal
    risk of serving the industry.
        I also think it would have a significant impact on the
    credit unions that we are instructing on how to do cannabis
    banking in compliance with the FinCEN guidance. The risk of
    criminal prosecution is a huge barrier for them, and they have
    the same goal of wanting to increase safety in their
    communities. And I think we could have a really powerful impact
    if there were legal protections in place.
        Chairman Meeks. Mr. Deckard?
        Mr. Deckard. In Washington State, there are three banks and
    three credit unions that provide banking services to the
    cannabis industry. I am aware of several other banks in the
    State that, if there was some clarity provided and a safe
    harbor created for institutions, there would be more entrance
    into the cannabis banking market.
        As Ms. Pross had indicated, the clarification of the legal
    risks and regulatory risks and compliance risks also factor
    into a bank's decision of whether to engage in that line of
    work or not. And something that each bank has to consider in
    their own risk model, what their tolerance is. But I do believe
    that the immediate impact would be that you would have more
    institutions being willing to serve as a result of the safe
    harbor.
        Chairman Meeks. Thank you.
        And, Mr. Barnette, as a minority business owner, what has
    been your experience with respect to the industry's diversity
    and inclusion and access to startup and working capital and the
    ease of doing business, especially small businesses?
        Mr. Barnette. Sure.
        In the way of access to capital, it is difficult for small
    businesses, particularly those that come from disadvantaged
    communities and communities that have been impacted
    significantly by the war on drugs.
        For the most part, when these owners are granted licensing,
    the hurdles to get over the regulatory requirements just to
    open your doors can oftentimes be several hundred thousand
    dollars, never mind the cost of build-out and things of that
    nature.
        In the past, most of these business owners would have,
    perhaps, gotten a second mortgage on their house or would have
    taken out a loan using whatever assets they have available to
    them via their, perhaps, family trust or savings or anything of
    that nature.
        However, the absence of banking prevents that altogether.
    And so it is very difficult for communities that don't have
    access to sort of, let's say, hedge fund money or wealthy
    benefactors to actually get the investment capital needed to
    actually start their businesses in the space without the help
    of banks, at least to fill in whatever gaps they have.
        The first part of your question, do you mind repeating it?
        Chairman Meeks. Well, I just wanted to know your experience
    with respect to diversity in the industry.
        Mr. Barnette. So, in my company, I can tell you that we
    have a very diverse labor force. We have made that a policy. We
    believe that our labor force should be reflective of the
    communities that we serve, both patients on the medical side as
    well as should we find ourselves in a recreational market, that
    we should actually make it a point to bring people in the
    business who actually live and work around our companies.
        To that end, what we have done is, within a 1-mile radius
    is where we typically recruit first. And we try to hire most of
    our labor force within a 5-mile radius of our businesses.
        My business here in Washington, D.C., I am proud to say, is
    staffed with 100 percent D.C. residents: 80 percent of our
    people are people of color; and about 60 percent of our
    employee base are women. And we have a portion of our employee
    base who is also homosexual. So we have a very diverse labor
    force that is reflective of the D.C. community.
        Chairman Meeks. Thank you.
        Let me ask Ms. Ma quickly, can you summarize in a few words
    why you believe that only Federal action will resolve the
    issues?
        Ms. Ma. Yes.
        In California, we have been trying to pass many pieces of
    legislation to either work around, go around, patch this issue
    of banking access. And we have come to the conclusion that we
    really need Congress to act. And having a safe harbor for banks
    is probably the most expeditious way of getting more folks out
    of the black and gray markets and into the legitimate markets.
    By not having banking access, it also affects many other
    critical impacts. For example, if you don't report any income,
    you may not be liable for any child support or any alimony
    payments. If you are being paid by cash, you are clearly not
    going to be putting in all of your taxes for Social Security,
    so may not be eligible later on.
        And then also the impact of folks not reporting, for
    example, domestic violence incidences because they are scared
    that the police are going to come into their homes or their
    businesses. So there is a lot of social impacts that are also
    affecting the communities by not having access to banking.
        Chairman Meeks. Thank you very much.
        I now recognize the distinguished ranking member for 5
    minutes for questions.
        Mr. Luetkemeyer. Thank you, Mr. Chairman.
        I request unanimous consent to submit letters from the
    National Fraternal Order of Police, the Faith and Freedom
    Coalition, and the Major Cities Chiefs Association in
    opposition to marijuana banking into the record.
        Chairman Meeks. Without objection, it is so ordered.
        Mr. Luetkemeyer. Thank you.
        I am kind of curious. I go back to my opening statement
    when I think this whole situation revolves around the fact that
    we have Federal law trumping State law. And we have a situation
    where we are going to muddy the water a little bit more here
    with the bill in front of us.
        And for those individuals in front of us today representing
    your different entities, it would seem to me that the hemp
    industry showed us--and the gentleman from Kentucky can talk
    about that here in a minute--last fall how to solve this
    problem by descheduling that substance.
        So I ask the question of each of you. Ms. Ma, have the
    States asked the Department of Justice, the Attorney General,
    who is in charge of overseeing the Controlled Substances Act,
    as Mr. Talcott indicated--have you talked to them about asking
    us, Congress, to do something about this and, in particular,
    the Judiciary Committee?
        Ms. Ma. I believe so. I am just starting my fifth week in
    this position. Prior to that, I was the tax collector in
    California, so I do believe we have been--
        Mr. Luetkemeyer. The States have done this?
        Ms. Ma. I know State treasurers, my former predecessor,
    Treasurer John Chiang, did sign a letter with other State
    Treasurers in other States.
        Mr. Luetkemeyer. To the Attorney General?
        Ms. Ma. Yes, asking the Attorney General--
        Mr. Luetkemeyer. Have you contacted a member of the
    Judiciary Committee, the committee that has jurisdiction over
    the Controlled Substances Act?
        Ms. Ma. I personally have not. But I know past
    administrators have. We do have a new Governor. And I will
    follow up and send--
        Mr. Luetkemeyer. So it would seem to me that is where we
    need to start.
        Mr. Franklin, you are talking about law enforcement
    officers.
        Have law enforcement officers contacted the Department of
    Justice, the Attorney General, and asked him to contact and
    support a change in this law, and gone to the Judiciary
    Committee to do so?
        Major Franklin. We have. Our organization has.
        Mr. Luetkemeyer. You have talked to the Attorney General?
        Major Franklin. We have sent letters, yes.
        Mr. Luetkemeyer. Have you sent letters to the Judiciary
    Committee to ask them to reconsider this, to look at it?
        Major Franklin. To my knowledge, no.
        Mr. Luetkemeyer. Ms. Pross, credit unions, have you
    contacted the Attorney General and asked him to support
    descheduling a drug, and contacted the Judiciary Committee to
    make a change?
        Ms. Pross. No, we haven't.
        And I just want to clarify that I am not a cannabis expert
    or a Controlled Substances Act expert. I am a regulatory
    compliance expert for the financial industry.
        Mr. Luetkemeyer. Okay. Well, if you are regulatory and
    compliance, you know how this works. You have to have a law;
    you have to enforce the law, or you else you can change the
    law, one or the other.
        Mr. Deckard, ICBA, have they contacted the Department of
    Justice and asked them to support changing this law, and asked
    the Judiciary Committee to make the changes?
        Mr. Deckard. I am not aware that we have.
        But, again, it is important for me reiterate that ICBA
    takes no position on the legalization of cannabis on either the
    moral or scientific thing, so I am not sure if they have
    contacted--
        Mr. Luetkemeyer. That solves your problem, though. Right
    now, you are put in the crosshairs, and so we need to solve the
    problem one way or the other, in my judgment.
        Mr. Barnette?
        Mr. Barnette. Yes.
        Mr. Luetkemeyer. Have the Growers contacted the Department
    of Justice and asked them to support--
        Mr. Barnette. The Growers have not. I personally, actually,
    am a member and my company is a member of several organizations
    in the cannabis industry, like the National Cannabis Industry
    Association and several others, that have gone to the extent of
    actually not only asking the Department of Justice and several
    other branches of the government that actually have policies
    that are restrictive to our industry to find methods of
    actually easing them.
        And so, yes, that is a very active, ongoing request. And
    what is more, we have been supportive and have actually paid
    for lobbyists to come up and speak to you here in Washington,
    D.C., as you probably already know. It is actually Congress
    that is stopping the District from actually legalizing and
    putting together a recreational market right now.
        Mr. Luetkemeyer. Congress is in charge of--and this is the
    problem we have is that the States have jumped the gun here.
    They should be contacting their Members of Congress as they are
    contacting Mr. Perlmutter, and we should be initiating this
    change if it is wanted, if it is desired. People in my State
    have not contacted me about doing this yet, so I am waiting for
    somebody to say so.
        But I guess it goes back to--we have many problems here.
    And I guess, Mr. Talcott, one quick question.
        What about FDIC deposit insurance--or Mr. Deckard--FDIC
    deposit insurance. Is that going to insure the deposits of
    these kind of illegal transactions, illegals funds in your
    bank?
        Mr. Deckard. FDIC insurance supplies to the deposits in my
    bank up to the limits, and--
        Mr. Luetkemeyer. Does it apply for funds that have been
    obtained illegally?
        Mr. Barnette. To my knowledge, it is legal in the State of
    Washington under Initiative 502, and--
        Mr. Luetkemeyer. Under the Federal law, it is still an
    illegal drug, so you are involved in illegal drug transactions.
    So my question is, does the FDIC insure deposits that have been
    obtained illegally?
        Chairman Meeks. The gentleman's time has expired.
        Mr. Barnette. The deposits in the banks that are banking
    the cannabis industry are FDIC-insured up to the limits for
    those deposits--
        Chairman Meeks. The gentleman's time has expired.
        Let me just remind the gentleman that we are here to talk
    about banking. This committee only has jurisdiction over the
    banking aspects of it. And the purpose of this hearing is
    simply so that we could understand the banking aspects of
    cannabis and to make sure about the public safety and what that
    entails.
        I am going to allow Chairwoman Waters to ask questions.
    There are votes on the Floor. And so, after the questions of
    Chairwoman Waters, we will adjourn and come back immediately
    after votes--we will recess. Excuse me. We will recess and come
    back immediately after votes.
        But I yield 5 minutes to the chairwoman.
        Chairwoman Waters. Thank you very much, Mr. Chairman.
        This question is directed to the Honorable Fiona Ma,
    California State treasurer.
        Thank you for your very thorough testimony. And I think you
    very well described that the clash between Federal law and
    State law in the cannabis industry presents an especially
    difficult problem for States such as California. You went on to
    talk about a working group that you had belonged to who
    actually considered establishing a State-backed financial
    institution devoted exclusively to the cannabis business. But
    after all of that work, it was decided that it would be better
    if we could have a safe harbor for banks who are dealing with
    the cannabis industry.
        If we don't get it done here in Washington, D.C., do you
    think the working group would say we have to do something and
    they will go back to the whole idea of exploring establishing a
    State bank financial institution?
        Ms. Ma. Thank you, Chairwoman Waters.
        Yes. The report did say that States can establish their own
    State public banks, such as North Dakota as well as America
    Samoa. But it would take a long time and a lot of money to
    capitalize a bank.
        And, yes, I said the most expeditious way would be for this
    committee and Congress to act to allow banks to continue to
    follow the FinCEN guidelines, fill out their SARs reports,
    their AAM--know their customers, AML reports. And that would
    create the safest, quickest solution to the issues that many
    States are facing right now.
        Chairwoman Waters. Thank you.
        And you also added that to do that would improve the
    efficiency of collecting the taxes and fees we use to regulate
    the industry, does not allow banks and credits unions to
    totally abdicate their responsibilities to know their
    customers, on and on and on.
        You have made a really strong case here for why it makes
    good sense to have a safe harbor and why you, and California,
    are supporting the SAFE Banking Act. So there are about 300
    financial institutions that are following the FinCEN guidelines
    and doing all the reporting and accepting cannabis clients. But
    that is clearly not enough. And that is why we are here. If
    they could get a safe harbor provision, then I think more banks
    would consider banking the industry.
