[Senate Hearing 116-82]
[From the U.S. Government Publishing Office]
S. Hrg. 116-82
CHALLENGES FOR CANNABIS AND BANKING: OUTSIDE PERSPECTIVES
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
ON
EXAMINING CHALLENGES THAT STATE-SANCTIONED BUSINESSES IN THE CANNABIS
INDUSTRY HAVE WHEN ATTEMPTING TO ACCESS MAINSTREAM FINANCIAL SERVICES
----------
JULY 23, 2019
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Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
S. Hrg. 116-82
CHALLENGES FOR CANNABIS AND BANKING: OUTSIDE PERSPECTIVES
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
ON
EXAMINING CHALLENGES THAT STATE-SANCTIONED BUSINESSES IN THE CANNABIS
INDUSTRY HAVE WHEN ATTEMPTING TO ACCESS MAINSTREAM FINANCIAL SERVICES
__________
JULY 23, 2019
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available at: https: //www.govinfo.gov/
__________
U.S. GOVERNMENT PUBLISHING OFFICE
38-310 PDF WASHINGTON : 2019
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
MIKE CRAPO, Idaho, Chairman
RICHARD C. SHELBY, Alabama SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania JACK REED, Rhode Island
TIM SCOTT, South Carolina ROBERT MENENDEZ, New Jersey
BEN SASSE, Nebraska JON TESTER, Montana
TOM COTTON, Arkansas MARK R. WARNER, Virginia
MIKE ROUNDS, South Dakota ELIZABETH WARREN, Massachusetts
DAVID PERDUE, Georgia BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana CATHERINE CORTEZ MASTO, Nevada
MARTHA MCSALLY, Arizona DOUG JONES, Alabama
JERRY MORAN, Kansas TINA SMITH, Minnesota
KEVIN CRAMER, North Dakota KYRSTEN SINEMA, Arizona
Gregg Richard, Staff Director
Laura Swanson, Democratic Staff Director
Joe Carapiet, Chief Counsel
Catherine Fuchs, Counsel
Brandon Beall, Professional Staff Member
Elisha Tuku, Democratic Chief Counsel
Tanya Otsuka, Democratic Legislative Fellow
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Charles J. Moffat, Hearing Clerk
Jim Crowell, Editor
(ii)
C O N T E N T S
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TUESDAY, JULY 23, 2019
Page
Opening statement of Chairman Crapo.............................. 1
Prepared statement........................................... 32
Opening statements, comments, or prepared statements of:
Senator Brown................................................ 2
Prepared statement....................................... 32
WITNESSES
Cory Gardner, A U.S. Senator from the State of Colorado.......... 4
Prepared statement........................................... 33
Jeff Merkley, A U.S. Senator from the State of Oregon............ 6
Prepared statement........................................... 35
Rachel Pross, Chief Risk Officer, Maps Credit Union, on behalf of
the Credit Union National Association.......................... 8
Prepared statement........................................... 37
Responses to written questions of:
Senator Brown............................................ 60
Senator Reed............................................. 60
Senator Warren........................................... 61
Senator Cortez Masto..................................... 65
Joanne Sherwood, President and CEO, Citywide Banks, on behalf of
the American Bankers Association............................... 10
Prepared statement........................................... 41
Responses to written questions of:
Senator Brown............................................ 69
Senator Reed............................................. 70
Senator Warren........................................... 71
Senator Cortez Masto..................................... 74
Garth Van Meter, Vice President of Government Affairs, Smart
Approaches to Marijuana........................................ 12
Prepared statement........................................... 44
Responses to written questions of:
Senator Reed............................................. 75
John Lord, CEO and Owner, LivWell Enlightened Health............. 13
Prepared statement........................................... 57
Responses to written questions of:
Senator Brown............................................ 77
Senator Reed............................................. 79
Senator Menendez......................................... 80
Senator Warren........................................... 81
Senator Cortez Masto..................................... 84
Senator Sinema........................................... 86
Additional Material Supplied for the Record
Letter submitted by Moms Strong.................................. 88
``Concerns About CBD'', by David G. Evans, CIVEL................. 99
``Marijuana Use and Mental Illness and Brain Damage'', by David
G. Evans, CIVEL................................................ 109
(iii)
Page
Letter submitted by Americans Against Legalizing Marijuana....... 122
Letter submitted by the National Association of State Treasurers. 124
Resolution submitted by the National Association of State
Treasurers..................................................... 125
Statement submitted by Scott Matas, Mayor of Desert Hot Springs,
CA............................................................. 127
Letter submitted by the Faith and Freedom Coalition.............. 130
Letter submitted by former Directors of the Office of National
Drug Control Policy............................................ 132
Statement submitted by Nicole Fried, Commissioner, Florida
Department of Agriculture and Consumer Services................ 134
Statement submitted by Randal John Meyer, Executive Director of
the Global Alliance for Cannabis Commerce...................... 136
Statement submitted by the ICBA.................................. 215
Letter submitted by the Marijuana Victims Alliance, RE: Impaired
Driving........................................................ 218
Letter submitted by the Marijuana Victims Alliance, RE: Mental
Illness........................................................ 220
Letter submitted by Bridget Hagan, Executive Director, The
Insurance Coalition............................................ 222
Letter submitted by NAFCU........................................ 223
Email submitted by Chairman Crapo................................ 225
Statement submitted by the American Property Casualty Insurance
Association.................................................... 227
Statement submitted by Ernest Martinez, Director at Large of the
National Narcotic Officers' Associations' Coalition............ 235
Letter submitted by the Marijuana Policy Project................. 238
Letter submitted by the National Armored Car Association......... 243
Statement submitted by National Association of Mutual Insurance
Companies...................................................... 244
Statement submitted by Aaron Smith, Executive Director and
Cofounder of the National Cannabis Industry Association........ 256
Statement submitted by Natural Products Association.............. 259
Letter submitted by CADCA........................................ 260
Letter submitted in support of the SAFE Banking Act of 2019...... 261
Letter submitted by Physicians, Families and Friends............. 263
Testimonials in support of the SAFE Banking Act of 2019.......... 266
Letter submitted by Scott Talbott, Senior VP of Government
Affairs, Electronic Transactions Association................... 357
Statement submitted by Paul Armentano, Deputy Director, National
Organization for the Reform of Marijuana Laws.................. 359
Letter submitted by U.S. trade associations in support of the
CLAIM Act...................................................... 362
Personal Stories Submitted to Senator Jeff Merkley............... 363
Statement submitted by Saphira Galoob, Executive Director,
National Cannabis Roundtable................................... 405
Letter submitted by Jim King, Executive VP and CCO, The Scotts
Miracle-Gro Company............................................ 408
Letter submitted by Robin L. Wiessmann, Secretary, Department of
Banking and Securities, Commonwealth of Pennsylvania........... 410
Statement submitted by A. Marc Perrone, President, United Food
and Commercial Workers International Union..................... 411
Letter submitted by Heidi Williams, Mayor, City of Thornton, CO.. 414
(iv)
CHALLENGES FOR CANNABIS AND BANKING: OUTSIDE PERSPECTIVES
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TUESDAY, JULY 23, 2019
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:04 a.m., in room SD-538, Dirksen
Senate Office Building, Hon. Mike Crapo, Chairman of the
Committee, presiding.
OPENING STATEMENT OF CHAIRMAN MIKE CRAPO
Chairman Crapo. The Committee will now come to order.
Before we get started, we have two witness panels this
morning. Senator Brown and I will give our opening remarks
first, and then we will hear from Senators Gardner and Merkley.
Once the Senators have finished their statements, we will
proceed with our second panel of witnesses.
Today the Committee will hear from witnesses about the
challenges that State-sanctioned businesses in the cannabis
industry have when attempting to access mainstream financial
services.
Under the Controlled Substances Act, marijuana, or
cannabis, is currently considered a Schedule 1 drug.
Being categorized as a Schedule 1 drug means that the
possession, distribution, or sale of marijuana or other
marijuana-derived products is illegal under Federal law, and
any proceeds from cannabis-related activities remain subject to
U.S. anti- money-laundering laws, such as the Money Laundering
Control Act.
In the last several years, many States have used ballot
initiatives or referendums that have legalized marijuana in
some form, whether for recreational or medical use.
Currently, there are 11 States plus the District of
Columbia where it is legal to buy and consume recreational
marijuana, and medical marijuana as well, and there are 22
States plus D.C. that have approved medical marijuana--totaling
33 States in all that have some form of legal marijuana.
Senators Gardner and Merkley have introduced bipartisan
legislation that attempts to ease some of the difficulties
resulting from marijuana's illegal Federal status and more
lenient State laws.
I have spoken many times with Senator Gardner on this bill
and appreciate the hard work that each Senator has done on this
legislation, and I look forward to hearing from each of you
very soon.
Our second panel of witnesses will highlight challenges
that institutions face in banking different parts of the
marijuana industry, how marijuana-related businesses operate
and the complications that they have faced in accessing
financial services, and, finally, how the SAFE Banking Act
would work.
We will also hear concerns over advocates pushing to
legalize marijuana, the effects of the SAFE Banking Act in
light of marijuana continuing to be illegal under Federal law,
and health harms and addictions that marijuana can lead to.
I look forward to learning more about the SAFE Banking Act
and understanding how the safe harbor would work, what the
compliance challenges regarding interstate commerce could be,
and the challenges presented when banking legacy cash,
specifically ensuring that the legacy cash complies with the
FinCEN guidance.
Having a conversation about whether banks should be able to
provide banking services to entities engaged in federally
illegal behavior, but behavior which is legal in some States,
brings up an issue and a concern of mine that there has been a
big push--where we have seen a big push to choke off legal
industries from the banking sector.
I have said this many times and I will say it again,
Operation Choke Point was deeply concerning to me because law-
abiding businesses were targeted strictly for operating in an
industry that some in the Government disfavored. Under fear of
retribution, many banks have stopped providing financial
services to members of these lawful industries for no reason
other than political pressure, which takes the guise of
regulatory and enforcement scrutiny.
Operation Choke Point was inappropriate, and Congress needs
to pass legislation to prevent future Operation Choke Point
Initiatives.
Senator Brown.
OPENING STATEMENT OF SENATOR SHERROD BROWN
Senator Brown. Thank you, Mr. Chairman. And, Senators
Merkley and Gardner, welcome, and to the second panel also.
Over the past several years, voters and legislatures in
nearly every State have, to some degree, legalized or
decriminalized cannabis. In my State of Ohio, medical cannabis
is legal; dispensaries opened earlier this year.
The legal cannabis industry is one of the fastest growing
in the United States. It employs hundreds of thousands of
people, many of whom are represented by unions like the United
Food & Commercial Workers International Union.
These Americans work hard to support themselves and their
families, just like workers in any other industry. They deserve
the same rights and protections. Yet in States like Ohio, these
workers and businesses find it difficult to access the banking
system. That puts them and the Americans they do business with
at risk.
No matter how you feel about marijuana itself, we have a
duty to look out for the workers who work in this industry and
for the communities we represent.