        Thank you very much.
        And, Mr. Chairman, let me thank you for making this your
    very first hearing. This is so important. So many people have
    been waiting on it. I appreciate it so much.
        And I yield back the balance of my time.
        Chairman Meeks. Thank you.
        The committee will now pause for votes and resume
    immediately after.
        The committee now stands in recess.
        [recess]
        Chairman Meeks. The hearing is now in order. And I think
    where we are now is I recognize the gentleman from North
    Carolina, Mr. McHenry, for 5 minutes.
        Mr. McHenry. I thank the witnesses for taking this long
    break. I hope you are still attuned to the subject matter we
    are dealing with. But I want to talk a little more--get back
    into the details of this.
        And so, Mr. Deckard, Ms. Pross, we are talking about
    legislation that would allow financial institutions to operate
    in direct conflict with Federal law.
        Are either one of you banking lawyers by trade or primarily
    involved in regulation of your institutions?
        Ms. Pross. I am not an attorney, no.
        Mr. McHenry. All right.
        Mr. Deckard?
        Mr. Deckard. I am not, no.
        Mr. McHenry. Okay. I just wanted to check before I started
    getting to these questions for disclosure purposes.
        So, as an institution, when you have those two conflicts
    between Federal and State law, that creates uncertainty, does
    it not?
        Mr. Deckard. Correct.
        Ms. Pross. It does.
        Mr. McHenry. And we are trying to resolve that uncertainty
    with changes to the Federal law, correct?
        Mr. Deckard. Correct.
        Mr. McHenry. Okay. So how do you limit risks to financial
    institutions if you have a law that still leaves the rest of
    the Federal regulatory scheme opposed to what you are doing as
    an institution? How would you resolve that as an institution?
        Mr. Deckard. I think that has been a difficult thing for
    each financial institution to do their own cost-benefit
    analysis and determine what the risks are and what benefits are
    derived from being involved in the banking of the industry.
        My particular bank, we are not involved in banking--
        Mr. McHenry. Right.
        Is there reputational risk? Is there a question about
    reputational risk?
        Mr. Deckard. I believe there is a reputational risk, sure.
        Mr. McHenry. And not just regulatory but reputational and
    compliance risk.
        Okay. Ms. Pross?
        Ms. Pross. Yes. Certainly. There is reputational risk and
    legal risk. And we certainly understand the risks and
    challenges that financial institutions are facing with this
    issue, and we understand positions like the financial
    institution of Mr. Deckard, that they choose that this is not
    worth that risk.
        But from Maps Credit Union, we had the FinCEN guidance, and
    that is not safe harbor, but it is guidance on how to comply
    with reporting requirements for banking this industry, and it
    really came down to an issue of community safety.
        Mr. McHenry. Right.
        And so, because of that guidance, you had three different
    ways to have a suspicious activity report, right?
        Ms. Pross. Correct.
        Mr. McHenry. And how you disclose that, right?
        Ms. Pross. We file--yes.
        Mr. McHenry. How many SARs have you filed over the last 12-
    month period, roughly?
        Ms. Pross. In the last 2 years, we filed approximately
    3,000 suspicious activity reports.
        Mr. McHenry. So, a massive amount.
        Ms. Pross. Correct.
        Mr. McHenry. A massive amount.
        And there are regulatory costs associated with that.
        Ms. Pross. Sure.
        Mr. McHenry. But the reputational risk piece, your
    institution resolved that. In your community, you resolved the
    reputational risk, right?
        Ms. Pross. We did.
        Mr. McHenry. Because it is a State-regulated product, and
    you resolved that reputational risk piece?
        Ms. Pross. Yes, I believe we have.
        Mr. McHenry. So are you familiar with Operation Choke
    Point?
        Ms. Pross. I am.
        Mr. McHenry. Okay. Mr. Deckard?
        Mr. Deckard. Yes.
        Mr. McHenry. Operation Choke Point focused on reputational
    risk, State-regulated products, also federally recognized as
    lawful, and yet you had Federal regulators trying to force
    institutions to stop doing things that comply with both State
    and Federal law.
        It is difficult to see how we flipped this conversation to,
    in essence, mandate institutions to do something that is in
    conflict with the Federal law without resolving the substance
    of the Federal law, which is the classification of the product
    you are using, right?
        Ms. Pross. My understanding is that the SAFE Banking Act
    does not mandate any financial institution to provide
    services--
        Mr. McHenry. I am not saying that. But it makes it an opt-
    out rather than an opt-in situation for institutions.
        So, going back to this, do you think that this legislation
    as it is currently written resolves those issues for you to
    engage in this?
        Mr. Deckard, you are not currently engaged in it. We passed
    this law. Does that resolve this for your institution?
        Mr. Deckard. It resolves the lack of clarity regarding how
    a Federal regulator could come in--
        Mr. McHenry. Have you checked with your insurers about
    that?
        Mr. Deckard. Yes.
        Mr. McHenry. And your insurers would be comfortable
    insuring--
        Mr. Deckard. I'm sorry. Have I checked with our insurers
    about this bill? No, I have not.
        Mr. McHenry. Correct. Okay.
        So there is a lot to be resolved, a lot of questions,
    including the reputational risk question that in most
    communities would come down to a different understanding just
    based off of where they are, right? The 33 States and the
    difficulties of each individual State's version of regulation
    of this, much less the 17 States that have no form of this. Do
    you see that as a major challenge for us legislating in this
    area? I think so.
        I yield back.
        Chairman Meeks. The gentleman's time has expired.
        Mr. Scott is now recognized.
        Mr. Scott. Thank you very much, Mr. Chairman.
        I would like to ask who was putting up the map on the
    screen. Yes, there it is. Right there. I want us to put our
    attention on that map because I think it points out the great
    necessity and importance that we need to do in getting Mr.
    Perlmutter's bill enacted. I listened very attentively to Mr.
    Talcott and others on the other side, and speaking about the
    debate on this issue of marijuana.
        But the point is the people of America have already spoken.
    Just look at that map. And it gives you the reason why we need
    this bill more than anything else we could say. Up there, it
    says that 47 States, the people in 47 States in this Nation
    have said that at some level, they are accepting the use of
    marijuana.
        Now, there is nothing we can do about that but to try to
    bring some significant regulation properly that reflects the
    concerns of the American people. If we don't do that, we will
    have a tremendous safety issue if we don't bring this.
        And that is why I am just proud to work with Mr. Perlmutter
    on this. And I hope that we all can see the value of that. It
    is a safety issue. And then it becomes an issue of, how do we
    regulate it, because I think the issue is basically this, that
    some of the States, 47 of them, have accepted in some form or
    another the acceptance of legalization of the use of marijuana
    for the American people. But without having some uniformity, it
    creates a tremendous problem of uncertainty as well as safety.
        Now, Ms. Pross, I would like for you to comment for a
    moment because I think that you really hit the nail on the
    head. Could you please tell us--it is SARs, correct?
        Ms. Pross. Correct.
        Mr. Scott. --that have to be performed. Tell us how
    problematic that is and the added pressure of complications
    that this issue brings.
        Ms. Pross. So the suspicious activity reports are outlined
    in the FinCEN guidance, and those are the requirements laid out
    for us. There are three different types of SARs. There are
    marijuana-limited SARs for activity that appears to be
    operating within the guidelines of State law. There are
    marijuana priority SARs, which are the SARs that we are
    flagging if we suspect that there could be some illicit
    activity going on. And then there are marijuana termination
    SARs that we would file if we needed to terminate an account
    relationship because of either failure to communicate with us
    and allow us to have it transparently in our compliance program
    or if there is activity that could indicate a serious concern
    about violating the law.
        Mr. Scott. Thank you very much.
        There are two other points I want to make that really give
    a sense of urgency here.
        We have what is called transaction payments, credit cards,
    debit cards. How do we intercede them into our banking and
    financial system? And how does the transaction payment caucus
    industry react to that? How do we bring them into the flow?
        This is basically a cash business. But how long before now
    they will be paying with credit cards or debit cards? Where are
    we there?
        In my final 30 seconds, I want to call to our memory, 85
    years ago, we had a similar problem with alcohol. But this
    Nation rose to the occasion, and we responded. Just think if we
    hadn't. There were people then who were saying, ``Well, we
    don't like liquor,'' just like many people are now saying, ``We
    don't want marijuana.'' But it is here just as surely as
    alcohol was.
        But we responded to that, and we were able to do that in a
    very meaningful way at a very critical time. And I think we had
    the wherewithal to do this with Mr. Perlmutter's bill.
        Thank you.
        Chairman Meeks. The gentleman's time has expired.
        Mr. Posey is recognized for 5 minutes.
        Mr. Posey. Thank you, Mr. Chairman. And thank you for
    holding this hearing today.
        The discussion draft bill that we have before us today, as
    you probably already know, is titled the Secure and Fair
    Enforcement Banking Act of 2019. And as you know, it basically
    is to encourage banks to have the ability to deal with people
    who dispense marijuana or sell marijuana or whatever.
        And to me, fair would mean repealing Operation Choke Point,
    which prohibits banks from doing businesses with--or for doing
    business or allowing businesses--banks to do business with
    businesses the government doesn't like. And now I guess the
    government is going to like your business, the marijuana
    business, but they are still not going to like a lot of other
    legal businesses that are legal in every single State. In my
    district, they are not going to like or allow banks to do
    business with somebody that manufactures weapons for our
    military because they don't like guns.
        So I am just wondering if any of you--we can start on the
    left end--could just tell me one iota of a reason that this
    makes sense, that it is honorable, that it is fair, that I
    should support something like this when we can't get this kind
    of support for legal businesses?
        Ms. Ma?
        Ms. Ma. I believe the gentleman up there, Mr. Scott, said,
    first off, that 47 States have passed it, some form of it. And
    so we at the State level are dealing--
        Mr. Posey. No. No. No. I mean, why it makes sense to do
    this and not do other businesses that are absolutely legal,
    have been legal in every State since 1776.
        Okay. Next one. You don't have a good reason.
        Yes, sir?
        Major Franklin. So, from my perspective of public safety,
    it is all about the cash that is out in our communities and
    these businesses. So any business, from my perspective, that is
    dealing in large amounts of cash needs a process to eliminate
    that.
        Mr. Posey. I agree.
        Major Franklin. So that is--
        Mr. Posey. I agree. That is why I just wonder why the fair
    banking act, the SAFE Act, doesn't repeal Operation Choke
    Point, which prohibits legal businesses that are legal in every
    State for over 200 years to do business with them.
        Ms. Pross?
        Ms. Pross. I agree with the comments that Major Franklin
    made. I think that this issue is these are--these cannabis
    businesses--we are certainly not taking a position on
    legalization of cannabis. But they are, by nature, very cash-
    intensive businesses. And we are talking millions of dollars of
    cash that is unbanked.
        Mr. Posey. Well, so are the other businesses. I mean, they
    are cash-intensive too. Just why should we single out the
    cannabis suppliers and nobody else from Operation Choke Point?
        Mr. Deckard, can you give me a good reason?
        Mr. Deckard. Well, community bankers around the country
    have to make a decision of the risk and return of entering any
    line of business. So there is no mandate. There is no opt-out.
    It is a choice of the bank to live in an uncertain environment
    of the conflict between Federal law and what is a legal
    licensed business, in my case, in the State of Washington, so--
        Mr. Posey. Okay. But maybe I didn't make it clear.
        I am hoping that one of you can tell me why we should
    encourage banks to do business with cannabis sellers and not
    with other legal businesses that have been legal for over 200
    years in this country because the government doesn't like those
    people.
        Mr. Deckard. I don't feel--
        Mr. Posey. Why should we single this business out? I am
    trying to understand the bill. The bill title is, ``Fair and
    Equitable.'' And I don't see anything fair and equitable when
    we take one segment of the market now that hasn't been able to
    do business like they want that is cash-intensive, but we still
    don't include the other businesses that have been legal for
    years that are very cash-intensive as well.
        Mr. Barnette?