Without access to the banking system, legal cannabis
businesses are forced to operate in the shadows, dealing in
large amounts of cash. It puts a robbery target on the backs of
workers. It creates a safety hazard for communities. It can
make it harder to monitor transactions and combat money
laundering. Getting paid in cash means it is difficult to get a
credit card, prove your income to get a loan, or even keep your
personal bank account.
That can force workers to turn to shady outfits like payday
lenders and check-cashing services that charge high fees and
interest rates, trap people in a cycle of debt, and make low-
income people even poorer.
Companies or workers that have found a bank willing to
handle their unique business often pay high fees and are
limited to only the most basic financial services.
This problem does not just affect the cannabis industry. It
affects people that you might not think of. Plumbers, welders,
and electricians service retail locations and other facilities.
Lawn care and gardening companies, like Scotts Miracle-Gro in
Ohio, sell materials and equipment. All these businesses want
to serve their customers and support their workers, but they do
not want to lose their longstanding banking relationships in
the process.
Community banks and credit unions in Ohio and in other
States want to serve the cannabis industries in these
communities. In fact, when I recently met with members of the
Community Bankers Association of Ohio and the Ohio Bankers
League and the Ohio Credit Union League earlier this year,
nearly every hand shot up when I asked if this affected them.
But we know serving this industry comes with legal and
supervisory risks because of the tension, as the Chairman said,
between Federal and State laws. It requires extra layers of due
diligence, challenging and costly for banks and credit unions.
Banks and credit unions play a key role in monitoring our
financial system for fraud, money laundering, and other illegal
activities. It is critical that we maintain our robust anti-
money-laundering framework. And access to the banking system is
essential to keeping our communities safe and ensuring full
participation in the economy.
We cannot continue to ignore this industry and the
thousands of workers and communities it affects.
We also know that today's hearing is just one piece of the
conversation Congress must have on marijuana policy. People
should not be thrown in jail or have their futures jeopardized
by a criminal record over nonviolent marijuana offenses.
Let me say that again. People should not be thrown in jail
or have their futures jeopardized by a criminal record over
nonviolent marijuana offenses.
Everyone should have access to the medicine they need to
care for themselves and their families.
I am looking forward to hearing the perspectives of all of
our witnesses, Mr. Chairman.
Chairman Crapo. Thank you, Senator Brown.
As I mentioned previously, we have two witness panels
today. On Panel 1, we will receive testimony from the Honorable
Senator Cory Gardner, of Colorado, and the Honorable Senator
Jeff Merkley, of Oregon.
On Panel 2, we will receive testimony from Ms. Rachel
Pross, who is the chief risk officer of Maps Credit Union; Ms.
Joanne Sherwood, president and CEO of Citywide Banks; Mr. Garth
Van Meter, vice president of Government affairs of Smart
Approaches to Marijuana, or SAM; and Mr. John Lord, CEO and
owner of LivWell Enlightened Health.
Senators Gardner and Merkley, you may proceed with your
statements.
Senator Gardner.
STATEMENT OF CORY GARDNER, A U.S. SENATOR FROM THE STATE OF
COLORADO
Senator Gardner. Thank you, Mr. Chairman, thank you,
Ranking Member Brown, as well as to everyone on the panel for
the opportunity to speak before you today.
This is a difficult hearing, difficult topic. I know that.
But we were sent here to deal with difficult topics, and I am
grateful for the opportunity to talk about this today. It is an
important step forward, the first hearing we have had on this
issue, as the Federal Government wakes up to the reality that
the cannabis issue is not going to go away, and we must have
action.
There has been a dramatic shift in Americans' views of
cannabis in recent years. Polling shows that about 65 percent
of Americans support legalization of marijuana; 93 percent--93
percent--of the American public support medical marijuana.
In fact, majorities of both parties support legalization.
In a time when all the talk is about how divided we are in the
country, we are remarkably united on this issue.
Given that support, it should not be surprising that the
vast majority of States have changed their laws. Forty-seven
States now allow some form of cannabis. I recognize that my
good friends from the three that have not--Idaho, Nebraska, and
South Dakota--are on this Committee. That represents more than
95 percent of our population living in a State with laws
allowing some form of cannabis.
Thirty-three States have legalized medical marijuana.
Eleven allow regulated adult use.
It is happening in the bluest of blue States, the reddest
of red, and--in Colorado--the purplest of purples. It is
happening in traditionally progressive States like Oregon,
Massachusetts, and California. It is happening in fiercely
independent States like Colorado, Alaska, and Maine. It is
happening in conservative States like North Dakota and Georgia.
It is happening in Rust Belt States like Pennsylvania and Ohio.
Last year alone, Michigan, Missouri, Oklahoma, Utah, and
Vermont all adopted or expanded marijuana programs.
In short, the States are leading on this issue. It is the
States that are leading on this issue, and the Federal
Government has failed to respond. It has closed its eyes and
plugged its ears and pretended and hoped that the issue will
just go away. But it will not.
This disconnect between Federal and State marijuana laws
has become, as the Attorney General has testified, both
``intolerable'' and ``untenable.'' The dramatically expanding
cannabis industry presents real challenges for our Nation. I
have been a skeptic about cannabis legalization. It is no
secret that I opposed legalization in Colorado.
I was concerned about the effects of legalization on
Colorado's youth and public safety. I was leery of breaking
with the Federal Government. I was uneasy about adding another
intoxicant into our culture, and I did not--and still do not--
want to encourage my own children to use marijuana.
Several years into legalization in Colorado, I can say,
though, that the sky has not fallen. There are challenges to be
sure: Colorado has seen an increase in transient populations.
There are concerns about traffic safety and hospitalizations,
and cannabis has been illegally trafficked into neighboring
States.
But according to a recent JAMA Pediatrics report, youth use
is about 10 percent lower in legalized States. One strong
theory as to why that is the case is that legal dispensaries
both force out illegal sellers and enforce age limits. So youth
actually have less access to marijuana.
The data on crime are mixed. Marijuana offenses are down.
Colorado has also experienced an increase in violent crime, but
that is likely driven by an increase in transient populations
moving to the State.
At the same time, the State has brought in over $1 billion
in tax revenue. Last year alone, the State received more than
$266 million in marijuana taxes. Millions of those dollars are
ending up in Colorado schools.
In short, the sky is not falling in Colorado. Instead, what
makes the current situation intolerable and untenable is the
disconnect between Federal and State law.
For instance, every single State-legal cannabis transaction
in Colorado is federally illegal. That means the dollars
involved are the proceeds of an unlawful transaction under the
Federal money-laundering statutes. That means that all of the
different parts of our economy that connect to any legitimate
business--plumbers, electricians, lawyers, accountants,
landlords, et cetera--risk becoming Federal criminals for
serving a client legal under Colorado law.
That also means that the $1.5 billion industry a year in
Colorado is nearly all cash. Banks will not accept industry
money for fear of regulatory action or Federal forfeiture.
Keeping those dollars out of banks means we lose the ability to
trace where the dollars go. It also means that it is harder to
ensure that all taxes are being paid. It makes it easier for
criminals in the illicit market to pose as legitimate. And it
leaves hundreds of millions of dollars of cash in the State.
For example, the State Department of Revenue has one
location that accepts cash. Just one location. So business
owners in the western part of the State often have to drive 5
or more hours with tens of thousands of dollars in cash just to
pay their taxes.
The cash creates a genuine public safety problem.
Stockpiles of cash make the industry a target for thieves. In
2016, a 24-year-old former Marine was tragically shot and
killed while on duty as a security guard at a dispensary.
And we are making it hard for these businesses to comply
with the law. A few months ago a partner at a major national
law firm told me that the firm's bank accounts were going to be
shut down because they counsel State-legal cannabis clients.
I have also heard from the city officials in the town of
Desert Hot Springs, California. For them, lack of banking means
that when they take in a million dollar bond for a cannabis
business, it takes days to count the cash. It takes several
employees off their normal work, and it requires extra security
guards in their offices.
All of this is just scratching the surface of the financial
services problems caused by the Federal/State disconnect. I
have not mentioned the problems with research or veterans'
access or the EPA refusing to certify pesticides for use on
cannabis or the FDA's struggles to police advertising claims or
the confusion created for law enforcement or any of the other
myriad problems that contribute to this intolerable and
untenable situation.
Congress simply must act.
Our failure to act seems to be grounded in two incorrect
assumptions. The first is that we can continue prohibition. We
cannot. We are a Government of the people, and the people have
changed their views. So our laws must change.
The second is that we can come to a national consensus for
full-throated legalization in the near future.
We cannot. There are still too many unanswered questions.
Many States have legitimate concerns. If those seeking reform
insist on swinging for the fences, they will strike out and
lose the chance for real improvement.
I believe Senator Merkley recognizes this. I appreciate his
efforts to provide real concrete improvement for the financial
services industry with the SAFE Banking Act. And I believe
Senator Warren recognizes this. I appreciate her efforts to
forge a compromise to allow the States to move at their own
pace with the STATES Act.
And I believe you, Mr. Chairman, and you, Ranking Member
Brown, my friends on the Committee, will see through this
hearing that we must act.
Thank you for holding this hearing. Thank you very much for
the opportunity to speak with all of you today.
Chairman Crapo. Thank you, Senator Gardner.
Senator Merkley.
STATEMENT OF JEFF MERKLEY, A U.S. SENATOR FROM THE STATE OF
OREGON
Senator Merkley. Thank you very much, Mr. Chairman, for
holding this hearing.
We have a fundamental conflict regarding States rights and
Federal rights. It was back way back in 1996 that Oregon
developed a medicinal marijuana program, so that is quite a
long time ago. We are talking 23 years.
During that period we have seen that the Nation has
changed, and many States have exercised their State rights--
their State rights--to address what they felt was in the best
interest of their citizens.
But there is the heavy hand of the Federal Government here
trying to make life as miserable as possible for citizens
across our Nation. So our basic argument is let us stand with
States rights, let us stand with the judgment from across the
Nation that individuals are doing--the legislators are doing
the best they can for their people and not proceed to create a
Federal chaos that is good for money laundering and it is good
for organized crime and it is good for robbery and it is good
for cheating on your taxes and it is good for cheating on your
payroll, but it is bad for citizens. Let us correct this
problem in this fundamental relationship.
I am delighted that one of my constituents, Rachel Pross,
of Maps Credit Union, is here to testify about the viewpoint
from our State. But across the country, businesses operating
legally under State laws are faced with banking and safety
challenges.
Oregon passed their ballot measure for the use of cannabis,
a vote of the people, way back 23 years ago, and in 2014 passed
another measure legalizing and regulating adult-use cannabis.
However, these cannabis businesses and other related companies
that serve the industry--landlords, lawyers, security
companies, others--have been operating in all cash without
access to bank accounts. I have here 129 stories from Oregon
and from across the Nation that I would like to submit for the
record, Mr. Chairman.
Chairman Crapo. Without objection.
Senator Merkley. I would like to note that among these
stories, one is regarding a certified hemp processing plant.