        Mr. Barnette. Congressman, I believe that all the time we
    pass laws that are designed to target one industry or one
    sector of our economy without reference or giving precedence to
    the other sectors of our economy. We don't have to look any
    further than the tax laws in order to see that there are
    certain preferences given to certain industries.
        Right now, this bill gives you the opportunity to address a
    huge safety issue, and as someone who has been--
        Mr. Posey. Reclaiming my time, because I am almost out.
        Mr. Talcott, can you give me a reason?
        Mr. Talcott. I totally agree with you.
        Chairman Meeks. The gentleman's time has expired.
        Mr. Clay, for 5 minutes.
        Mr. Clay. Thank you, Mr. Chairman.
        And let me thank the witnesses for your participation in
    this hearing today.
        Let me start with Mr. Deckard.
        I understand your bank does not accept cannabis businesses
    as customers. And why is that?
        Mr. Deckard. For a multitude of reasons. First and foremost
    is that we do not want to take the risk exposure of the actions
    that Federal regulators could take depending on what the
    politics of the moment are versus what the laws of the State of
    Washington are.
        So, again, nobody is encouraging us to participate in this
    line of business. But we have made a choice that, based upon
    the ambiguity of the statutes, the cost-benefit, the size of my
    market, the size of my bank, the risk-reward aspects of all
    those things, that when the law was first passed, we determined
    there was too much uncertainty for us to engage.
        Mr. Clay. Let me ask you, have you had to cut ties with any
    customers as a result of them getting involved with the
    cannabis business?
        Mr. Deckard. We have not.
        Mr. Clay. Okay. How many of your agricultural customers
    have considered entering the marijuana business and consulted
    with you?
        Mr. Deckard. I am not aware of any agricultural customers
    that have contemplated that. We have had some requests to open
    accounts from clients in our metropolitan area, and we have
    respectfully declined to open those.
        Mr. Clay. If you had better guidance from Federal
    regulators with banks, would you then participate in the
    market?
        Mr. Deckard. I think that we would get past that initial
    risk of having the threat of civil money penalties or me even
    barred from the industry. I mean, my board of directors, who
    are investors in the bank, take on that risk. So, if you
    eliminate that, we certainly would reconsider a cost-benefit
    analysis on the rest of the issues that are related to it.
        Mr. Clay. Thank you for that response.
        And, Mr. Barnette, how does oversight work in the District
    of Columbia for cannabis businesses?
        Mr. Barnette. We are very heavily regulated. We are
    subjected to routine random inspections, and we are required to
    conform to a lot of regulatory oversight on behalf of the
    Department of Health and several other departments in the
    District of Columbia regularly.
        Mr. Clay. Okay. Thank you for that.
        Let me ask Ms. Ma, can you talk to us about limitations to
    employees who work in the cannabis business who--as far as
    regular banking is concerned, say, when they go to buy a home,
    a car, student loans, do they encounter--
        Ms. Ma. Yes.
        Mr. Clay. --difficulties.
        Ms. Ma. Yes. As we all know, a lot of what we talk about is
    our FICO credit rating. And they always tell us the best way to
    get a good rating is to get a credit card, buy things on your
    credit card, and pay them off. Well, these folks don't have an
    opportunity to even do that.
        So trying to get an apartment where you are supposed to
    fill out an application based on your income, you don't have
    any, based on your tax return, you don't have any. And the list
    goes on. An auto loan, a student loan, a home mortgage, all of
    these things depend on having credit, establishing credit,
    having a bank account, filing a tax return. And all of this is
    very, very difficult for an industry that is barred from even
    opening up one bank account to start even that process.
        Mr. Clay. So you are saying potential creditors
    discriminate; they are fearful of engaging with a potential
    customer because of the origins of the income?
        Ms. Ma. Right. This is why we believe this bill is very
    necessary because it gives the banks that safe harbor and some
    security in entering this industry and accepting these type of
    cannabis employers, vendors, anybody who is associated. And,
    therefore, they can start accessing credit, paying with a
    credit card or a bank debit account. And that is kind of the
    American way at this moment, to move away from cash, not move
    back to cash. There is a whole industry and folks who are
    prohibited from transacting what everybody else is asking us to
    do, right? Go paperless. Go cashless.
        Mr. Clay. Thank you.
        Chairman Meeks. The gentleman's time has expired.
        Mr. Tipton, for 5 minutes.
        Mr. Tipton. Thank you, Mr. Chairman.
        I appreciate the panel for taking the time to be here
    today. And I respect the hard work and effort I know that my
    colleague out of Colorado, Mr. Perlmutter, has put into trying
    to be able to address a challenge that we have in many of our
    States.
        In Colorado, we have had many questions that have been
    raised about the relationship between the Federal, State, and
    local governments and regulators since legalization, including,
    obviously, the banking industry.
        When we move forward on issues of the banking industry,
    however, I think that one issue that we may not have fully
    explored here in today's hearing is giving the ability of our
    regulators to be able to aid the communities in their fight
    against some of the bad actors and having those tools.
        So, Ms. Ma, as Treasurer of the State of California, one of
    the chief concerns that we have heard with the retail marijuana
    industry in southern Colorado has been the possibility that
    cartels can gain access to State legitimate retail stores and
    financial institutions to be able to mask illicit operations.
    There was an article in yesterday's Denver Post that cited
    that. And an October 28th report from the Colorado Division of
    Criminal Justice stated that organized crime cases almost
    tripled in the 5 years since legalization.
        So we have had the concerns raised that the cartels are
    increasingly able to commingle traffic products and funds with
    products and profits from legitimate retail businesses.
        As a top elected official out of California, you may have
    well heard as you went to the other States some of these issues
    as well and encountered some of those problems that I have just
    highlighted.
        So, in your view, Ms. Ma, does Mr. Perlmutter's legislation
    give regulators the ability to be able to conduct necessary
    oversight to be able to root out potential illicit activity,
    especially given that the banking industry can and has served
    as a check against those who want to take advantage of State
    legitimized businesses?
        Ms. Ma. Yes.
        So, in California, this industry is highly scrutinized in
    terms of licensing, permitting, even having to pay your taxes.
    And we have found that the cartels, whereas before they would
    come to California and nestle in some of our forests, stay for
    2 years. They have to do their setup in terms of water
    distribution and canopies and protecting their grows. The
    cartels actually don't come to California anymore because of
    Prop 215, because of Prop 64 that passed.
        So the legalization in our State has actually made it safer
    where we are requiring extensive labeling and testing, which is
    why many of us are here today is because we are concerned with
    the quality of the product. So we believe that the initiatives
    that have passed have enabled better, safer, more regulated
    products in the States, and, therefore, less cartels are even
    involved in cannabis these days.
        Mr. Tipton. I appreciate that. I get the concern, though,
    coming out of my State on the AML, on the SARs reports, that
    they are seeing some cartel activity that is being involved
    with that.
        Mr. Deckard, Ms. Pross, would you like to maybe speak to
    that?
        Ms. Pross. Sure.
        A lot of the speaking engagements that I have had over the
    last couple of years have actually been with law enforcement
    audiences, and that is one of the points that we try to drive
    home to law enforcement is that, by banking this industry and
    abiding by the FinCEN guidance, we are providing information to
    law enforcement about financial activity related to the
    cannabis industry that they would not otherwise have if the
    industry was forced completely into the underground economy.
        Mr. Tipton. Mr. Deckard?
        Mr. Deckard. In the State of Washington, there was a very
    deliberate active effort once the initiative passed. I think
    there was a lot of collaboration with legislators and
    regulators in the industry in crafting what is a very good
    model for regulating cannabis.
        And so, as was previously stated, everything is tagged from
    seed to sale. So there is a lot of oversight of it of which the
    banks perform part of that oversight of the filing of SARs and
    currency transaction reports and all those things. Nothing in
    this bill changes what any of the reporting is being presently
    done to alert regulators of--
        Mr. Tipton. Thanks. I appreciate that. I am going to be
    running out of time. I think this is something as this bill
    moves forward that we do need to probably look into.
        And the final question is for Mr. Deckard. Does this answer
    transporting dollars across State lines, say into Kansas where
    it is illegal, in terms of the commingling of funds given the
    current regulation on marijuana?
        Mr. Deckard. My understanding is it doesn't address that.
    The Cole Memo specifically talks about that being one of the
    prohibited activities, so I am not aware of any institution
    that is--
        Chairman Meeks. The gentleman's time has expired.
        Mr. Heck, for 5 minutes.
        Mr. Heck. Thank you, Mr. Chairman.
        I am not particularly interested in relitigating someone's
    paradigm of reefer madness or who stands where on the 10th
    Amendment and States' rights. I am, with all due respect, not
    interested in relitigating the Choke Point controversy, indeed.
        I am interested in pointing out that quite some time ago
    the ranking member, Mr. Luetkemeyer, led an effort to get the
    FDIC to issue guidance that said that this can no longer occur.
    It has to be done on a business-by-business basis. I think he
    had to take a victory lap for that instead of us pretending as
    though this was still going on.
        And I do want to keep my questions/comments to the banking
    access part of this. However, I want to ask Mr. Barnette a
    question about his customers who have medical issues, as a
    predicate for that.
        And like all of us, I am often asked where is it that my
    motivation for this legislation comes from. And we all have a
    personal story. I don't often share mine, but here it is.
        My older brother Bob graduated from high school in 1965. He
    had a football scholarship. He turned it down. He went to
    community college. Kicked it around a while. And then he did
    what he had always wanted to do. He enlisted in the United
    States Marine Corps.
        And if you get the year reference, you know what happened
    next. He went to Vietnam. In fact, he was there during the Tet
    Offensive. He served in I Corps near the DMZ for 13 months. He
    came home.
        Two and a half years later he developed a large lump on his
    neck. It turned out to be diagnosed as the most common
    manifestation of exposure to Agent Orange, namely Hodgkins
    disease.
        He fought that battle for 12 years. Indeed, on two
    occasions, it had been in remission for 5 years, and he was
    told his chances of it recurring were the same as anybody
    else's, until December of 1981 when he passed.
        Toward the end of his life, the only relief he could find
    from what was then chemotherapy, initially it was cobalt, was
    from the illegal consumption of marijuana. And I have always
    thought and lived with the irony that the same Nation that
    asked my brother to put on a uniform and put his life at risk
    in an activity that eventually did, in fact, take his life held
    him to be a criminal when he found relief in the only way that
    he could.
        Mr. Barnette, I am certain that you have customers who come
    in terminally ill, maybe with children with medical conditions.
    And I am wondering if you could just anecdotally suggest
    whether or not you have observed or have had reported to you
    people finding relief from your dispensary's products.
        Mr. Barnette. Congressman, I have had mothers come in with
    their children elated at the fact that their children are being
    more responsive than they have ever been. They are having
    reduced seizures. I have had actual fathers show up at our
    dispensary and get driven to tears at the relief that they are
    being able to see that their children are having. I have had
    members of our military talk to us about how they are dealing
    with PTSD and that, for the longest time, they haven't been
    able to have a good night's rest and are plagued with the
    memories of having fought in the field, in the theater of war
    and are getting relief from cannabis.
        And daily, daily, we have instances where people are coming
    in and sharing their stories and actually thanking the members
    of my staff for being there despite some of the things that
    they are having to deal with as employees of our dispensary,
    because without them, they would have to go through illicit
    channels to just get the same relief that you are talking
    about, absolutely.
        Mr. Heck. So, then, sir, to bring this back to banking,
    does it stand to reason to you that if the SAFE Banking Act
    were to be passed, that it would be easier for dispensaries
    with banking services to be able to provide these kinds of
    products more uniformly to those who are suffering under the
    kinds of conditions which you outlined?
        Mr. Barnette. Simply put, yes.
        Mr. Heck. Thank you, sir.
        Major Franklin, first of all, I want to thank you for your
    career and your presence here as well today. I want to thank
    you for appropriately placing this emphasis on public safety.
        Just quickly, sir, do you know of any entity, maybe even
    including your own, which is collecting the data on how it is
    that the incidence of crimes associated with cash-based
    businesses has trended over time?