Now, we chose as Congress federally to legalize hemp as an
ordinary farm product in last year's farm bill, but,
unfortunately, this provision that we have regarding cannabis
has been extended in many cases to completely hamper the
ability of the hemp agricultural industry, which is exploding
across the country, to be able to operate with our normal
financial services. And Andrew, an attorney in Portland,
Oregon, had two bank accounts closed because of his providing
legal services. Do we really want the situation where citizens
operating under States rights in this country, operating in the
best interests of their citizens as judged by their States, are
unable to access attorney services? That is not a provision
acceptable under the vision of equal justice under the law.
Forcing legal businesses to operate in all cash is
dangerous for our communities. I saw this with my own eyes when
I joined an Oregon businessman, Tyson Haworth, on a trip to our
State capital in Salem to pay his tax bill. He had his
quarterly payment of $70,000 in a backpack. He turned it over
on a table, and it just kind of spread out across the whole
table, and some of it fell onto the floor, and it was, like,
wow, that is a lot of money to be carrying around in a
backpack. We then drove down to the State capital and had to go
through three levels of security for him to be able to pay his
taxes. As you approached the building, there were police cars
and patrol members, and then they would tell you which floor to
go to, but not which room. And then you had another set of
security, and then you had another set of security in the room
where you deposit it, because millions of dollars in cash were
flowing in from all corners of the State. This is one of the
most absurd things that I have ever witnessed, and it created--
there are a lot of costs that reverberate back through the
industry that are just really unfair and unacceptable and
dangerous.
We are putting safety at risk when companies are conducting
themselves legally under State-passed legislation, State
rights. So many constituents have reached out to share their
stories, and that is why we are delighted that you are holding
this hearing for a chance for us to present these stories to
the Committee for consideration.
I appreciate the work of the Oregon Retailers of Cannabis
Association, the National Cannabis Industry Association, and
NORML, the National Organization for the Reform of Marijuana
Laws for sharing and putting together these stories that I have
submitted for the record.
Across the country more and more States are following the
example established in the initial States more than two decades
ago, red States, blue States, purple States, whether it is
allowing the cultivation of hemp and its derivatives, such as
CBD, which was legalized in the 2018 farm bill federally, or
taxing and regulating medicinal and adult-use cannabis. In my
home State, State and local governments took in over $80
million in fiscal year 2018 in taxes. That is $80 million
traveling down the roads and highways in duffle bags and
backpacks. I have heard from dozens of people who are operating
perfectly legal businesses who have been forced to deal
entirely in cash or risk having business and personal bank
accounts or lines of credit cutoff.
Todd Theiss, owner and president of Red Barn Cannabis, from
my home town of Myrtle Creek, Oregon, told my office that not
only has he lost business accounts for his dispensaries, but
his employees have lost their personal bank accounts and credit
cards. Spouses of employees have lost their personal bank
accounts. Many employees are fearful that, as a result of these
changes, they will lose their credit rating and be unable to
buy a house or perhaps even have their mortgages or loans
canceled.
So to sum up, thank you for holding this hearing, a chance
to present this conversation. There is nothing good about
forcing the world to operate on cash. It is an invitation to
money laundering. It is an invitation to organized crime. It is
an invitation to robbery. It is an invitation to cheat on your
taxes or cheat your employees. Let us fix this. Let us fix
this. Let us honor the States rights vision of all of these
States that have said this makes sense here in our location for
our citizens.
Thank you, Mr. Chairman, for providing this forum for this
conversation.
Chairman Crapo. Thank you, Senators. We jointly appreciate
the attention and the work that both of you have put into this
issue and your being here with us today. You may be excused so
we can move to the second panel.
Welcome to our second panel. We appreciate you being here
with us to share your knowledge and insights on this issue. I
have already introduced each of you, so we will proceed in the
order that you were introduced. And, Ms. Pross, you may begin.
I should say I ask all of you to remember to pay attention
to the 5-minute rule so that we can have opportunity for
questions.
Ms. Pross.
STATEMENT OF RACHEL PROSS, CHIEF RISK OFFICER, MAPS CREDIT
UNION, ON BEHALF OF THE CREDIT UNION NATIONAL ASSOCIATION
Ms. Pross. Chairman Crapo, Ranking Member Brown, and
Members of the Committee, thank you for this opportunity to
testify.
My name is Rachel Pross, chief risk officer of Maps Credit
Union, a midsized financial cooperative in Salem, Oregon, with
about $770 million in assets and 65,000 member owners. 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 across America.
In the last 5 years, we have seen firsthand the many
challenges facing financial institutions and the cannabis
sector. Maps takes no position on cannabis legalization, but we
acknowledge that Oregon voters have already spoken on the
matter.
While cannabis usage is legal in Oregon, it remains illegal
in other States. Given that, it may be tempting to believe that
the concerns raised by this hearing only affect cannabis
businesses and the financial institutions operating in States
where cannabis is legal. That belief, however, is wrong. Even
financial institutions that choose not to bank the cannabis
industry still risk unknowingly serving these businesses.
Cannabis businesses do not operate in a vacuum, and indirect
connections are hard to avoid.
As a bipartisan group of Senators noted in a 2016 letter to
FinCEN, locking lawyers, landlords, plumbers, electricians,
security companies, and the like out of the Nation's banking
and finance systems serves no one's interests. The United
States benefits from a vastly interconnected economy. A company
like Walmart, based in Arkansas where recreational use is
illegal, could and likely does sell paper or light bulbs to
recreational businesses legally operating in California through
its website or the 167 retail stores it operates in that State.
The same is true for companies like Albertson's, a grocery
store chain based in Idaho, where cannabis use is illegal. Yet
Albertson's has 126 stores in its neighboring States of
Washington, Oregon, Montana, and Nevada, States where cannabis
use is legal in some form.
These examples show the problem. Every time an employee of
a cannabis business uses his or her paycheck to buy groceries,
the local Arkansas or Idaho credit union depositing the
proceeds from those sales is directly impacted by the dilemma
before this Committee today. Without a Federal law providing
explicit legal clearance for financial institutions to provide
banking services to cannabis businesses, it is quite likely
that many of those businesses will be forced to operate in the
underground economy, and many mainstream businesses would end
up with no access to the financial services sector. That
increases the potential of lost tax revenue and crime. It also
deprives law enforcement of vital information. Cannabis banking
can be done safely and effectively, and Maps Credit Union
offers communities in Oregon a safe solution. 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 our mission and philosophy as a not-for-profit
financial cooperative; and, second, to enhance community safety
by removing cash from the streets.
Statistics show that cash-only businesses increase the risk
of crime. A 2015 analysis found that in the absence of being
banked, one in every two cannabis dispensaries were robbed or
burglarized, with the average single theft ranging from $20,000
to $50,000. Compare that to Maps. We are on track to remove
over $860 million in cash from the sidewalks of Oregon's
communities in just 3 years' time. That is millions of dollars
that used to be carried around in duffle bags by legal business
owners in our State, creating public safety concerns for the
communities we live and work in.
We have established a rigorous screening and compliance
protocol and have invested considerably in the robust
infrastructure required to appropriately monitor and maintain
these accounts. Our compliance program is regularly reviewed by
State and Federal regulators. We also obtain an independent
external audit of the program annually.
Most importantly, the compliance framework Maps uses to
serve cannabis businesses is based on the U.S. Department of
the Treasury's FinCEN guidance. In accordance with that
guidance, Maps files quarterly Suspicious Activity Reports, or
SARs, on every cannabis business account, prioritizing those
records to identify any accounts we suspect could be engaged in
illegal activity. Today 91.5 percent of our SAR filings are
related to cannabis businesses. In addition, Maps files
currency transaction reports on cash transactions exceeding
$10,000 in a single business day. Because the cannabis industry
is primarily cash-based, this type of data would not otherwise
be available if financial institutions like Maps were not
transparently serving the industry.
We firmly believe that banking this sector delivers a
significant benefit to law enforcement because we are
essentially providing a continuous flow of free, highly
detailed information on cannabis-related monetary activity in
the State.
In conclusion, we need Congress to provide financial
institutions that choose to serve State-sanctioned cannabis
businesses with a safe harbor. For that reason, credit unions
support the bipartisan SAFE Banking Act, and I thank you for
this opportunity to testify today.
Chairman Crapo. Thank you, Ms. Pross.
Ms. Sherwood.
STATEMENT OF JOANNE SHERWOOD, PRESIDENT AND CEO, CITYWIDE
BANKS, ON BEHALF OF THE AMERICAN BANKERS ASSOCIATION
Ms. Sherwood. Chairman Crapo, Ranking Member Brown, and
Members of the Committee, I am Joanne Sherwood, President and
CEO of Citywide Banks, located in Denver, Colorado. I am also
Chair of the Colorado Bankers Association.
I appreciate the opportunity to present the views of the
American Bankers Association regarding the Federal prohibition
preventing banks from handling money related to cannabis
businesses.
ABA supports Senate bill 1200, the SAFE Banking Act, and we
are grateful to you for your leadership in holding a hearing to
discuss this urgent issue. While some lawmakers would prefer to
avoid this subject, voters have made it clear that this issue
is not going away--with 33 States already having approved
cannabis use and 10 States with cannabis-related initiatives on
the ballot for 2020.
Despite the majority of States having adopted cannabis
regimes of some kind, Federal law prevents banks from banking
cannabis businesses. For banks, that means that any person or
business that derives revenue from a cannabis firm--including
real estate owners, security firms, utilities, vendors,
employees of cannabis businesses, as well as investors--is
violating Federal law and consequently could be putting their
own access to banking services at risk.
As the legal State cannabis industry continues to grow, the
indirect connections to cannabis revenues will also continue to
expand. Without congressional action and clearer guidance from
banking regulatory agencies, that entire portion of economic
activity which operates across all 50 States may be
marginalized from the banking system.
Even banks in States like Idaho and Nebraska, where
cannabis has not been legalized for any purpose, still face
significant compliance challenges that must be addressed.
Cannabis businesses operating in States where it is legal
rely on all kinds of suppliers and service providers to support
their business operations. For example, the bank may have a
customer that is an agribusiness, a law firm, or a payroll
company whose business derives some measure of revenue from a
cannabis-related business in a neighboring State. As a result,
a bank may inadvertently serve businesses and individuals that
have connections with and receive funds from legal State
cannabis companies in a nearby State. That is true despite the
bank's best efforts to identify and prevent cannabis-related
funds of any kind from entering the bank.
In addition to the unintended consequences for ancillary
businesses, communities with legalized cannabis are also
struggling to address the significant challenges to public
safety, regulatory compliance, and tax compliance that go hand
in hand with cash-reliant businesses. In Denver, cannabis
businesses make up less than 1 percent of all local businesses
but have accounted for 10 percent of all reported business
burglaries from 2012 to 2016.
On the tax side, access to the banking system would
increase the efficiency of tax collections and improve the
financial transparency of the cannabis industry. Since many
cannabis businesses do not have a bank accounts, they are
forced to pay their taxes in cash at local IRS offices.
Processing such paper-based returns costs the IRS nearly 17
times more compared to an e-file return and sometimes requires
local tax offices to invest in additional security measures
because of the cash payments.