        Major Franklin. Not at this point. We usually get most of
    our data from UCR, Uniform Crime Reporting, under the
    Department of Justice, by the FBI. And right now it is not
    categorized. It would be an extensive project to do that
    because we would have to find a reliable source for the data.
        Chairman Meeks. The gentleman's time has expired.
        Mr. Loudermilk, for 5 minutes.
        Mr. Loudermilk. Thank you, Mr. Chairman.
        And I want to thank our panel for being here. I want to
    thank every member of the subcommittee because this is a
    conversation we should be having. It is refreshing that this is
    truly a bipartisan issue, both for and against. This doesn't go
    down party lines. It will be more on ideological lines.
        And, quite personally, I am not interested in the least in
    helping the marijuana industry or the marijuana retailers. But
    in my position as a Representative in the Federal Government, I
    think these decisions are better made at the local level. I
    have several concerns with the industry, but I also have
    several concerns with the regulatory industry. And so I think
    it is very important for us to have this discussion and this
    debate.
        I will tell you what I do support. I do support the Georgia
    State legislature who, just about 3 years ago, passed a law to
    allow cannabis oil to be used to treat symptoms of certain
    illness. Now, one of the concerns I have is that the Federal
    Government is determining what is moral and what is immoral
    over the business. And I agree with Mr. Posey in that is,
    determining a gun seller is immoral, so, therefore, we are
    going to make it difficult for them.
        I do think this is something that is better held at the
    local level, as I said. In fact, in Georgia, we have pushed
    most of the decisions like that down to the local level. I know
    in several of the counties in my district, adult stores were
    not able to operate and still aren't able to operate in certain
    counties because the citizens have said this is not the type of
    retail that they want there. But in other counties where they
    do operate, they do have access to financial services.
        So my concern is not the retailers or the marijuana
    industry but the financial services industry. And do we put
    those businesses in a catch-22 situation of conflicting
    regulations? And are we putting the financial services industry
    in a no-win situation while we battle it out between the State
    and the Federal Government in this? And so that is really where
    my concern is. And especially when we are forcing businesses
    into a cash-only operation, my concern is, does that allow
    these businesses to go around certain other regulatory
    requirements that financial institutions have such as
    suspicious activity reporting? Does this, and this is one of
    the questions I have, does our current policy maybe incentivize
    nefarious activity of money laundering or organized crime using
    these businesses to get around financial institutions? So that
    is kind of where I am coming from on this. I want everybody to
    understand. I am not taking a pro or con stance on the issue
    itself.
        Ms. Pross, I know that financial institutions are operating
    under FinCEN guidance for filing the suspicious activity
    reports that I just mentioned for these businesses, and the
    SAFE Act would codify that requirement into law.
        I am very focused on this issue and have introduced
    legislation that would raise the Bank Secrecy Act's (BSA's),
    CTR, and SAR thresholds. If the SAFE Act becomes law, how do
    you see it affecting the SAR compliance regime?
        Ms. Pross. My understanding with the SAFE Banking Act is
    that the FinCEN guidance would remain in place and that we
    would be required to comply with that guidance. And I
    actually--we value that guidance as a compliance framework for
    being able to offer the service to our members. I think that
    changing--I understand that there are conversations about
    changing the reporting thresholds. And I do believe that would
    have an impact on our credit union, but I am certainly not an
    expert on the specific proposals around the Bank Secrecy Act.
    But I think having clear guidance from Treasury on those
    reporting thresholds is absolutely critical in being able to do
    this.
        Mr. Loudermilk. Okay. Thank you.
        Mr. Deckard, another area of concern I have is, even though
    we have 47 States that at some level legalized marijuana,
    whether it is cannabis oil or recreational use, the laws
    differentiate. But yet when we are talking about electronic
    payments, that is a nationwide service that operates
    nationwide.
        What problems do you anticipate, given that only some
    States have chosen legalized recreational and medical
    marijuana, but yet the payments are going nationwide?
        Mr. Deckard. One of the things that the SAFE Banking Act
    does is to not only provide clarity for financial institutions
    but provides clarity for those indirect businesses, such as a
    service credit card provider or debit card provider, to be able
    to use the payment system to reduce the amount of cash that
    comes through and to enhance public safety via that method.
        We have, in the State of Washington, the largest armored
    car delivery service that not only will not go and pick up from
    a CRB but won't provide services to a bank that is involved in
    banking that business.
        So providing that clarity is not only just to help banks
    and to enhance public safety, it is to open up the rest of the
    system of providers of that that gives them the clarity that
    they are not going to be penalized for--
        Chairman Meeks. The gentleman's time has expired.
        Mr. Loudermilk. Thank you.
        Chairman Meeks. Mr. Foster, for 5 minutes.
        Mr. Foster. Thank you. And I would like to thank Chairman
    Meeks for convening this important hearing. I would also like
    to thank Representative Perlmutter, Representative Heck, and
    the other bill sponsors for their long work on this issue. And
    I think I can speak for the entire committee when I say that
    the image of Representative Perlmutter sitting alone at the
    witness stand with a smile like the cat that just ate the
    canary is an image that we will all cherish forever.
        Now, at this time, a majority of States covering a majority
    of the Nation's population have legalized cannabis for medical
    and adult use. And that number will most likely grow in the
    coming years.
        In the State of Illinois alone, there has been almost $280
    million in retail sales by licensed medical cannabis
    dispensaries since State legalization of medical marijuana
    first took effect. And in this landscape, it has become ever
    more important to address the well-documented public safety
    issues experienced by cannabis-related businesses that operate
    primarily or exclusively in cash.
        With this in mind, I would like to ask Ms. Pross and Mr.
    Deckard, as representatives of the Credit Union National
    Association and the ICBA, to tell us a little bit more about
    how ensuring that cannabis-related businesses can have access
    to banking services, how that will increase transparency and
    accountability of those companies and allow law enforcement and
    regulatory authorities to effectively focus their limited
    resources towards investigating other criminal activity? And
    specifically, if you could describe in a little more detail the
    types of information that banks would be able to share with law
    enforcement and regulatory authorities if lawful cannabis-
    related businesses are allowed to access standard banking
    services like deposit taking payroll, other information that
    banks would not otherwise have and perhaps give some concrete
    examples of how this additional information might be of use to
    law enforcement?
        Ms. Pross. I appreciate your question. With the FinCEN
    guidance, I believe that with the passage of the SAFE Banking
    Act, you will see more financial institutions who are willing
    to take on the risk of banking cannabis businesses. There is
    still risk with just the regulatory requirements in order to be
    able to provide services and adequately monitor and maintain
    those accounts, but the FinCEN guidance again we are providing
    this information to law enforcement that they wouldn't
    otherwise have if these businesses were not banking with us. So
    we are filing quarterly suspicious activity reports, and those
    suspicious activity reports are escalated if we see any type of
    activity that is indicated as a red flag in the FinCEN
    guidance.
        We are also submitting currency transaction reports, so
    that is cash moving through the system related to cannabis
    businesses. And to that end, in the last 2 years, my credit
    union alone, Maps Credit Union in a relatively rural part of
    Oregon, has filed over 13,000 reports to FinCEN. And that again
    is free information to law enforcement that wouldn't otherwise
    be available if we weren't banking this industry.
        Mr. Foster. Mr. Deckard?
        Mr. Deckard. While my bank is not involved in banking
    cannabis, several of my colleagues in the State, you know, we
    talk about what the status of things are. There is not a
    business line in financial institutions that is regulated more
    and scrutinized more than marijuana banking. The amount of
    reports from the State from what banks are filing, what law
    enforcement is looking at is a very onerous task to put on the
    bank, and yet, for public policy reasons, financial
    institutions are choosing to engage in that.
        Some of the anecdotal information I can share with you is
    there is a bank on the west side of the State of Washington
    that has 50 accounts, and they have 4 full-time employees
    staffed in the compliance department just to manage the amount
    of reporting. So, when you look at the ratio of staff to number
    of accounts, it is robust and something that each bank has to
    decide whether they want to devote those kinds of resources to.
        Mr. Foster. Let's see. I was just thinking that there may
    be a lot to learn of the history of liquor legalization and
    taxation. Initially, there was a lot of moonshining, which I
    think at least in my part of the country has faded away with
    time. And now most taxes are being collected, and I think
    liquor distribution is pretty well regulated. Do you think
    there are any lessons to learn from that experience? Anyone on
    the panel?
        Major Franklin. I think there are some great lessons to
    learn from the end of alcohol prohibition where, number one, it
    was the States that led that effort. My home State of Maryland
    never participated in it, so we now moved into--I mean, I don't
    know where you can get bootleg whiskey today. I know some
    people do, but I can't because it is a well-regulated industry,
    and whatever you need you can go buy at a regulated store, and
    again, as you mentioned, what is really important is that the
    taxes are being paid, and it is very easy to track because of
    the banking system and the methods that are used, and it is
    clear-cut policy. There is very little question about what you
    are required to do when, where, and how.
        Chairman Meeks. The gentleman's time has expired.
        Mr. Williams, for 5 minutes.
        Mr. Williams. Thank you, Mr. Chairman, and before I begin
    my questioning, I want to thank all of you today. But I wanted
    to reiterate that the substance at the center of today's
    hearing is still illegal at the Federal level. States like
    Colorado and California have exercised their authority to
    legalize marijuana, and under the 10th Amendment, they have the
    right to do just that.
        This committee can debate this issue all they want and
    perform the cost-benefit analysis of banking this emerging
    industry, but regardless of what we come up with, marijuana is
    federally illegal. It affects people's minds. It affects their
    thinking. And the breakdown of the family structure today is
    too prevalent. Opioids are killing thousands of Americans a
    year, and countless Americans suffer from addiction every
    single day. Those are problems that deserve our immediate
    attention in this body, not to debating the use of a federally
    controlled substance.
        So, additionally, I find it hard to believe this committee
    is going to be considering legislation to make marijuana more
    commercially available to the public when there are still so
    many unanswered questions about the drug.
        So, Mr. Talcott, is it a universally accepted fact that
    marijuana is not a gateway drug and has no negative impacts to
    public health?
        Mr. Talcott. No, it is very clearly a gateway drug, and it
    has a lot of negative impacts for public health. In particular,
    if you look at the opioid crisis, a vast majority of people who
    die a death by opioid overdose started off with pot as a
    gateway drug. I think thatthe other public health problems with
    pot are people who have smoked pot and regularly have been
    known to go into a psychotic state. As a matter of fact, if you
    look at places like California or you interview the people in
    emergency rooms in Colorado--these are people we hear from all
    the time--you will find out that the number of people coming in
    with marijuana-induced psychosis or psychosis generally has
    skyrocketed since legalization.
        Mr. Williams. Okay. Thank you. Last Congress, there were
    many discussions on possible changes to the Bank Secrecy Act
    regarding anti-money-laundering policy.
        Mr. Deckard, in your testimony you mentioned the Bank
    Secrecy Act and the current suspicious activity reports and
    currency transaction reports that institutions must file. I
    have been told from ICBA and other banking groups that the
    existing SAR and CTR reporting requirements are onerous and
    offer little feedback to the financial institutions. So, Mr.
    Deckard, what do you think the effect will be on the number and
    quality of CTRs and SARs should this safe harbor provision
    pass?
        Mr. Deckard. I don't see any impact on the filing of SARs
    in terms of the number or anything else for the existing
    businesses that are legally licensed in the State. They are
    banking somewhere. I am told from our department of financial
    institutions that 97 percent of all of the licensed marijuana
    businesses are making their tax payments with a checking
    account. So I don't necessarily see that as an expansion of the
    number of businesses. In fact, the liquor and cannabis board in
    the State of Washington controls the number of licensed
    businesses that can operate.
        Mr. Williams. Okay. Major Franklin, thank you for your
    service in law enforcement. During your time as a police
    officer, I am sure you saw lots of people driving while under
    the influence of drugs and alcohol. And as I am sure you know,
    marijuana affects the brain, specifically the parts responsible
    for memory, learning, decision-making, coordination, and
    reaction time. So all of these capabilities we are talking
    about are vitally important to keep our roads safe, which I
    know you want to do, and so my question to you, Major Franklin,
    is, if police officers have a device or a method by which they
    can accurately detect if someone is driving under the influence
    because of marijuana?
        Major Franklin. If they do currently?
        Mr. Williams. Is there a way to detect if somebody is
    driving under the influence of marijuana when you pull them
    over?
        Major Franklin. Oh, Yes. As the head of training for the
    Baltimore Police, as well as the Maryland State Police during
    my career, drug recognition experts are very good at making
    this detection of whether or not someone is driving under the
    influence of any mind-altering substance, and this is what we
    recommend: to train, to provide the money to law enforcement to
    train so that we can have more DREs out in our communities.
    And, again, this is nothing new. It has always been illegal to
    drive under the influence of any mind-altering substance, and
    that is what we do. We work very hard on the highways and in
    our communities in pushing back against this. We are very
    effective at doing this.
        Mr. Williams. So, if you are buying or smoking marijuana,
    don't be driving, right?
        Major Franklin. Correct.
        Mr. Williams. Okay.
        Chairman Meeks. The gentleman's time has expired.
        Mr. Williams. Thank you. I yield back.
        Chairman Meeks. Mr. Lawson, for 5 minutes.
        Mr. Lawson. Okay. Thank you very much, Mr. Chairman, and
    witnesses, welcome to the committee.
        It has been very educational listening to all of you. And I
    have just a few things I would like to say. Florida is part of
    a growing train of States that are now permitting medical or
    recreational cannabis use. Currently, most of the cannabis
    industry operates, as you know, on a cash basis without the
    benefit of using traditional financial institutions and
    financial products, such as credit cards.
        Your testimony here today has been very significant. None
    of us are medical people, but over the years, for those who
    have served in the legislature before, not only do you have
    problems under the influence of alcohol but with prescription
    drugs and everything else on the road. I ask unanimous consent
    to enter this into the record from the Florida Department of
    Agriculture and Consumer Services Commissioner Nicole ``Nikki''
    Fried who said, ``On behalf of the Florida farmers and medical
    marijuana professionals and consumers, I want to thank you for
    the efforts to provide the cannabis industry across the
    traditional banking and express my strong support for securing
    the Fair Enforcement Banking Act, H.R. 2215. Conflicting
    guidance from the Federal Government has unsuccessfully led to
    a high level of risk and hustles from businesses and emerging
    markets.'' I won't read the whole letter, which I will give to
    the chairman here, but the problem, what we are here to resolve
    today is, what do you do with this particular cash business?
    And I know, from the banking standpoint, if I walked into the
    bank today with $20,000 or $30,000 in cash in a suitcase, and
    said I wanted to deposit it in my savings, what would you do?
    You would start questioning me about where I got the money
    from, am I in the business, whatever, and I have seen this
    happen. I have gone into, for instance, a Bank of America, and
    a lot of people, especially people, Hispanics and so forth,
    deal in a lot of cash and they are working, and they come into
    the banks on Saturday morning and try to make their deposits.
    And sometimes they are held up because people are saying, you
    have all this cash, and they are coming in to make cash to send
    money back home. And so, from my standpoint, I am not here to
    debate what marijuana is going to do to you and all the other
    stuff, but what I am here to do is to try to make it safe for
    people who are in this business that the consumers, the people
    in the States have voted on, at 65 to 70 percent on, how do we
    deal with this cash situation? And you all are the experts, and
    I ask the experts, especially the banking experts on the
    committee, I am not going to debate how bad it is or whatever
    it is, but how do we deal with this to make it safe for people
    to make deposits. And I will just ask the treasurer, Ms. Ma,
    just to comment on it because you are working with it every
    day, and so I am not going to continue to talk, but I just want
    you to make a comment on it.
        Ms. Ma. Well, as a tax collector, we would see hundreds of
    thousands sometimes of tax payments come in. So not only is it
    not safe for the business owners to have to keep all that cash
    then to drive it around and then come to our offices, it also
    poses a public safety risk for the people in government who
    have to accept this type of cash. We have to count it. We hold
    it until the bank sends an armored truck and then ship it over
    to the bank.
        So it is not only a public safety risk for the communities,
    homes, and businesses, but also, for government, I would say.
    So having some safe harbor allowing folks to put it directly
    into a bank that is best equipped to deal with cash in terms of
    security protocols and cash--fast cash counters and deposits,
    big vaults and security cameras, I mean, that is where cash
    should be stored, not in our homes and in our businesses or in
    government agencies.
        Mr. Lawson. I can understand that. Before I yield back, it
    is important because I walked into Bank of America and had a
    check for about $45,000, and everybody in the bank came to see
    what was going on, and it might have been because of my color
    and not because I had the ability to actually bring it in, and
    they said, ``Well, you need to go someplace else; we don't know
    whether we can handle this.''
        So I can imagine what it is like with a cash situation, and
    that is the thing we need to resolve.
        Mr. Chairman, I yield back.
        Chairman Meeks. Thank you. The gentleman's time has
    expired.
        Mr. Barr, for 5 minutes.
        Mr. Barr. Thank you, Mr. Chairman, and I want to first
    recognize and acknowledge my good friend from Colorado, Mr.
    Perlmutter. You and I have had many conversations over the past
    6 years about your legislation about this issue, and to a
    certain degree, our interests and our views converge, and on
    other parts of this issue, they may diverge a little bit, but
    one thing I admire is persistence, and you are a portrait of
    persistence, and I really do appreciate that.
        As my colleagues know, I represent central Kentucky, and we
    in central Kentucky at one time were the burley tobacco capital
    of the world. And before that, we were the cannabis capital of
    the world. We legally grew and produced rope for the war effort
    and cannabis and industrial hemp. And as you all know, in the
    2018 farm bill, with my support, we descheduled industrial
    hemp, low THC cannabis for our farmers, and I will just say
    just as an aside, it is ironic that many of the people who
    supported policies that literally bankrupted the burley tobacco
    industry in my area are now the very same people who want to
    legalize smoking recreational pot. That is a little ironic to
    me, but nevertheless, the fact that our tobacco farmers are now
    out of business has given them a renewed interest in industrial
    hemp, and that was the impetus behind our farm bill legislation
    that now has descheduled low THC cannabis.
        One question about that, and I will direct this to Mr.
    Talcott, following the passage of the farm bill back in
    December, do legally licensed hemp businesses low THC,
    nonmarijuana cannabis businesses, now have unfettered access to
    the banking system?
        Mr. Talcott. Yes, they do.
        Mr. Barr. Okay. And I think that raises kind of a
    fundamental issue. I am going to kind of play a little devil's
    advocate with Mr. Perlmutter here because we have a mechanism
    for doing this if we want to provide legal certainty to higher
    THC cannabis businesses, right? We did it. We did it in
    December in the farm bill, and whether we like it or not,
    wherever you are on this issue, the fact remains that the
    Controlled Substances Act, Federal law, continues to make
    illegal high THC marijuana, high THC cannabis, and with the
    rescission of the Cole Memo, we now have a direct conflict of
    Federal law, assuming Mr. Perlmutter's legislation were to
    pass.
        So, given that reality, to Ms. Pross and to Mr. Deckard, in
    the event that a United States Attorney was actively
    prosecuting a cannabis-related business in your area, even if
    Mr. Perlmutter's legislation was passed, would you and your
    institution be willing to bank that business that is under
    Federal prosecution, would you do that? Ms. Pross?
        Ms. Pross. I certainly think it would depend on the
    situation. There are times where law enforcement, and I am not
    just referring to the cannabis industry, but in general, there
    are times when law enforcement requests us to keep an account
    open so that it can assist them in analyzing the activity in
    determining what exactly is going on.
        Mr. Barr. So, Mr. Deckard, to you, if a U.S. Attorney is
    prosecuting a cannabis-related business under Federal law under
    the Controlled Substances Act and the current rescinded Cole
    Memorandum, would you feel comfortable banking that business?
        Mr. Deckard. No, I wouldn't. That is one of the reasons
    that my bank has not engaged in providing services.
        Mr. Barr. And I think that is the point. The point is that,
    even if we were to pass Mr. Perlmutter's legislation, and Lord
    knows he has put his heart and soul into this thing, and I
    really respect that, but the reality is his legislation would
    not solve the problem because you could have a U.S. Attorney
    who would--I guess my point is this, we have shown the
    blueprint of how to do this, and it is an amendment to the
    Controlled Substances Act, which is not in the jurisdiction of
    this committee. I am raising the point because I am just
    wondering if--
        Mr. Heck. Will the gentleman yield?
        Mr. Barr. I will. I would like to know how this legislation
    ultimately solves that problem.
        Mr. Heck. Are you willing to vote to delist marijuana?
        Mr. Barr. No, I am not.
        Mr. Heck. Okay. I don't understand the argument. It is
    spurious if you suggest that is the solution, but say you are
    against it.
        Mr. Barr. No, what I am saying here, I am making the point
    that the Congress--reclaiming my time--would have to make the
    same moves, the same policy choices that we did in the case of
    industrial hemp, and this Congress has not done that. And while
    I appreciate the intent of the legislation, I think we have to
    think through whether or not it is an efficacious solution to
    the problem that we are dealing with here.
        Chairman Meeks. The gentleman's time has expired.
        Mr. Barr. My time has expired, and it is a very interesting
    topic. I would love to have more time, but I yield back.
        Chairman Meeks. Ms. Porter, for 5 minutes.
        Ms. Porter. Thank you, Mr. Chairman.
        I wanted to welcome my fellow State resident, Ms. Ma, to
    testify before the committee. I have testified before this
    committee, and I appreciate all of your patience. These can be
    very, very long days, so thank you.
        Ms. Ma, I have a question about how much money, just an
    estimate, has California collected from taxes on the cannabis
    industry in this State?
        Ms. Ma. The latest figure I have is in November 2016, we
    collected about $228 million.
        Ms. Porter. Okay. And as California Treasurer, you have
    oversight over where California's tax revenues are deposited?
        Ms. Ma. That is under the California Department of Tax and
    Fee Administration. That is where the taxes are supposed to be
    deposited.
        Ms. Porter. To the best of your knowledge, has any bank
    ever refused to accept the taxes generated by the cannabis
    industry because the income is derived from cannabis
    transactions?
        Ms. Ma. No. As many of you know, even if you are in an
    illegal business, you still must pay your taxes either to the
    Federal Government or the State government. We passed Prop 215
    in 2006. We did not start collecting sales tax until--I'm
    sorry, 1996. We did not start collecting sales tax until 2006,
    which is 10 years later. And even then, we were assessing a 10-
    percent penalty for anyone who paid their taxes in cash. The
    Federal Government still to this day charges a 10-percent
    penalty to anyone who pays their taxes in cash.
        Ms. Porter. So have you ever told any of the banks that are
    happy to bank the tax dollars that as a condition--or do you
    think the State should, not you personally, but do you think
    the State should say to banks that as a condition of banking
    this considerable cannabis industry tax revenue those
    institutions ought to have to accept deposits from cannabis-
    related businesses?
        Ms. Ma. Yes, so we do business with about eight different
    large banks, and each one is in charge of a different sector.
    So our cannabis or cash tax payments from sales taxes, which
    are commingled, go into one national bank. And there have been
    issues surrounding this type of issue whether they want to
    continue to accept it. In California, we expect to collect
    about a billion dollars in cannabis taxes, and it really is
    going to be dependent on whether these banks are going to
    accept cannabis freely or at least with some sort of safe
    harbor, are we going to be able to continue to collect even any
    tax from the cannabis industry.
        Ms. Porter. Thank you. That is very helpful. At this time,
    I ask unanimous consent to enter into the record two
    statements, one prepared by a fellow Californian and one of the
    Nation's leading cannabis industry experts, Henry Wykowski. He
    is counsel to the National Cannabis Industry Association, and
    in his statement he describes the difficulty he has as an
    attorney providing legal advice, and he is required to have a
    bank account in which to hold client funds by the California
    State Bar Association and yet is continually being denied
    banking services.
        The second statement is prepared by Lindsay Robinson, who
    is the executive director of the California Cannabis Industry
    Association, which represents businesses who employ over 11,000
    Californians in cannabis-related jobs.