Allowing cannabis-related businesses access to the
regulated banking system would also provide improved Federal
and State oversight of their financial activities. Bank
accounts are monitored in accordance with existing AML/BSA
requirements. This helps law enforcement to identify and
address suspicious transactions, an opportunity that is not
available in an all-cash environment.
Despite the myriad benefits that would result from banking
this fledgling industry, widespread and consistent financial
services will not be possible until Congress removes the risk
of Controlled Substances Act liability and directs the Federal
banking regulators to issue guidance to help banks understand
what procedures are acceptable. The bipartisan SAFE Banking Act
would help achieve those goals, and we urge the Committee to
advance this legislation as soon as possible.
Thank you for your efforts to address this important issue.
I am happy to answer any questions.
Chairman Crapo. Thank you, Ms. Sherwood.
Mr. Van Meter.
STATEMENT OF GARTH VAN METER, VICE PRESIDENT OF GOVERNMENT
AFFAIRS, SMART APPROACHES TO MARIJUANA
Mr. Van Meter. Chairman Crapo, Ranking Member Brown,
Members of the Committee, thank you for inviting me to testify
before you today. My name is Garth Van Meter, and I am the vice
president of Government affairs for Smart Approaches to
Marijuana, a nonpartisan, nonprofit organization dedicated to a
public health approach to addiction and recovery. SAM was
founded by former Congressman Patrick Kennedy; current editor
of The Atlantic, David Frum; and former senior drug policy
adviser to three Administrations, Kevin Sabet. SAM believes no
one should be locked up or have the rest of their life ruined
just because they got caught with a joint, but we also should
not create a new addiction-for-profit industry in the model of
Big Tobacco.
The fundamental question before us today is whether we want
to promote and increase drug use during an addiction crisis or
discourage drug use and help people find recovery and healing.
By skipping ahead to a technicality over banking rules, the
marijuana industry is hoping to gain many of the benefits of
Federal legalization without a debate over the public health
effects. But make no mistake, a policy change around banking
would have massive public health ramifications.
In the past year, ten States rejected major pushes to
commercialize recreational marijuana, including New York and
New Jersey. The SAFE Banking Act will allow the expansion of an
industry pushing new, exponentially more powerful forms of
marijuana before any of its health or other societal impacts
are fully understood.
Banks currently want to have it both ways: they say they
are not taking a position on legalization, but they want to
profit from depositing federally illegal proceeds. If they want
to benefit from the sales of high-potency pot candies and vapes
that are marketed to young demographics through social media
influencers, they should be consistent and argue to have those
things legalized and advertised. But they are not doing that
because they know that their public reputation would take a
hit.
We have repeatedly heard that this is about dealing with a
cash problem. However, what they are not telling you is that
many dispensaries already have cashless options, including
credit and debit card payments. If you go to the website, at
the bottom of the first page of Appendix A in my testimony,
bigpotexposed.com, you can see video footage from dispensary
after dispensary confirming they indeed accept cashless
payments.
I want to examine two scenarios that could result from the
passage of the SAFE Banking Act. The first is the best-case
scenario that only legitimate sellers participate. According to
former Speaker John Boehner's marijuana investing seminar,
there are hundreds of billions of dollars sitting on the
sidelines waiting to invest. The SAFE Banking Act could have
been drafted to narrowly address point-of-sale transactions.
Instead, the bill is written specifically to allow those
hundreds of billions of dollars to invest. Does anyone think
that public health is going to be the driving force? Already in
Canada, the CEO of a major marijuana corporation was ousted for
a single quarter of poor sales, and Altria, formerly Philip
Morris, has made a multibillion-dollar investment into the
marijuana industry.
It is also important that we not deal with this question in
the abstract. In particular, I would refer you to the first
page of Appendix A, where you can see a marijuana concentrate
called ``shatter'' from Acreage Holdings, which is former
Speaker John Boehner's new gig. Notice the name of the
marijuana strain: ``Thin Mint Girl Scout Cookies''. Let that
sink in for a second. And those are the responsible operators
in the industry. I could show you plenty of examples from
irresponsible operators that are much, much worse. So that is
the best-case scenario if everything goes according to plan.
But there is a much darker possibility, and it does not
require a stretch of the imagination because it is already
happening. International cartels have infiltrated legalized
States and have used the cover of legalization to conduct
massive grow operations, often in upscale, suburban
neighborhoods. The SAFE Banking Act provides a scalable new
avenue for these cartels to infiltrate the banking system in a
much more systematic way.
In Appendix B, you will find a letter from former DEA
Administrators and drug czars who describe a threat that
parallels the multibillion-dollar Black Market Peso Exchange
and testimony from Colorado law enforcement that lays out an
example of how this would work. I would be happy to go into
more detail of these threats during witness questions.
There still is an opportunity for the other witnesses in
the banking industry at this table to wash their hands of the
marijuana industry and say, ``We want no part of this coming
nightmare.'' But if they proceed, at least it will be with the
full knowledge of what they are investing in: preying on the
vulnerable through the marketing of high-potency and kid-
friendly products, and producing new cases of substance use
disorder and serious mental illness. It took us over 100 years
to reverse the public health impacts of the tobacco industry,
who continually cast doubt on public health advocates with
industry-funded bunk science. We have an opportunity today not
to repeat those mistakes.
Thank you.
Chairman Crapo. Thank you, Mr. Van Meter.
Mr. Lord.
STATEMENT OF JOHN LORD, CEO AND OWNER, LIVWELL ENLIGHTENED
HEALTH
Mr. Lord. Chairman Crapo, Ranking Member Brown, and Members
of the Committee, thank you for providing me the opportunity to
share my perspective on the issue of banking in the cannabis
industry. My name is John Lord, and I am the owner and CEO of
LivWell Enlightened Health, a vertically integrated cultivator,
manufacturer, and retailer of cannabis products under the laws
of Colorado. LivWell is one of the largest cannabis companies
in Colorado, with more than 600 employees and approximately
$100 million in annual revenue. We manage 15 retail stores in
Colorado with each averaging close to $20,000 a day in sales
and collectively served 4,500 people per day. Yet because of
the current status of the law, we are forced to operate as an
all-cash business.
I am here today representing not only LivWell but the
Cannabis Trade Federation, for which I am currently Chair. CTF
is a national coalition of cannabis-related businesses
dedicated to professionalizing, diversifying, and unifying the
cannabis business community.
Before launching LivWell, I had a more traditional business
career. I began as a dairy farmer in New Zealand and eventually
moved into importation, manufacturing, and wholesaling child
safety seats and baby products. As the company grew, I
established operations in the U.S., became a citizen in 2007,
and sold my company in 2008. I was looking for my next venture
just as the medical cannabis industry got off the ground in
Colorado, and I decided to apply my manufacturing and
compliance experience to this new field.
In 2009, we began a small cultivation space and dispensary,
acting in accordance with the medical marijuana provisions of
the Colorado Constitution. After the voters of Colorado
legalized cannabis for adults in 2012, our facilities became
dual-use in 2014.
But our evolution as a company was not always smooth due to
the dichotomy between State and Federal laws. Banks and credit
unions have been reluctant to serve cannabis businesses or have
refused to do so altogether. Some banks were discouraged or
prevented from doing so by their regulators. As a result, we
have frequently struggled to obtain and maintain bank accounts.
At one point, I rented out a former bank to use as a vault to
store cash. Another time, I had no choice but to walk into the
IRS in Denver with more than $3 million in cash in order to pay
Federal taxes.
Imagine running a State with hundreds of employees and
having to make all payments, including payroll, in cash. It is
difficult and, frankly, it is dangerous. This is something
thousands of State-legal cannabis companies are struggling with
every day.
While our company now has a more stable banking
relationship, we are still far too dependent on cash. Since
credit card companies refuse to process cannabis transactions,
customers are forced to bring cash into our stores. We must
hold the cash until it is deposited into our accounts. These
are significant public and employee safety risks that could be
avoided if cannabis businesses had normal banking relationship.
I note that the news about cannabis banking is not all bad.
Notwithstanding the fact that the Department of Justice
rescinded several memoranda regarding cannabis enforcement in
2018, FinCEN has maintained its 2014 guidance to financial
institutions serving cannabis businesses. Of course, from a law
enforcement perspective, this makes eminent sense as it is
always easier for law enforcement to detect illicit activity if
proceeds are subject to the transparency of the regulated
banking system.
Due to the costs associated with complying with FinCEN
guidance, banks services for cannabis businesses are not cheap.
Our company pays in excess of $3,000 per month just to have an
account. The current situation is especially challenging for
small businesses. While we are able to absorb the additional
costs associated with cash management and exorbitant bank fees,
many mom-and-pop shops are not. It should be noted that these
small businesses are also being squeezed by Section 280E of the
Internal Revenue Code, which prevents cannabis companies from
deducting standard business expenses when they calculate their
taxes. In fact, LivWell's effective tax rate is currently 80
percent. If there is any hope of helping small businesses
survive and thrive, we must fix the banking situation, amend
280E so that cannabis businesses are taxed like any other
business.
Thank you again for inviting me here today, and I look
forward to answering your questions.
Chairman Crapo. Thank you, Mr. Lord.
I wanted to start out my questioning with Ms. Pross and Ms.
Sherwood. The SAFE Banking Act provides a safe harbor from
Federal banking regulators taking certain actions against
depository institutions providing services to the marijuana
industry. There are many different State laws on marijuana, as
has been indicated by our witnesses today. The question that I
have relates to how under the SAFE Banking Act would a safe
harbor work for a bank providing financial services to
marijuana-related businesses when the banking is across State
lines, when you are dealing with different laws in different
jurisdictions. How does this safe harbor work?
Ms. Pross. Thank you, Senator. In the State of Oregon, Maps
Credit Union, we actually only serve the State of Oregon. As a
credit union, we are limited to a geographic charter, so we
actually are not dealing outside of the State lines of the
State of Oregon.
Chairman Crapo. All right. Ms. Sherwood.
Ms. Sherwood. We have the same situation, Chairman, so we
are only local within the State of Colorado. We would not deal
with outside entities.
Chairman Crapo. Mr. Van Meter and Mr. Lord, are you aware
of situations where there is banking across State lines, or
would be if we were to engage in this legislation?
Mr. Lord. Currently, no, sir. There would be, of course,
excellent opportunity to do so should the regulations permit.
Mr. Van Meter. There are now a large number of dispensary
chains that are multi-State operators, so I imagine that just
by virtue of operating in multiple States, they would be
transferring money between States.
Chairman Crapo. All right. Let me move on to another
question. Mr. Van Meter, you raised a number of concerns about
the abuse and impacts of the abuse of marijuana that could
occur if we have, I guess what you are saying, an essentially
unregulated system. So are you saying that the banking of
legitimate marijuana should be prohibited? Or are you saying
that there should be some kind of regulatory system put into
place to assure that we do not have abusive, high-intensive
products and inappropriate marketing to the vulnerable?