        Chairman Meeks. Without objection, it is so ordered.
        Ms. Porter. I yield back the remainder of my time.
        Chairman Meeks. The gentlelady yields back. I will say, at
    this point, there being no other Republicans who are on the
    subcommittee, we will now go through the Democrats who are
    present on the subcommittee, and then we will go on to hear
    questions from individuals. So next would be Mr. McAdams for 5
    minutes.
        Mr. McAdams. Thank you, Mr. Chairman.
        Before I begin, I would ask unanimous consent to have a
    letter from Utah State Treasurer David Damschen entered into
    the record.
        Chairman Meeks. Without objection, it is so ordered.
        Mr. McAdams. Thank you, Mr. Chairman. So this past
    November, Utah voters approved the use of medical cannabis in
    Utah through Proposition 2. And with its passage and then
    subsequent legislation by the Utah legislature, Utah joined, as
    we see on this map, nearly every other State in permitting the
    use of medical marijuana in some capacity.
        But unlike other States, Utah has not approved the use of
    marijuana for recreational purposes. Despite this difference,
    however, Utah is now beginning to grasp how to implement its
    medical cannabis program and is now encountering the same
    challenges that so many of the witnesses have testified to
    today; that is, how do businesses operating legally pursuant to
    State law have access to our financial system?
        So I want to briefly quote from the letter from Utah State
    Treasurer Damschen that he sent to the Utah congressional
    delegation, and then I have a question for the witnesses on
    this. He said, `` The inability of insured financial
    institutions to handle cannabis-related transactions has forced
    businesses and governments throughout the U.S. to resort to
    cash to settle transactions. This represents an enormous public
    safety issue, increasing risk of violent crime, fraud, and
    theft.''
        So, to the witnesses, I would ask just a yes or no, do each
    of you agree with the comments that I read from Treasurer
    Damschen that cash-only operations present a public safety risk
    and a risk of fraud and theft?
        Ms. Ma. Yes.
        Major Franklin. YES, in all caps.
        Ms. Pross. Yes, I do.
        Mr. Deckard. I wholeheartedly agree.
        Mr. Barnette. Very much so.
        Mr. Talcott. I think engaging in any illegal activity
    produces cash, and that produces problems. Your banking system
    is having problems because you are engaging in a felony.
        Mr. McAdams. So I want to quote again from the letter from
    Treasurer Damschen. He said, quote, ``Providing regulated and
    insured financial services to cannabis businesses allows law
    enforcement and specifically the Financial Crimes Enforcement
    Network, or FinCEN, with the U.S. Department of Treasury,
    provides them the transparency needed to distinguish legal
    cannabis businesses from illegal activity.''
        So, to the witnesses, I would also ask, do you agree or
    disagree that bringing these cash businesses into the regulated
    financial system would increase transparency for law
    enforcement communities?
        Ms. Ma. Yes.
        Major Franklin. I know for a fact that it would, yes.
        Ms. Pross. Yes, I do.
        Mr. Deckard. Absolutely.
        Mr. Barnette. Yes.
        Mr. Talcott. I think bringing every illegal activity into
    the banking system would make it more transparent, so maybe we
    should bring the heroin business into the banking system. Maybe
    we should bring the illegal betting system into the banking
    system. I mean, all of this--this is kind of a fallacious
    question because ultimately the decision has to be made, are we
    going to have legal marijuana, or are we going to have illegal
    marijuana? And right now, we have illegal marijuana, so any
    kind of business that involves marijuana is engaged in a
    felony, and any--I was interested earlier to hear about
    questions directed to my colleague Mr. Deckard about, gosh,
    what should happen with respect to banking? You know, all the
    people who are on the board of a bank are personally liable for
    any activities, any activity with a bank--a felony.
        Mr. McAdams. Thank you. Let me just interrupt right there,
    thank you, and reclaim my time. The purpose of this hearing
    isn't about heroin or other illegal industries. This is about
    medical marijuana and the industry which 47 States have
    legalized to some degree.
        Mr. Talcott. But the Federal Government hasn't.
        Mr. McAdams. That is correct, but my question is would--
    somebody was saying earlier today let's not--the inability to
    do everything shouldn't stop--maybe shouldn't stop us from
    doing something that would make the industry safer and create
    transparency and help us to ferret out illegal activities that
    haven't been made legal by 47 States.
        One last question, and then I will be done, but I would
    like to ask maybe Major Franklin--thank you, also, for your
    service--if you could or would care to elaborate and provide
    any insights on how access to the banking system for these
    businesses could actually improve the operations of law
    enforcement?
        Major Franklin. Well, one of the things that we used to do,
    and I commanded a number of task forces as you heard in the
    State of Maryland, and we had a unit that dealt specifically
    with financial research on people we were targeting, businesses
    we were targeting, and banks were the number one source to go
    to to check financial records to get a clear, accurate picture
    of money transactions where the money was coming from, where it
    was going to. In an all-cash environment, for the most part, it
    is nearly impossible, unless you conduct a search warrant and
    just happen to luck out and get some records that are being
    maintained by your target. This recommendation here is crucial
    to law enforcement being able to do that work.
        Chairman Meeks. The gentleman's time has expired.
        Ms. Ocasio-Cortez, for 5 minutes.
        Ms. Ocasio-Cortez. Thank you.
        I am listening to all of this testimony today, and one of
    the questions and the concerns that I have is with respect to
    the racial wealth gap. Very often and very frequently we think
    of racial justice issues as independent of our financial
    industry or independent of financial issues, but that is like
    saying there are no for-profit motives in the practice of
    slavery, in addition to the scaffoldings of white supremacy.
    Same goes for Jim Crow, and same goes for our systems of mass
    incarceration, which right now 80 percent of people kept in
    Federal prison are Black or Latino, but at the same time the
    private for-profit prison industry is a $5 billion valuated
    business.
        So my question is really about, are we compounding the
    racial wealth gap right now based on who is getting the first
    mover advantage? And so, according to an industry trade
    publication, 73 percent of cannabis executives in Colorado and
    Washington are male; 81 percent are white. In the State of
    Massachusetts, just 3.1 percent of the marijuana businesses in
    the State were owned by minorities, and just 2.2 percent were
    owned by women.
        So, Mr. Barnette, one of my questions for you is, first of
    all, does this seem kind of in line with your personal
    experience on the ground? Is this industry representative of
    the communities that have historically borne the greatest brunt
    of injustice based on the prohibition of marijuana?
        Mr. Barnette. Absolutely not.
        Ms. Ocasio-Cortez. So these industries are in no way
    looking--and it doesn't look like any of the people who are
    reaping the profits of this are the people who were directly
    impacted?
        Mr. Barnette. That is correct.
        Ms. Ocasio-Cortez. Ms. Pross or Mr. Deckard, one of the
    questions that I have is, in your opinion, do you foresee
    investments from private equity groups or firms to kind of be
    funneling into this industry?
        Ms. Pross. We are certainly seeing more interest in that.
        Ms. Ocasio-Cortez. And so do you foresee--is it possible
    for a situation where a private equity group that profited off
    of for-profit incarceration could turn around and take that
    margin, invest it as a first mover in the cannabis industry
    while there are still systematic barriers for investment from
    Black and Brown Latinos, particularly--Black and Brown
    communities, including Latinos.
        Ms. Pross. I think you are raising really valid points, but
    as a chief risk officer for a financial institution, my focus
    is just keeping my program in compliance and making the streets
    of Oregon safer. So I really couldn't speak to that with any
    level of expertise.
        Ms. Ocasio-Cortez. Of course. Mr. Barnette, do you have
    any--
        Mr. Barnette. The answer to your question is yes. I mean,
    certainly it is the case that private equity firms who make
    money in one sector of our economy can definitely come in and--
    into this industry and, because they have tremendous access to
    wealth and banks, aren't necessarily going to say to a $12
    billion hedge fund that, ``No, we won't bank you.'' They will
    turn around and have access that the average mom-and-pop Black-
    owned businesses, Latino-owned businesses what have you, just
    won't be able to actually surmount some of the same hurdles
    that they can.
        Ms. Ocasio-Cortez. And have you experienced or seen any
    barriers to entry for individuals who were formerly
    incarcerated, particularly for nonviolent drug offenses, to
    enter the cannabis industry?
        Mr. Barnette. Absolutely. In fact, we work tirelessly here
    in Washington, D.C., to get the laws changed to allow people
    who had previously been incarcerated or had marijuana-related
    offenses to allow them to be able to work in the industry. And
    you do see a movement across the industry to try to make that
    happen, but it is a challenge.
        Ms. Ocasio-Cortez. Great. And so you see really what this
    looks like, it is kind of coming to the big picture, that the
    folks who profited off of for-profit incarceration get to
    profit off of the legalization of marijuana first while the
    communities most impacted are last in the door.
        Mr. Barnette. Absolutely. But I would also say that this
    particular Act serves to actually give a valuable tool to
    winners of licenses in that if banks do actually get active,
    then you do have an access to capital that you previously
    didn't have. And having started the second dispensary that I
    ever owned for under $100,000, it definitely puts opportunity
    firmly within reach.
        Ms. Ocasio-Cortez. Great. And just one last question. So
    would you recommend that in us kind of opening this opportunity
    or opening this lane that also be paired with kind of
    affirmative licensing laws that prioritize frontline
    communities and communities that were most impacted to get
    those licenses first so that they can reap the benefits or
    recoup some segment of costs that they had beared in the
    nineties in the war on drugs.
        Mr. Barnette. Absolutely. There should definitely be social
    equity opportunities that allow those hit hardest by the war on
    drugs to be first in line to benefit.
        Ms. Ocasio-Cortez. Thank you very much.
        Chairman Meeks. The gentlelady's time has expired.
        Ms. Wexton, for 5 minutes.
        Ms. Wexton. Thank you, Mr. Chairman.
        And thank you to the witnesses for coming and testifying
    today.
        Treasurer Ma, I would ask, what assurances do you have that
    your State received the full tax remittances that would have
    been due on these cannabis-related businesses?
        Ms. Ma. In California, we definitely are not collecting all
    of the taxes due. So the way we audit these businesses is we
    will go in, and we will ask them for their financial
    statements. And many of them will say, ``We don't have any; we
    are all cash.''
        And then we proceed by having someone stand outside and
    watch how many people go into a dispensary on 3 given days.
    Then we assess an amount, maybe $65 on average per person. We
    send them a bill for 3 years. We extrapolate back 3 years, add
    interest and penalties, and send them the bill. That is the way
    we audit these cash businesses in California. It is not
    efficient. It is not effective. It is not accurate. So many of
    these businesses are not paying their fair share of taxes.
        Ms. Wexton. So it is not a very scientific method of
    determining what taxes are due.
        Ms. Ma. It is not. Without a paper trail, as you know, it
    is very hard to audit a cash business.
        Ms. Wexton. Major Franklin, you testified about some of the
    dangers to these businesses of being robbed and other crimes
    taking place. Do you have statistics that show that marijuana-
    related businesses are more likely to be robbed or more in
    danger than other businesses in the same geographic areas?
        Major Franklin. No, I don't know of anyone or any source
    for that data that is even capable of really collecting that
    data. And it is still rather early, but we do know there are
    plenty of anecdotal stories that we are able to pick from
    across this country where this does occur, even one right here,
    an attempt right here at Takoma Wellness in Washington, D.C.,
    where armed people were attempting to rob that particular
    dispensary.
        Ms. Wexton. And related to that, what sort of steps do
    these dispensaries have to take for security? Are they allowed
    to have armed guards or are they prohibited under the marijuana
    laws?
        Major Franklin. For the most part, when this initially
    started, there was a lot of confusion there. I don't know if
    all of them are, but many of them do now, but it is very
    expensive. The security measures are enormous from cameras, the
    personnel, I mean, the cost. Again, just tracking the
    possibilities of internal theft, and then you have to deal with
    the possibilities of armed people robbing you and your
    employees, so it's quite extensive and expensive.
        Ms. Wexton. Thank you very much.