Mr. Van Meter. I am saying we should have that debate
before we address the banking question, that to address banking
and the institutional investors entering the banking system to
invest in marijuana firms is premature before we have had a
debate over whether or how to regulate the addictive potential,
the abuse potential of high-potency marijuana.
Chairman Crapo. Could you give me just a couple further--a
little more explanation of the issue that you are talking
about? You indicated that, for example, the high-intensity
products and the damage that this could and is in some cases
having.
Mr. Van Meter. Yes, sir. So if you look at some of the
examples that I provided in the appendix, you will notice that
it is the concentrates that are most heavily marketed through
their social media accounts, and these products are
tremendously high potency. When most people think about
marijuana, they think about 1 to 3 percent Woodstock weed in
terms of the potency of the amount of THC in it. Today's
marijuana, the concentrates go up to 95 percent, and it is a
very educational experience if you watch videos of people doing
these on YouTube. The most common effect is that someone coughs
until they vomit, and then they pass out. It is very disturbing
to watch.
So, you know, these are tremendously damaging products.
They have been shown through the few scientific studies that
have been done on them to have very damaging effects on the
brain. And these are the products that the marijuana industry
is very much trying to get people to graduate to. There are all
sorts of promotions to get people to try marijuana
concentrates.
Chairman Crapo. All right. Thank you.
Mr. Lord, and, frankly, our credit union and banking
representatives could respond to this as well, is the 2014
FinCEN guidance helpful and effective? And would you support
making the FinCEN guidance statutorily required for all
financial institutions in this arena?
Mr. Lord. All Federal guidance is welcome, and we look
forward to being part of this regulation continuing to evolve.
Chairman Crapo. All right. Ms. Pross and Ms. Sherwood.
Ms. Pross. Thank you, Mr. Chairman. Not only is the FinCEN
guidance very helpful to Maps Credit Union as we serve this
industry, but it is vital. It provides the compliance
framework, and it is frankly the rule book that we abide by in
order to do this safely and effectively and transparently.
Chairman Crapo. Ms. Sherwood.
Ms. Sherwood. I agree. In addition, I think it is critical
that the banking regulators clearly come out with guidance that
we are to follow as organizations so that we have clear
expectations of how to operate.
Chairman Crapo. All right. Thank you.
Senator Brown.
Senator Brown. Thanks, Chairman.
Mr. Lord, from my opening statement you can--you might
suggest that in this whole debate I am most interested in the
workers that work for you and others, union and nonunion
workers. A couple of questions. When you first started your
business and had to operate in all cash without a bank account,
what safety risk did this pose to your workers?
Mr. Lord. Senator Brown, incredible safety risks involved
in just that volume of cash. Currently we actually have our
employees through a company called Delt Services, which is not
directly involved with banking, and then we lease those
employees to our cannabis-touching company in order to provide
one layer of protection back to those employees. So today we
actually can process, but we do it through a two-step process.
Prior to that, just large amounts of cash is dangerous.
Senator Brown. Is your operation, the operation you have
just mentioned, union or nonunion?
Mr. Lord. Nonunion, sir.
Senator Brown. I mentioned in my opening statement United
Food & Commercial Workers are involved or organized in some
parts of this industry. Do you see your industry as potentially
an industry where a lot of the workers unionize?
Mr. Lord. At this stage, not so much. In order to protect
our employees, we provide a 401(k) plan, full company-paid
health care, and above average wages. And it has been a very
robust industry for employees, and we are very proud of our
past.
Senator Brown. Have there been efforts to organize a union
at your operation?
Mr. Lord. Yes, there has been.
Senator Brown. OK. And you have opposed it?
Mr. Lord. I have not opposed it. Our employees to date have
rejected it.
Senator Brown. You have not weighed in at all?
Mr. Lord. No, sir.
Senator Brown. Management has not weighed in at all?
Mr. Lord. No, sir.
Senator Brown. OK. Do you have an obligation, you and your
industry, to hire people who have served time in prison for
possession of marijuana?
Mr. Lord. We would look forward to that situation. Recently
Mayor Hancock of Denver has provided an expungement program for
felonies, which would be very necessary because we cannot under
State regulation employ a felon.
Senator Brown. You cannot employ a felon, someone who has
committed a crime, even after they have done their time, under
State law?
Mr. Lord. Yes, sir.
Senator Brown. As your industry has lobbied State
legislatures around the country, is that one of the things you
are lobbying for, to get that law changed?
Mr. Lord. Definitely, sir.
Senator Brown. You have affirmatively lobbied to get that
changed?
Mr. Lord. Yes, sir.
Senator Brown. OK. Thank you for that.
Ms. Pross, how is regulator guidance, for example, from
FinCEN enabled you to provide financial services to the
cannabis industry?
Ms. Pross. Sure. The FinCEN guidance is a rule book that we
follow in serving these businesses. It provides us clarity on
when to file Suspicious Activity Reports, with what frequency,
and how to prioritize those Suspicious Activity Reports to
ensure that we are flagging activity that could be beneficial
to law enforcement, activity that could indicate financial
crime.
Senator Brown. All right. Thank you.
Mr. Van Meter, I appreciated the Chairman's questions about
this. I want to touch in a related way but a little more. I
understand the health concerns you raise in your testimony. It
is persuasive and convincing, I think, to a lot of people.
Would it be better to regulate this industry and include in the
traditional financial system in order to address your concerns?
Mr. Van Meter. Senator, that has not been the evidence or
the experience in States that have legalized so far. There has
been a lot of cross-pollination between the regulators going to
work for the industry and the industry going to become
regulators. And so it is very much a circumstance where the fox
is guarding the henhouse. I think it might be a different set
of circumstances if marijuana were placed under the Tobacco
Control Act with the same ability to restrict potency, to ban
concentrates, to ban all of these kid-friendly edibles. But
that has not happened in any legalized State so far. Every
effort to put a restriction on potency has been defeated by the
marijuana industry. They have actively lobbied against that.
Senator Brown. We, of course, have never seen regulators go
work for the industry or people from the industry come and work
for the Trump administration either, so I can understand that
you might possibly think that.
Mr. Lord, would you answer the same question I asked Mr.
Van Meter?
Mr. Lord. Yes. Could you please repeat the question, sir?
Senator Brown. Would it be better to regulate the industry
to address the health concerns that I think Mr. Van Meter
pretty persuasively discussed, would it better for the
industry--would it be better to regulate the industry in the
traditional financial services system?
Mr. Lord. We are looking forward to Federal regulation. We
believe at the moment we have robust State regulation, but
those State regulations vary from State to State dramatically,
and we have a lot of safeguards put into those State
regulations, but Federal regulation is what we look forward to.
Senator Brown. What is to stop the--and this is my last
question. I apologize, Mr. Chairman. What is to stop what is
happened in financial services, what has happened in Wall
Street, where Wall Street basically owns this institution and
the regulators certainly in the Trump administration, what is
to stop the regulatory capture in marijuana the same way we
have seen it in banking?
Mr. Lord. I believe that some of these regulations are yet
to be fleshed out. I believe that we are asking to be
regulated, and these are debates that need to happen with
regard to the regulation. Here today we are asking for the
basics of banking, the ability to put our money in a bank,
perhaps take out SBA loans, et cetera, which, again, will help
social equity and minority equity in getting started in these
businesses.
Currently, unless you are of high net worth or have access
to high-net-worth individuals is the only way to finance these
businesses. So this would help allow that.
Senator Brown. Thank you.
Thanks, Mr. Chairman.
Chairman Crapo. Thank you.
Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman.
The topics of today's hearing are of particular importance
to me as New Jersey is in the midst of a large medical
marijuana expansion, and I have concerns that cannabis and
cannabis-related businesses will continue to find themselves
shut out of the financial and insurance systems.
For example, if an insurance company is required to offer
coverage to a cannabis business under State law, the insurer
faces a serious and fundamental conflict between State and
Federal laws. That is why yesterday I introduced the CLAIM Act
with Senators Paul, Merkley, and Cramer to end the confusion
and legal exposure that arises from the conflict between State
and Federal insurance laws.
And, Mr. Chairman, I would like to introduce--I think you
are the Acting Chairman--a letter of support from eight
insurance trades into the record.
Senator Brown [presiding]. You can do anything you want
with me as Acting Chairman.
[Laughter.]
Senator Menendez. Then I would like to ask unanimous
consent that the CLAIM Act be--no.
[Laughter.]
Senator Menendez. Thank you, Mr. Chairman.
Ms. Pross and Ms. Sherwood, when a local business obtains a
commercial loan from a financial institution, is it common
practice for the borrower to be required to obtain certain
types of insurance?
Ms. Sherwood. Yes, Senator, and it depends on what type of
business and what type of loan. But fire and casualty, hazard,
business continuity, environmental, all those are requirements,
and we are unable to close a loan without those.
Senator Menendez. Is that your experience as well, Ms.
Pross.
Ms. Pross. Yes, it is.
Senator Menendez. And what happens when they are unable to
get insurance coverage?
Ms. Sherwood. We are technically supposed to force-place,
but if that is not available in the marketplace, we would have
to call a loan and ask them to pay us off.
Ms. Pross. So at Maps, insurance is typically required on
all commercial loans because of the loan collateral. So if the
applicant could not obtain insurance, then the loan request
would be denied. If it was a loan that had already been funded
for a commercial entity, the borrowers would be considered in
default if they were unable to secure insurance coverage.
Senator Menendez. So either you cannot get a loan because
you cannot get the insurance, or if you have proceeded in some
way and your business has morphed into this area and you need
the insurance and cannot provide it, you are in default.
Ms. Pross. Correct.
Ms. Sherwood. Correct.
Senator Menendez. So would you agree that providing legal
clarity around the provision of insurance at the Federal level
would help banks and businesses in the legal cannabis industry?
Ms. Pross. I think that makes sense, yes.
Ms. Sherwood. Yes, Senator.
Senator Menendez. OK. Thank you.
Mr. Lord, can you explain to the Committee some of the
issues you have run into in trying to obtain affordable
insurance for your business and employees?
Mr. Lord. Yes, Senator. Affordable----
Senator Menendez. You have a great South Jersey accent,
too, I must say.
[Laughter.]
Mr. Lord. Slightly further south, but thank you, sir.
With regard to affordable insurance, I think that is the
key word that we need to take out. We do have insurance--there
are about two companies that we are aware of that are insuring,
but just to give an example, offices and directors insurance,
the maximum that we could get was $2 million in protection, and
that costs $100,000 a year per officer and had a deductible of
$1 million. So, effectively, we got $1 million insurance for
$100,000 per officer. So extremely expensive insurance.
With regard to regular business interruption insurance,
things like that, the insurance is there but, again, incredibly
low dollar values, so, you know, nothing that is really going
to help the business survive perhaps some sort of business
interruption and high rates.
Senator Menendez. So would a more stable and affordable
insurance market help you reduce your costs, expand your
business, and create more competition and more competitiveness
than black market marijuana?
Mr. Lord. Most definitely, Senator.
Senator Menendez. Are you able to fully insure all the
dispensaries and ancillary businesses in your group?