        Ms. Pross, could you please describe briefly what your
    financial institution goes through before accepting a cannabis-
    related business and accepting them as a banking client?
        Ms. Pross. Of course. We do an extensive--it is a very
    lengthy application process where we are getting extensive
    corporate records, financial records. We run criminal
    background checks on all account signers, so that is anybody
    who is going to be interacting with the credit union we are
    running criminal background checks on. We are validating their
    licensure with the State of Oregon and ensuring that their
    license is in good standing with the Oregon Liquor Control
    Commission, so it is quite an extensive process to get an
    account with us.
        Ms. Wexton. And you had testified that there was some large
    number of SARs that you filed, the marijuana-related SARs. How
    many was that over how long a period of time?
        Ms. Pross. In the last 2 years, we filed nearly 3,000
    marijuana-related suspicious activity reports to FinCEN.
        Ms. Wexton. And do you have a breakdown of how many of
    those were cannabis limited, cannabis priority, and cannabis
    termination SARs?
        Ms. Pross. Unfortunately, under the Bank Secrecy Act, I am
    prohibited from disclosing details around suspicious activity
    reports, but I can tell you out of the 3,000 that we filed, 90
    percent were related to cannabis businesses that we serve.
        Ms. Wexton. Thank you.
        Ms. Pross. Of course.
        Ms. Wexton. And, Mr. Barnette, can you explain some or just
    tell us a little bit more about some of the challenges that
    your business or other businesses that you are familiar with
    have faced with regard to finding commercial leases or
    purchasing property and credit card processing with the
    inability to be clients of commercial banks?
        Mr. Barnette. Absolutely. We have had--you know, the
    problem not only affects our business, right? We definitely
    can't take credit cards. Our customers have to walk up with
    cash in their pockets. That obviously puts them in harm's way
    both coming into the dispensary and leaving the dispensary.
    When we are actually transporting cash and trying to get it
    offsite so that we aren't exposed onsite, we have employees
    and/or security professionals leaving with tens of thousands of
    dollars of cash on their person and moving it to a safer
    location and things like that. All of that presents a huge
    issue, but then there are certain things that we just don't
    even think about. When you go to recruit talent and you try to
    build your business, and you look to try and hire someone,
    let's say maybe as a marketing MBA needing to be paid $150,000
    a year, how do you pay that person $150,000 a year in cash?
    They can't take it to their bank. They are in all kinds of
    situations if they try to do so, and it affects your employees.
    You can't do business with service providers because you can't
    pay an architect $75,000 in cash to do a design so that you can
    improve your business.
        Chairman Meeks. The gentlelady's time has expired. Ms.
    Pressley, for 5 minutes.
        Ms. Pressley. Thank you, Mr. Chairman, and thank you all
    for being here. And I want to thank Representative Perlmutter
    for his leadership here. I really do see this legislation as
    being one that is pro-jobs, pro-small business, pro-equity, and
    it is really apropos that we would have this subcommittee
    hearing today when we had a Full Committee hearing earlier
    today on homelessness. And I do definitely see an
    intersectionality here. We need more small businesses that will
    prioritize hiring locally, hiring veterans, hiring people of
    color, hiring women, and ultimately just the broader goal here,
    and although this is not the debate for today because we know
    that whether or not legalization is good or bad, I am so glad
    that this was not a subcommittee hearing about that because
    that is a State's rights issue. But what I would say is that to
    the gentleladyfrom New York's point, and I represent
    Representative Clay's line of questioning and Representative
    Porter, as well, that there are these systemic inequities and
    disparities along racial lines, many or all of which have been
    created and perpetuated by policy. And so this is an
    opportunity to right the injustices of the past, but we need
    equity embedded, and we need the financial industry to be--and
    institutions to be nimble as they are with any other growing
    industry. And the data supports that the two fastest growing
    industries in the country right now are green jobs, clean
    energy, and the green rush. And so one of the contributors to
    homelessness is that people are underemployed. And this is an
    industry whereby people are fully employed.
        So just a couple of my questions, I wanted to know--oh, and
    then also this is an industry for those who face barriers to
    employment, including those with queries. And so we can't have
    a situation which is what we see playing out where people who
    have been historically locked up are now locked out of a
    multibillion dollar industry.
        But I wanted to speak about the impact here on small
    businesses and on real people. That is the advice we were given
    in new Member orientation, to not forget the plot. The plot
    here is about the people, the small business owners.
        So, Mr. Barnette, if you could just elaborate a little bit
    more on what that burden is for you as a dispensary, as a small
    business owner. I am curious if anyone could just share
    generally speaking how many employees, how many people are
    usually employed by small businesses, and then how many
    ancillary businesses are we talking about, and what is that
    impact?
        Mr. Barnette. Sure. Right now, in our cultivation
    operation, we employ right around nine people. In our
    dispensary, we employ just under 14 people. And that is full-
    time equivalent employees.
        Now what we estimate is that, because our growth is impeded
    with because we can't do business with banking that if we
    could, we would actually be able to grow our operation within
    12 months to more closely like 16 employees in our cultivation
    operation and just approximately 30 people in our dispensary.
    So you could definitely--we could definitely see how we end up
    creating jobs, but more or less, right now, when you look at
    the number of businesses around us that we spend our money with
    because we operate in cash, we spend almost all of our money
    within a 25-mile radius of our actual business. That is a
    tremendous stimulant to the local economy, and it is a lot of
    relationships that we end up going to. I have made the decision
    in my operations to work with other small businesses for two
    reasons. One, they will take our cash.
        Ms. Pressley. I'm sorry. I am going to lose my time.
        Mr. Barnette. I am sorry about that.
        Ms. Pressley. No, no. I want to know more, so I am going to
    follow up with you. So how do you pay your employees, and have
    any of them had any problems with their banks as a result of
    doing business with you or being employed by you?
        Mr. Barnette. Right now, we pay our employees in cash. We
    file taxes just like we normally would or what have you, and
    currently none of them have had problems actually depositing
    their checks, but they have had some problems getting things
    like credit cards or other things like that.
        Ms. Pressley. And how do you pay your bills?
        Mr. Barnette. The same way.
        Ms. Pressley. Okay. If you want to pick back up on that
    last point, oh, it looks like my time is up.
        Mr. Barnette. What I was saying was, just generally, you
    know, that we try to do business with local businesses. One,
    they will take our cash. Two, we actually find that we have an
    opportunity to radically impact their businesses, as well, and
    they tend to have some of our shared values. So their employee
    base looks a lot like our employee base, and it tends to be
    very localized, and so we are really trying to make an impact
    on the city. And I think that to the degree that you can usher
    in mom-and-pops and small businesses, minority-owned
    businesses, you will see more impact in that space.
        Chairman Meeks. The gentlelady's time has expired.
        Ms. Tlaib, for 5 minutes.
        Ms. Tlaib. Thank you so much, Mr. Chairman.
        Mr. Barnette, how are you?
        Mr. Barnette. Hi.
        Ms. Tlaib. I know, it is tiring. I am trying to get
    everybody's attention. So does the money smell? I am being
    serious. We are talking about bags of cash, right?
        Mr. Barnette. You joke about it. That is actually how--
        Ms. Tlaib. No, I heard it is true. The money does smell,
    correct?
        Mr. Barnette. That has been the case in some instances,
    yes.
        Ms. Tlaib. So one of the things that is frustrating for me
    is our State is probably the latest State that passed what I
    would call a ballot measure. Most of these States, it was
    through a people's initiative, people put it on the ballot;
    they voted for it; they legalized it. Just like you know it is
    a democratic process, that is how it was done, and we are
    talking about thousands of people. It wasn't even close. Like
    most people want to legalize marijuana. And that is not the
    question. The States have spoken. I think you are looking for
    obviously support as this legalized form of business now in
    many of these States, and the frustration that I have, again,
    is obviously, collection of taxes, paying for all the things
    that I think are so important to the American people and I
    think everyone wants to do right, but the constant
    discrimination towards these businesses.
        And I am wondering, have you all ever tried to challenge
    this through the courts, and this is me, my ACLU hat, thinking
    to myself because you have to be having trouble getting
    insurance, real estate. Can you talk a little bit about that?
        Mr. Barnette. Sure. There are a number of organizations
    that have been very active in our space. You have the Drug
    Policy Alliance. You have the National Cannabis Industry
    Association. You have the Marijuana Policy Project. And a whole
    host of other organizations that have been active on Capitol
    Hill trying to address the needs of the industry and help get
    these laws changed. Our industry funds lobbyists to try and
    make relationships with the proper authorities so that we can
    tell our stories and we can get our businesses in.
        But also you see a very significant activity at the local
    level as we are impressing upon our council members and our
    State legislators to try and make sure that they understand the
    issues because they have a better voice. When the Treasurer of
    the State of California steps up and speaks to Federal
    legislators, obviously, the issues that she is dealing with
    carry a little bit more weight than perhaps my small business
    actually can. And so we spend a lot of time trying to make sure
    that our local politicians also understand what we are dealing
    with and the perils that we are actually facing. And so we try
    to encourage all of the cannabis businesses, no matter where
    they are, to be just that active. We have definitely taken that
    position, but then we are right down the street from you guys,
    and so we can spend time on the Hill
        Ms. Tlaib. Thank you so much.
        And I yield the rest of my time to the chairman.
        Chairman Meeks. The gentlelady yields back.
        Mr. Stivers, for 5 minutes.
        Mr. Stivers. Thank you, Mr. Chairman.
        I want to thank Mr. Perlmutter for his hard work on this,
    and I want to say he has been bugging me about this bill for
    about 5 years. And, finally, I relented, not because I believe
    that marijuana should be a recreational drug, but because I
    live in the world of reality, and I know that there are
    marijuana-related business out there, and we can't endanger
    them by putting people in a cash-only business.
        So I have a few questions. They are pretty simple. Ms. Ma,
    you already stated this, but just a simple yes-or-no question,
    do you believe that allowing marijuana related--legal
    marijuana-related businesses access to the banking system will
    make them more auditable and reduce tax fraud?
        Ms. Ma. Absolutely, yes.
        Mr. Stivers. Thank you. Major Franklin, you have already
    indicated this, but do you believe that passing the SAFE Act
    will make these marijuana-related businesses safer? I know that
    my colleague talks a lot about a Marine Corps member who was
    working in one of these businesses who was killed because he
    was robbed. Do you believe that giving them access to the
    banking system and reducing cash will make them safer?
        Major Franklin. Absolutely, I do. Can I comment quickly on
    the fraud issue?
        Mr. Stivers. Quickly, because I don't have much time.
        Major Franklin. So, in the mid-1990s, many people are
    familiar with the raid we did on the Baltimore block of the
    strip clubs down there. Sunday was their all-cash day, and we
    were able to, through our investigation, recoup $3.1 million
    for the State of Maryland. So that is that is the kind of
    fraud--
        Mr. Stivers. As they say, cash is fungible, and it was hard
    to find. My guess is, you had to go there on a Sunday?
        Major Franklin. No comment.
        Mr. Stivers. Several Sundays.
        Thank you. Great levity.
        My next few questions are for Mr. Deckard. There is an
    agriculture business that operates in Ohio that does not do
    direct business with marijuana-related businesses that has told
    me they are worried about losing their banking relationships
    because they know their products are used, sold through other
    folks by marijuana-related businesses. I know you don't do
    business with any marijuana-related businesses, but have you
    heard from anybody in the supply chain that is worried about
    losing their banking relationships?
        Mr. Deckard. Yes.
        Mr. Stivers. So I think that is--we are not even talking
    about people who are directly in the marijuana-related business
    now, and they are worried about losing their banking
    relationships, and I have a letter I would like to submit to
    the record from one of those businesses, Mr. Chairman.
        Chairman Meeks. Without objection, it is so ordered.
        Mr. Stivers. Thank you, Mr. Chairman. Finally, I also have
    a letter from a banking company that does not do business with
    marijuana-related businesses, and they do think that there are
    some things that need to be changed about this piece of
    legislation, and maybe you are the right person to ask this
    about, Mr. Deckard. Would you like to see more clarity on
    making sure that financial institutions have access to see if
    these businesses are legitimately licensed in States? Would
    that be part of your due diligence?