Mr. Lord. No, we are not. We struggle with this
periodically, and as I said, a lot of the volume of insurance
that we can get or the dollar value of the insurance is not
where it should be.
Senator Menendez. Let me finally go back to Ms. Pross and
Ms. Sherwood. Legal marijuana businesses do not operate in a
vacuum. They usually need to rent property from someone. They
might also need a plumber, an electrician, or even an
exterminator to successfully operate the business. These
ancillary businesses I think are also caught up in the
confusion around cannabis banking.
Are ancillary businesses at risk of losing their bank
account if they work with a legal cannabis business?
Ms. Sherwood. They are, Senator, and it depends to the
degree with which they participate. We are unable to lend
against any property that has a cannabis-related industry in
it.
Senator Menendez. Is that your experience, Ms. Pross?
Ms. Pross. Yes, it is. We do offer ancillary services at
Maps Credit Union, but our experience with these businesses is
that they have had tremendous difficulty accessing banking
services.
Senator Menendez. So let me close by saying a small
business would often have to choose between accepting a new
client and losing their bank account or losing the client and
keeping their bank account?
Ms. Pross. That is true.
Ms. Sherwood. That is correct.
Senator Menendez. Thank you, Mr. Chairman.
Senator Brown. Senator Tester.
Senator Tester. Thank you, Ranking Member Brown, and I
thank all the folks who testified today.
So from your testimony--I want to direct this to Ms. Pross
and Ms. Sherwood. From your testimony, Ms. Pross, your credit
union does bank the industry?
Ms. Pross. That is correct.
Senator Tester. And yours does not, right?
Ms. Sherwood. That is correct.
Senator Tester. And so tell me, Ms. Pross, you talked
about, you know, the transaction reports and the Suspicious
Activity Reports. Is that what your regulator is requiring you
to do to be able to bank them? Or tell me why you have a market
advantage over the bank. I guess the question is: How are you
doing this without the regulators coming in and shutting you
down?
Ms. Pross. Sure. Every financial institution has to go
through its own risk analysis, how much legal risk and
reputation risk they are willing to take to start a new product
line. And at Maps, our board of directors chose to take this
risk----
Senator Tester. And that is OK with the regulators?
Ms. Pross. It is OK with our regulators.
Senator Tester. So that is good.
Ms. Sherwood, why aren't you doing it?
Ms. Sherwood. The fundamental issue is this is illegal from
a Federal perspective, and we----
Senator Tester. And your regulator is a Federal----
Ms. Sherwood. Yeah, and we are not willing to take the
reputational risk or the exposure.
Senator Tester. OK. And CUNA is also Federal too, though,
right?
Ms. Pross. At Maps Credit Union, we are State regulated and
federally insured by the NCUA.
Senator Tester. I got you. OK. All right. So the example
that Senator Menendez gave about everybody that is associated
with lending money or doing business with a cannabis
institution is at risk of losing their bank account. Right?
Ms. Sherwood. That is correct. If we become aware that they
are servicing the cannabis industry, we are required to do an
in-depth investigation to determine what percentage of their
income is derived----
Senator Tester. And who would make that determination of
awareness?
Ms. Sherwood. That would be our bank secrecy department,
and then we will look into the ownership and the owners of the
company to see if they are then related to cannabis businesses.
Senator Tester. I got you. So, Ms. Sherwood, does the SAFE
Banking Act solve all the cannabis banking problems? I am not
talking about from a financial perspective. I am talking about
it from a regulatory perspective.
Ms. Sherwood. I think it is a start, but unless the banking
regulators clearly define the expectations and operating
procedures going forward, it will not solve anything.
Senator Tester. Does the ABA or CUNA have any language that
would help solve this problem that they could put forward in a
bill form?
Ms. Sherwood. At this time we do not, but working with the
regulators, I am sure we can come up with something.
Ms. Pross. CUNA strongly supports the SAFE Banking Act, and
we feel that the FinCEN guidance for banking marijuana-related
businesses is adequate to follow in order to serve this
industry.
Senator Tester. Let me ask you, not what this hearing was
about, but hemp. Can you bank hemp, Ms. Sherwood?
Ms. Sherwood. Currently, no, until the regulatory guidance
comes out, we are unable to operate----
Senator Tester. So none of the regulators have come out
with any guidance on hemp?
Ms. Sherwood. No, sir.
Senator Tester. How about you, Ms. Pross?
Ms. Pross. We are serving the hemp industry.
Senator Tester. Same as the cannabis. It is interesting
because, quite frankly, we have talked to the regulators, and
they tell us that that regulation clarity is due to come out
since we passed the last farm bill and took it off the
schedule.
I have just got one question because I am just curious, Mr.
Lord. How much do you pay out a year in security?
Mr. Lord. Oh, we used to have--actually several hundred
thousands dollars a year would be the answer to that. We have
brought it in-house recently. We employ veterans largely for
internal security, and, you know, we have probably 20 good-
paying jobs.
Senator Tester. Are they armed security?
Mr. Lord. Up until recently, yes. But just recently we have
removed the arms.
Senator Tester. OK. All right. Well, thank you all for
being here. I think this is an issue that, if Congress can do
anything about, we should do it.
By the way, Mr. Van Meter, your testimony is spot on. I
tend to fall in the same camp as Senator Gardner does on this
and that the people speak and we are representatives of the
people, so we should move forward--not that I am any big
supporter of it because I am not, but nonetheless, we are
representatives of the people.
Thank you all very much.
Chairman Crapo [presiding]. Senator Warner.
Senator Warner. Thank you, Mr. Chairman.
I do believe we need some clarity here, and I want to go
back to the FinCEN regulations, which I know, Ms. Pross, you
indicated that your credit union has tried to follow very
closely the FinCEN guidance and particularly around SAR
filings.
One of the things I have heard from financial institutions
in my State is that there is some lack of clarity around the
term ``marijuana-related businesses,'' and so that creates a
level of uncertainty. Can you talk about some of the
shortcomings in the FinCEN guidance, Ms. Pross?
Ms. Pross. Our experience with the FinCEN guidance has been
positive. It is a definite clear line and rule book for us to
follow. We do not believe that it is very ambiguous. We
actually----
Senator Warner. So the notion--you feel there is clarity
around the term ``marijuana-related businesses''?
Ms. Pross. Yes, we define marijuana-related businesses or
cannabis businesses as plant-touching entities, and then there
are ancillary businesses that are not touching the plant but
are serving the cannabis industry.
Senator Warner. Ms. Sherwood, how do you feel about the
FinCEN guidance?
Ms. Sherwood. The crux of it is that it is still illegal,
so regardless of the guidance, making it legal or making the
SAFE Act valid would then guide us to get more regulations,
more clear guidance from the banking regulators. So in the
absence of clear delineation from the banking regulators, we do
not feel it is sufficient.
Senator Warner. And that is why I think so many of us here
think SAFE is the right step forward to give you all the
guidance and protection that I think you need as this becomes
more legal in more and more States.
One of the things, Mr. Lord, I have heard concerns from
both farmers and bankers is the difficulty in keeping the THC
levels in check, particularly as we go over toward hemp. I
understand crops cannot exceed the 0.3 percent THC level.
According to some of my bankers, they are literally trying to
go into the field and do testing on their own, which seems a
little crazy.
So can you as a grower comment on that challenge of how you
maintain appropriate THC levels on an ongoing basis since
during the growing process they may--there seems to be some
fluctuation?
Mr. Lord. Certainly. What I am commenting on is slightly
out of our lane. As a THC grower, we cannot in Colorado grow
hemp, so they are a different animal. But with regard--I can
speak regarding hemp. The amount of sunshine or wet weather,
things like that, actually affect, just as they do sugars
perhaps in many other crops, affect THC levels.
Senator Warner. And so, consequently, depending on where
you may be in the growing cycle, you could get a different
reading, which seems a little strange. Do you think that
financial institutions should be able to rely on State
licensing processes for the purposes of whether you meet or do
not meet those THC levels?
Mr. Lord. Yes. You know, the crops have to be tested pretty
much immediately at certain points, and that handled on a State
basis is quite necessary.
Senator Warner. Well, one of the things--I want to
associate with Ranking Member Brown's comments. I really think
if this is a direction we are going to head, we need to make
sure that we have good access for small businesses,
particularly minority- and women-owned small businesses. Some
of those communities have been disproportionately hurt, and
clearly the current rules within Section 280E of the IRS really
makes it very difficult for folks without access to a large
amount of capital to get a fair shot to get into this business.
Can you speak a little bit how these IRS current rulings
really inhibit and prohibit small businesses, particularly
minority-owned small businesses, from getting access to this
marketplace?
Mr. Lord. Yes, I completely agree with your comments. It
makes it incredibly difficult without access to, as I said
earlier, high-net-worth individuals, et cetera, because that is
really the only access for capital.
With regard to somebody starting off in this industry at
the moment without access to bank loans or SBA loans or, you
know, any sort of economic development area or anything like
that, it is incredibly difficult, in fact, I think almost
impossible for, you know, minorities or anybody actually coming
from just even a very regular situation to get a toehold in
this industry.
Senator Warner. So I think, you know, if we are going to
move forward in this area, I think we need to give the kind of
legal clarity that I think the SAFE Act would provide, and I
look forward to working to make that happen.
Thank you, Mr. Chairman.
Chairman Crapo. Thank you.
Senator Schatz.
Senator Schatz. Thank you, Mr. Chairman. Thank you all for
being here.
I want to start with Ms. Pross, and I know in your
testimony you talked about the risks related to operating a
business solely with cash. I would like you to flesh that out a
little bit in terms of possible physical risk and the
difficulty in complying with other Federal laws, especially
anti- money laundering and preventing criminal financing.
Ms. Pross. Thank you. Just to clarify, are you talking
about the risks that the cannabis entities are facing with that
much cash on hand or the credit union?
Senator Schatz. Both.
Ms. Pross. Both, OK. Thank you.
So we have talked to numerous members who have opened
accounts at Maps who have described that they have been storing
cash in shoe boxes, empty mattresses. There are unscrupulous
third-party players involved in this who are selling cash
vaulting type of services, and those are not true cash vaults.
They are, in fact, storage units, just basic storage units full
of cash that are earmarked for various businesses. It is not
safe. We had a cannabis business that was robbed on a Sunday
and opened an account with us the following week. So it is a
major issue, a safety issue. At the credit union, we make sure
that that cash is not stored in our facilities. We do not want
to put our staff at risk that way.
And one of the things that we are most proud of is our
collaboration with law enforcement. I have had numerous law
enforcement officers comment that us banking this industry is
providing them data that they would not otherwise get if the
industry were unbanked. And I had one investigator in
particular who said, after we had done it a few years, he said,
``The SAR filings that Maps is doing is actually helping us see
what aboveboard cannabis-related monetary activity looks like,
and it is actually helping us hone in on the bad guys.'' And he
just was profusely thanking us for banking this industry and
making his life as an investigator easier.
Senator Schatz. I think that is just a critical point, that
this lack of clarity between Federal and State law is driving
this industry into an element that it does not want to operate
in, and it has to interact with some shady characters by
necessity because it is not permitted to bank properly. And I
would just encourage all the Republicans on the other side of
this dais to acknowledge that this is a real issue.
There is a real debate about the health benefits and risks
around marijuana, and this is interestingly an issue that
unites both proponents and opponents of legalization because
everybody supports research and, quite reasonably, people who
are opposed to legalization and people who are in favor of
legalization believe that the research will bear out their
views.
I have a bipartisan bill with Senators Grassley, Feinstein,
Alexander, and others to break down the obstacles to research
on marijuana, and we have actually worked closely with SAM on
developing this legislation. But I am concerned about the lack
of access to financial services.
So, Ms. Sherwood and Mr. Lord, has the lack of banking
services undermined the ability for research institutions,
universities, and hospitals to conduct research? And I will
start with Mr. Lord.
Mr. Lord. Thank you, Senator, and most definitely, that and
having any form of Federal regulation around cannabis has huge
implications when it comes to research. FDA will not recognize
any research even if that was performed currently because it is
an illegal substance federally. And the same goes for many
universities conducting research are unable to for fear of
their Federal funding being removed. So it puts official
research in jeopardy.
Mr. Van Meter. Senator, could I add something to that
quickly?
Senator Schatz. Sure.
Mr. Van Meter. So if the marijuana industry was concerned
about research, then I do not think that they would be selling
some of these extremely high potency----
Senator Schatz. Well, hang on. I am concerned about
research, so I am going to allow you to answer the question,
but I am not going to allow you to take a potshot at the people
that you are testifying with. If you want to answer the
question about the extent to which the lack of clarity in
Federal law prevents us from doing research, I will allow it.
But I am not going to allow you to just give your stump speech.
Mr. Van Meter. Sure. No, and that is a fair point, that
there are barriers to research, and as you mentioned, SAM
supports reducing those barriers and supports your efforts
toward--to that extent.
Senator Schatz. Thank you.
Ms. Sherwood.
Ms. Sherwood. Senator, I was just made aware Friday of that
very issue where we do have Colorado universities who would
really benefit from researching this industry and the effects
of it. Because they are taking Federal grants and Federal
subsidies, they are unable to go forward on those programs.
Senator Schatz. Thank you.
Chairman Crapo. Senator Cortez Masto.
Senator Cortez Masto. Thank you. First of all, let me just
say thank you to the Chairman and Ranking Member for holding
this hearing. I know this is something that many of us have
asked for. I so appreciate it. It is such an important issue,
as we can see, and particularly for the State of Nevada.
Let me just say this: As a former Attorney General, I so
appreciate--I think there were 38 AGs that signed a letter in
support of the SAFE Banking Act. This was an issue that was
important for me as the Attorney General of the State of
Nevada, and here is why--and, Mr. Van Meter, I agree with you.
I think there are concerns about the concentration, the public
safety health risks, but I also know the people of the State of
Nevada voted, a majority, to go down this path, and I respect
that.
So as a former Attorney General, and in conjunction with my
colleagues, I do think there is a concern. Because we do not
have a financial system, these businesses are forced to operate
on a cash basis, and this is what the AGs said in their letter.
The resulting gray market makes it more difficult to track
revenues for taxation and regulatory compliance purposes,
contributes to a public safety threat as cash-intensive
businesses are often targets for criminal activity, and
prevents proper tracking of billions in finances across the
Nation.
I do think that we need to address this issue for those
very reasons, and we can still study the health implications
and address what you have talked about when it comes to the
concentrations and how they are marketing some of the
marijuana.
But let me jump back to this idea from a public safety
perspective, and, Ms. Pross, in your testimony before the
House, you highlighted that one in every two cannabis
dispensaries were robbed or burglarized, with the average thief
walking away with anywhere from $20,000 to $50,000 in a single
theft. Outside of burglary and theft, could you discuss what
other risks are associated with an unbanked industry that in my
State generated more than $600 million in revenue last year?
Ms. Pross. Sure. As a Bank Secrecy Act expert, my concern
is financial activity going outside of State lines, seeing
money laundering, financial crime, the financing of revenue for
cartels and gangs. So those are all concerns that we have. And
having the money going through a legitimate transparent
financial institution relationship allows us to hone in on
activity that could indicate financial crime that is promptly
reported, and it also helps us ensure that the activity going
through our credit union is aboveboard.
Senator Cortez Masto. Thank you. And we have been talking
about not only the banking system but the legitimate medical
marijuana businesses, but we have not talked about the
ancillary businesses. As you know, there are so many other
companies that are doing business, legitimate businesses, with
these establishments from the security companies. We have
landlords, we have accountants, electricians, garden stores.
And they are also affected by a lack of a financial system to
engage in. Isn't that correct?
Ms. Pross. Yes, it is.
Senator Cortez Masto. And when you talk about your work
with FinCEN--and I so appreciate it because I work closely with
FinCEN as well. In fact, my husband worked at FinCEN at one
point in time. I understand that you actually--under the FinCEN
guidance, banks are required to file three separate types of
Suspicious Activity Reports for cannabis businesses. Is that
true for any other small businesses, three types?
Ms. Pross. No, it is not. It is specific to cannabis
businesses.
Senator Cortez Masto. And can you address that? Why is
that?
Ms. Pross. There are three types of SARs. The first is a
marijuana limited, and that is just saying by nature of the
Federal status of cannabis, we would file a Suspicious Activity
Report because we are banking the proceeds of a federally
illegal industry. So that has to be filed every 90 days, and
technically it is 120 because you have an additional 30 days to
file after that 90-day period.
Then there is a marijuana priority, and that is if we read
something in one of our quarterly investigations that there is
something perhaps amiss or if we see activity that we are
unable to explain, we would file a marijuana priority. And that
raises a red flag for FinCEN to take a closer look at this
business.
And, finally, if we determine that we need to close an
account, either for behavior that indicates financial crime or
for noncompliance with our compliance program, we would file a
marijuana termination SAR, and that notifies FinCEN something
is wrong with this business, and we are closing this account
for a reason.
Senator Cortez Masto. And you are for the first time giving
law enforcement the data they need to go after the bad actors.
Isn't that correct?
Ms. Pross. That is correct, and we have been--we have
received so much praise from law enforcement officers we have
interacted with.
Senator Cortez Masto. And let me open this up to both Ms.
Pross and Ms. Sherwood. According to a State of Nevada audit
last year, around $500,000 in tax revenue was lost due to
discrepancies between seed sale tracking and tax returns filed
with the State Department of Taxation. Does the current FinCEN
guidance allow financial institutions to provide information to
State tax agencies when performing audits? Do you know?
Ms. Pross. That is a great question. I would like to look
into that and get back to you in writing on that specific
issue.
Ms. Sherwood. I cannot answer that, but we can get back to
you.
Senator Cortez Masto. Thank you. I think that is a concern
for--as part of this process, if we are to open up the door to
financial institutions, we need to be tracking also for
purposes that we have just heard today where is the money
going. Is there lost money? How are we tracking this to make
sure these are legitimate businesses?
I know my time is up. Thank you.
Chairman Crapo. Thank you.
Senator Smith.
Senator Smith. Thank you, Chair Crapo and also Ranking
Member Brown, for this Committee hearing. And thanks, all of
you, for being here.
You know, there is no doubt that we have a serious problem
with a cash-only marijuana business and one that deserves
Federal attention. And it is clear to me, having listened to
this testimony and having spoken with banks and credit unions
in Minnesota, that the status quo is just simply not workable,
with 47 States with some form of legal marijuana use.
However, as we consider this legislation and any
legislation to protect businesses and banks from criminal
penalties, Mr. Chair and Ranking Member, I think that we need
to realize that, as we are looking at penalties, criminal
penalties, for involvement of businesses with marijuana, we
cannot forget the thousands of individuals who have spent time
behind bars for their involvement with marijuana. And
communities of color, particularly African American men, have
paid a disproportionate price for generations of aggressive
enforcement of marijuana laws.
Now, we have made some headway here with the bipartisan
First Step Act. Just on Friday, I think, 3,100 people were
released thanks to that act, but we all know that there is so
much more that we need to do here.
So I think that it would be wrong for Congress to act to
protect business interests without also considering what we
need to do to erase the unjust suffering caused by our criminal
justice policies. So I am glad to see this Committee consider
this bill, and I believe that the Senate needs to consider it.
I think the Senate also has a real responsibility to consider
the civil rights implications of this new era of cannabis
policy and our constitutional commitment to ensuring equal
justice for all.
Now, on this particular bill and the issues that we have
here, I would like to return to a question that Senator Tester
touched on, which is the implications of legalized hemp
production. Many farmers in Minnesota are looking at this. They
are telling me that it is difficult to get loans. In some
cases, it is very difficult to access payment processing for
hemp.
For Ms. Pross and Ms. Sherwood, what should we be doing to
improve this situation?
Ms. Sherwood. Really at this point we are waiting for the
regulators to issue their guidance, and that is the sole item
that is holding us back from going forward.
Ms. Pross. Compared to cannabis--cannabis, we have the
FinCEN guidance which provides such a clear framework, and with
hemp, there is not as clear a framework for guidance. We are
serving the hemp industry under Oregon's regulatory authority,
but it is complex for sure.
Senator Smith. So it is simply waiting for the Federal
guidance that we need to make this workable.
Ms. Sherwood. Correct.
Senator Smith. Let me ask another question. In Minnesota,
we have legalized medical marijuana, yet I hear all the time
from banks and credit unions that they are struggling to try to
figure out what portion of money that is flowing through their
institutions might have come in one way or another from some
business related to cannabis. So could you just talk a little
bit about how you see that issue? What is the best way we have
right now for assessing that? And how might we fix that?
Ms. Pross. Sure. That is a complex issue, and it speaks to
what I talked about in my testimony about the
interconnectedness of our economy. It is impossible to draw a
clear line between what is cannabis related and what is natural
commerce that has nothing to do with cannabis. And I used
Walmart as an example today because not only does Walmart
accept money from employees of cannabis businesses in States
where it is legal, but Walmart very likely sells basic business
supplies to legal cannabis entities via its website or stores
in other States where cannabis is legal. And it would just be
impractical for us not to cash the paychecks of Walmart
employees. It is the largest employer in 21 States.
So it is a messy issue. It is complicated, and it is not
just about cannabis businesses. This extends to every State.
Senator Smith. Right. And is there a way of resolving this
under the current financial regulatory framework, do you think?
Ms. Pross. I think the SAFE Banking Act is an important
step. I think that is the answer.
Ms. Sherwood. I think it is a start. I think we need to get
greater clarity, which certainly ABA is prepared to assist on
and get a greater framework to go forward.
Senator Smith. Great.
Mr. Van Meter. Senator, could I add something briefly on
that? I think there is a distinction, as Ms. Sherwood mentioned
before, between somebody who is incidental to the marijuana
industry and somebody who is directly involved with it.
In the case of some ancillary businesses, the reason why
they are worried is because they are directly manufacturing and
selling hydroponics and grow lights equipment to marijuana
growers.