        Mr. Deckard. I think, as a community banker, the more
    clarity we can have, the better.
        Mr. Stivers. Would you like to have more clarity on
    suspicious activity reports and when you file them, in fact,
    both you and Ms. Pross, would you like more clarity on that?
        Mr. Deckard. I think our anti-money-laundering and BSA regs
    and policies are pretty clear on when it is required to do so,
    so I don't see any ambiguity there.
        Mr. Stivers. Would you like to have an effective and
    written anti-money-laundering policy for these businesses,
    because that is what this chief risk officer has asked for,
    those four things they would like to see. Maybe you don't see
    that, but this chief risk officer of a bank, I would like to
    submit that one for the record, also, Mr. Chairman.
        Chairman Meeks. Without objection, it is so ordered.
        Mr. Stivers. Thank you. Do either of you think that there
    is some additional clarity we can give to this Act, and my
    intent is not to undermine but to improve this Act?
        Ms. Pross. Sure. I believe that the FinCEN guidance
    provides quite a bit of clarity for financial institutions who
    choose to serve the industry, so I would not be seeking
    additional guidance regarding the suspicious activity reports.
        Mr. Stivers. Great. And, Mr. Deckard, one last question
    because I have 34 seconds. Can you speak to reputational risk
    and that some financial institutions may choose not to provide
    services even after the SAFE Act is passed into law?
        Mr. Deckard. As a community banker, we take pride in
    serving the communities that we operate in. At my bank, it is
    right in our mission statement that we know our customers by
    name. So it is a relationship model, not a transaction model.
    Speaking for the community banks across the country that may be
    family-owned, operating in a rural community where there is not
    competition, we have to keep in mind the processes that those
    banks would need to go through. We are always looking for
    clarity and, this bill when you are talking about opening an
    account or originating a loan, we go through that process of
    every legal business within the State of Washington of getting
    a copy of the business license, the UBI number, a copy of their
    driver's license and go through the due diligence for every
    type of business, not just--and it is expanded for marijuana-
    related business certainly.
        Chairman Meeks. The gentlemen's time has expired.
        I now recognize Mr. Davidson.
        Mr. Davidson. Thank you, Mr. Chairman.
        And I thank you all for a long day and an important cause.
    Frankly, I view this as a civil liberties issue. We have had
    some troubled past in our country on any number of fronts where
    people looked askance at someone and said, ``You are not going
    to bank those people, are you? You are not going to do business
    with these people?''
        And this is a case where communities all across the country
    have decided to legalize something that is, frankly, still
    sensitive for lots of people. We have seen it on display in
    this hearing, a range of views as to whether it should or
    shouldn't be. The reality is, it is.
        And our financial institutions are the wrong place to kind
    of backdoor relitigate whether it should be legal or not.
    Frankly, that is at the core of the issue here when we talk
    about banking legal marijuana in the States. States have said
    it is legal.
        There are a number of other fronts, as a couple of my
    colleagues alluded to, where there are legal business
    activities that some people object to, whether that is selling
    firearms or doing payday loans or you name it. Regulators, at
    times, have deemed them to have reputational risk. And we don't
    have to look back too far to find people who thought, well,
    maybe there is reputational risk because--``You are not going
    to bank Jewish people, you are not going to bank these people
    with this race or group, you are not going to bank these people
    with this religious group, are you?'' And I think we need to
    move away from that.
        Personally, I think it is very important. When we speak
    about intersectionality, a lot of that comes together right
    here. And the civil liberties are protected when we say, if it
    is legal in the jurisdiction you are in, then you should be
    free to do that without some regulator telling you that you
    can't because you are doing it wrong.
        But we also shouldn't diminish the fact that there are
    reputational risks with any business. So the way that a
    business is operated, the type of activities that the business
    engages in could draw suspicion.
        For example, the FinCEN guidance talks about businesses in
    this space, the marijuana business, that would maybe market
    their products to juveniles.
        Ms. Pross, you are familiar with the FinCEN guidance on
    that? How would you apply that type of reputational risk to the
    situation?
        Ms. Pross. Part of our compliance with the FinCEN guidance
    is our cannabis businesses that bank with us, they certify
    their compliance with the Cole Memo priorities.
        And we also work hand-in-hand with the Oregon Liquor
    Control Commission to ensure that we are monitoring violations
    of licenses. And if we do see a violation like that, we have
    the choice then to terminate an account or to file a marijuana
    priority SAR for a violation of that nature.
        Mr. Davidson. I am glad to hear you mention SARs there
    because, frankly, in all the States that it is legal, it is
    prohibited to do business in marijuana with juveniles. And,
    pediatricians will tell you that there are, frankly, big
    differences in the impact these chemicals have on juvenile
    brain development versus adult brain function. So, I think it
    is an important protection.
        It is an application of reputational risk that isn't in
    violation, in my mind, of civil liberties. You have a law that
    says it is legal, and you also have a law that says it is
    illegal. And so you are actually applying the law there.
        I think a lot has been said already--it hasn't been said by
    everyone, but there is only one person left. And I want to
    thank Mr. Perlmutter for his hard work and, frankly, his
    openness to continue to find language that can make this as
    bipartisan as possible. I truly believe that if we open it up
    and get at the core issue of reputational risk, this can be an
    enormously bipartisan bill.
        I thank the committee and the witnesses for all this work.
    And I yield back.
        Chairman Meeks. The gentleman yields back his time.
        Mr. Perlmutter, for 5 minutes.
        Mr. Perlmutter. Thank you.
        And I want to thank the witnesses for your stamina, for
    being here this long.
        Even you, Mr. Talcott, I thank you for being here.
        And I just want to say--
        Mr. Talcott. Thanks.
        Mr. Perlmutter. --a couple of things.
        For years, we have been trying to address this in one form
    or another here in the Congress, whether you like marijuana or
    you don't like marijuana, whether you think is has medicinal,
    beneficial purposes or you think it causes a psychosis or
    medical problems. But, obviously, the people across the country
    have made a decision that they want to pursue this. Okay?
        We have a problem in the banking system, and this is the
    banking committee, this is the Financial Services Committee,
    and our job is to try to assist the system so that it can deal
    with this cash, deal with these businesses, help these
    employees, help these ancillary businesses--the real estate
    company, the lawyer, the accountant, whomever.
        And I would say to my friend, Mr. Luetkemeyer, and my
    friend Mr. Barr--and they are my friends--for 6 years, we tried
    to go to the Judiciary Committee, we tried to have a hearing in
    this committee, we tried to have a hearing in the Rules
    Committee, we tried to get this in front of the Congress to
    address these problems. Not one hearing.
        And, instead, we had to go to the Obama Administration, in
    which case we got the Cole Memo and we got the FinCEN guidance
    almost 5 years, to the day, 5 years ago. The Trump
    Administration, under Attorney General Sessions, rescinded the
    Cole Memo, but Secretary Mnuchin and the Treasury Department
    has maintained the FinCEN guidance.
        So it isn't for lack of trying to try to address this
    problem.
        And is this a perfect solution? No, because we only have
    jurisdiction over banks and financial services. And that is
    what is trying to be addressed in this so that banks and credit
    unions and other financial service companies can provide
    legitimate financial services to businesses that are legitimate
    in one form or another in their particular State. That is the
    purpose of the SAFE Banking Act. And its other purpose is to
    provide for public safety.
        So I would like to read a couple of things and then ask
    some questions.
        The National Cannabis Industry Association has a lot of,
    sort of, testimonials. And I have a number of things to
    introduce into the record, including a statement from the
    Florida Agriculture Commission and a number of letters.
        But just a couple of testimonials.
        This is from Mandy Tingler: ``Our company is all female-
    founded and -run. When we are unable to utilize banks to store
    our money, it puts us at significant risk for break-in, theft,
    or being targeted by attackers. We regularly struggle with
    large quantities of cash management. It doesn't work well for
    us to carry suitcases full of cash to our local tax office to
    pay our taxes. Our businesses are already forced into less
    desirable parts of town because of the type of business we
    have. This leaves us as sitting ducks to be attacked or worse
    for what we have in our possession. Please allow us access to
    banking.''
        Then, another one is from Sabrina Fendrick of Berkeley
    Patients Group. She says, ``Regardless of our State compliance,
    we have been removed from well over 30 banking institutions so
    far. We seek and request to be treated like any other business,
    with the rights and privileges that come with being recognized
    as a legitimate industry.''
        Last is sort of the ancillary industry kind of things. It
    is from--let's see if I can find it. There it is. ``Eden Labs
    in Seattle, Washington, is a 24-year-old botanical extraction
    and distillation company that has worked in a multitude of
    industries, such as biofuels, flavorings, perfumes, natural
    products, and liquor, to name a few. However, because of our
    work in the cannabis industry, we have been getting moved from
    bank to bank to bank.''
        And so that is what we are trying to address.
        I am going to ask a safety issue of you, Major Franklin. In
    your career, you were, I believe, a narcotics officer. Was it
    important for you to be able to track and trace? And would
    having, sort of, banking records help you as a law enforcement
    officer?
        Major Franklin. Absolutely. We were always in search of
    banking records. We were always getting subpoenas from the
    local prosecutor's office to seize those records, to freeze
    accounts. That was so important--and still is--to the work that
    we do, because we need the evidence when we finally charge the
    individual to get a conviction in court, but, again, to also be
    able to positively track not just for evidence but also for
    removing those illegal proceeds and profits from the hands of
    these criminal enterprises so they can't use that money to
    start up other criminal enterprises. And, many times, we will
    find that tied to things like human trafficking and other
    nefarious activities.
        So, again, the banking records are just so critical. Trying
    to do it with pretty much 100-percent cash--I will say this
    again--we really have to luck out when we search warrants in
    getting computer records or written records, but they are so
    easy to dispose of rather quickly, so it is hard to do.
        Chairman Meeks. The gentleman's time has expired.
        Mr. Perlmutter. Well, I just want to thank the chairman.
    And I want to thank this panel for being here today.
        Chairman Meeks. I, too, want to thank this panel for a long
    afternoon but a very productive afternoon. The information that
    you have given has been very productive.
        This is the first such hearing that we have had on the
    financial regulations of banking with cannabis. And I think
    that the array of questions that have come from both sides of
    the aisle has been very informative also and wide-ranging in
    talking about, from what Mr. Clay, Ms. Ocasio-Cortez, and Ms.
    Pressley have talked about with reference to some of the
    injustices that have taken place by not having banking, to some
    of the things that Mr. Heck has talked about in regards to
    relieving pain for his brother and some life issues.
        And we tried to stick to and make sure that the focus of
    this hearing was on the relevant jurisdiction of this
    committee, which has oversight over banking and financial
    service regulations, as indicated by Mr. Perlmutter.
        I want to thank Mr. Perlmutter particularly. I thought it
    was important that we started and ended with your testimony,
    because you have been working long and hard at this and have
    made the difference.
        I want to also, this being our very first hearing for the
    116th Congress and the first one for the Consumer Protection
    and Financial Institutions Subcommittee, I want to thank my
    ranking member for his patience and diligence and cooperation
    in working on this together.
        So, again, let me thank the witnesses.
        Before I close, I think that there were a couple of items
    that Mr. Perlmutter wanted to put into the record, so without
    objection, it is so ordered.
        Also, I know Mr. Lawson had made a request earlier about a
    letter from Florida. I did not at that time say so ordered, but
    that is from the Florida Department of Agriculture and Consumer
    Services. Without objection, it is also submitted.
        The Chair notes that some Members may have additional
    questions for these witnesses, which they may wish to submit in
    writing. Without objection, the hearing record will remain open
    for 5 legislative days for Members to submit written questions
    to these witnesses and to place their responses in the record.
    Also, without objection, Members will have 5 legislative days
    to submit extraneous materials to the Chair for inclusion in
    the record.
        This hearing is now adjourned.
        [Whereupon, at 6:40 p.m., the hearing was adjourned.]

                                A P P E N D I X

                               February 13, 2019

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