Senator Smith. Thank you.
Thank you, Mr. Chair.
Chairman Crapo. Thank you. That concludes all of Senators.
However, I want to ask a couple of follow-up questions.
I should indicated we have got a hearing with the FBI
Director on leaks at the FBI that a number of our colleagues
are at, and as well as a--well, that was a Judiciary hearing.
The Finance Committee has got another big hearing, and we have
got a lot of members on the Finance Committee. So I doubt that
they will make it back. I do expect you will get a number of
questions from them following the hearing, and I ask you to
respond to those questions as quickly as you can.
I wanted to take a few moments to pursue just a couple of
issue. I think a case has been made pretty strongly here about
the need to get the banking industry issues relating to
cannabis resolved. At the same time, I think a pretty strong
case has been made both that legacy cash poses a real problem
in terms of providing an access point for cartels and for other
illegal anti- money-laundering activities as well as the
ongoing operations. But I think legacy cash creates a special
problem.
To all of you, and you can give brief answers to this, but
is that correct? Is legacy cash basically a different issue
here or a more difficult issue? Mr. Van Meter.
Mr. Van Meter. Senator, so in Appendix B of my testimony, I
submitted a letter from former DEA Administrators and drug
czars that outlines the ongoing threat, and then there was also
a letter or testimony from a Colorado law enforcement officer
talking about the mechanism by which organized crime or a
cartel could abuse the SAFE Banking Act and the banking system.
And, essentially, it boils down to the fact that it is very
difficult to tell--this is always going to be a very cash-
intensive business because the States' seed-to-sale tracking
systems track customer data, and then those companies turn
around and sell that back to the marijuana industry. There is
always going to be a proportion of the clientele that does not
want to be tracked and so is always going to pay in cash. And
so it becomes very difficult to tell if somebody is dropping
off a backpack of cash at a bank where that money originated,
and there are lots of opportunities for abuse.
Chairman Crapo. Mr. Lord.
Mr. Lord. Senator Crapo, in response, when I began in this
business almost 10 years ago, every last dollar was tracked by
State regulators, short of a colonoscopy. It was very, very
intense where my money came from, and I think I had to supply--
it was either 5 or 7 years of financial records prior to
entering this business.
So, you know, all money that entered this business from
Colorado cannabis manufacturers has been thoroughly vetted, and
right now our bankers, of which we do have basically a
depository, so to speak, within the bank, conduct stress tests
upon our business very, very frequently. And we have also
audited books by a top ten national accounting firm. So it is
thorough.
Chairman Crapo. Thank you.
Ms. Pross or Ms. Sherwood, do you want to respond to that?
Ms. Pross. Sure. Part of our ongoing due diligence and
opening due diligence on cannabis-related accounts involves
tying financial statements, which are very frequently audited--
these are very professional businesses with CPAs and attorneys,
and we are comparing financial statements to the financial
activity we see going through the account. We are also
comparing that information to data that we are getting from the
Oregon Liquor Control Commission to ensure that everything
makes sense. And if something does not make sense, that is
being promptly reported to the authorities.
So we believe that this can be addressed, and it can be
addressed in a very careful and diligent way.
Ms. Sherwood. I agree. As long as there is a clear guidance
on how to handle legacy cash, it should be manageable.
Chairman Crapo. All right. And this is a question--
actually, again, I would like each of you to respond to this. I
think Mr. Van Meter has raised some significant questions both
with regard to the cash transactions and the banking
transactions, but also with regard to, I guess I would say, the
substantive regulation of product. For example, it has already
been referenced, the high-intensity concentrates, the marketing
tools and techniques, the targeting of children and so forth.
Do the States that have legalized marijuana, either medical
use and/or medical and recreational use, do the States regulate
those types of access and concentration and product content
issues?
Mr. Lord. Senator, yes, they do, and very, very thoroughly.
The maximum portion, regardless of potency, there are portion
limits. There are maximum sales limits that we can sell a
customer or a patient. We have tested product to parts per
billion in purity, et cetera. The testing is extremely
rigorous. It is in a State-tracked system in Colorado where
every gram is traced seed to sale. And Colorado is being used,
you know, because of the length of time that we have been in
the market, as a template in other States, and so extremely
thorough.
Mr. Van Meter. Senator, I wanted to point out, again, in
the appendix to my testimony, there is a picture of some
marijuana gummies, and these are considered not kid-friendly.
So they are brightly colored, they are sugar-coated, they are
in the shape of pot leaves, and that is why they are considered
not kid-friendly, because kids are apparently, under the
Colorado regulations, only attracted to gummies that are in the
shape of cartoon characters or animals or people, but not
vegetables or pot leaves or geometric shapes. That is the logic
as to how those products are legal.
I do not know about you, but any of my kids would quickly
pick up these products, and that is why Poison Control calls
are through the roof in all legalized States, but particularly
Colorado and Washington State where the data is being tracked.
Chairman Crapo. So I guess a question I have for you, Mr.
Van Meter, are you arguing for a tougher Federal regulatory
system of content and access? Or are you arguing that there
simply should continue to be a nationwide ban on all marijuana
products?
Mr. Van Meter. Well, we would--we do not think--we think
that legalization in America equals commercialization, and
there is not really a way to stop that. And so from that
standpoint, I think there is a benefit to keeping marijuana
federally illegal.
At the State level, we think that there are important
regulations that should be put in place on potency, on product
forms as a start.
Chairman Crapo. All right. Ms. Sherwood and Ms. Pross, do
you have an opinion on this issue?
Ms. Sherwood. I am not qualified to answer on the State
restrictions. The reality is the voters have spoken. It is
already in the system. We need to find a way to bank this.
Chairman Crapo. Ms. Pross.
Ms. Pross. The State of Oregon regulates the cannabis
industry in Oregon through the Oregon Liquor Control
Commission, and I understand that this issue--it is much bigger
than just banking. There are certainly valid concerns being
brought to this Committee hearing today. But the SAFE Banking
Act is narrowly targeted. It is a narrowly targeted protection
for financial institutions to serve an $8.3 billion industry
that is already in place today. It is narrowly targeted, and I
think it is time for a bipartisan fix to this issue on the
banking issue.
Chairman Crapo. All right. Thank you.
I do have many more questions. I will probably submit some
to you myself.
Again, I appreciate all of you coming today. This is a very
important and complex issue that we need to get right, and your
information that you have already provided and your testimony
is very helpful in that regard. And as I indicated, you will
probably be asked to submit some further advice and insight to
us as you respond to the Senators' questions.
That does conclude the questioning for today's hearing. For
the Senators who wish to submit questions for the record, those
questions are due to the Committee by Tuesday, July 30th, and,
again, we ask that you as the witnesses, if you receive
questions, respond as quickly as possible.
With that, this hearing is concluded.
[Whereupon, at 11:42 a.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF CHAIRMAN MIKE CRAPO
Today, the Committee will hear from witnesses about the challenges
that State-sanctioned businesses in the cannabis-industry have when
attempting to access mainstream financial services.
Under the Controlled Substances Act, marijuana, or cannabis, is
currently considered a Schedule 1 drug.
Being categorized as a Schedule 1 drug means that the possession,
distribution, or sale of marijuana and other marijuana-derived products
is illegal under Federal law, and any proceeds from cannabis-related
activities remain subject to U.S. anti- money-laundering laws, such as
the Money Laundering Control Act.
In the last several years, many States have used ballot initiatives
or referendums that have legalized marijuana in some form, whether for
recreational or medical use.
Currently, there are 11 States plus the District of Columbia, where
it is legal to buy and consume recreational marijuana (and medical), as
well as the 22 States plus D.C. that have approved medical marijuana--
totaling 33 States in all that have some form of legal marijuana.
Senators Gardner and Merkley have introduced bipartisan legislation
that attempts to ease some of the difficulties resulting from
marijuana's illegal Federal status and more lenient State laws.
I have spoken many times with Senator Gardner on this bill and
appreciate the hard work each Senator has done on this legislation. I
look forward to hearing from each of you very soon.
Our second panel of witnesses will highlight challenges
institutions face in banking different parts of the marijuana industry,
how marijuana-related businesses operate and the complications they
have faced in accessing financial services, and how the SAFE Banking
Act would work.
We will also hear concerns over advocates pushing to legalize
marijuana, the effects of the SAFE Banking Act in light of marijuana
continuing to be illegal under Federal law, and health harms and
addictions that marijuana can lead to.
I look forward to learning more about the SAFE Banking Act and
understanding how the safe harbor would work, what the compliance
challenges regarding interstate commerce could be, and the challenges
presented when banking legacy cash, specifically ensuring that the
legacy cash complies with the FinCEN guidance.
Having a conversation about whether banks should be able to provide
banking services to entities engaged in federally illegal behavior
brings up the issue and concern that there has been a push to choke-off
legal industries from the banking sector.
I have said this many times and I will say it again, Operation
Choke Point was deeply concerning because law-abiding businesses were
targeted strictly for operating in an industry that some in the
Government disfavored. Under fear of retribution, many banks have
stopped providing financial services to members of these lawful
industries for no reason other than political pressure, which takes the
guise of regulatory and enforcement scrutiny.
Operation Choke Point was inappropriate and Congress needs to pass
legislation to prevent future Operation Choke Point Initiatives.
______
PREPARED STATEMENT OF SENATOR SHERROD BROWN
Thank you Chairman Crapo for holding this hearing, and welcome to
our witnesses.
Over the past several years, voters and legislatures in nearly
every State have, to some degree, legalized or decriminalized cannabis.
In my home State of Ohio, medical cannabis is now legal, and
dispensaries opened earlier this year.
The legal cannabis industry is one of the fastest growing in the
United States. It employs hundreds of thousands of people, many of whom
are represented by unions like the United Food and Commercial Workers
International Union.
These Americans work hard to support themselves and their families,
just like workers in any other industry, and they deserve the same
rights and protections. Yet, in States like Ohio, these workers and
businesses find it difficult to access the banking system. And that
puts them and the Americans they do business with at risk.
No matter how you feel about marijuana itself, we have a duty to
look out for all the workers and communities we represent.
Without access to the banking system, legal cannabis businesses are
forced to operate in the shadows, dealing in large amounts of cash.
This puts a robbery target on the backs of workers and creates a safety
hazard for communities. It can also make it harder to monitor
transactions and combat money laundering. And getting paid in cash
means it's difficult to get a credit card, prove your income to get a
loan, or even keep your personal bank account.
That can force workers to turn to shady outfits like payday lenders
and check cashing services that charge high fees and interest rates, or
trap people in a cycle of debt.
Companies or workers that have found a bank willing to handle their
unique business often pay high fees and are limited to only the most
basic financial services.
This problem doesn't just affect the cannabis industry. It also
affects people that you might not think of. Plumbers, welders, and
electricians service retail locations and other facilities. Lawn care
and gardening companies, like Scotts Miracle-Gro in my home State of
Ohio, sell materials and equipment. All these businesses want to serve
their customers and support their workers, but they don't want to lose
their longstanding banking relationships in the process.
Community banks and credit unions in my State and others want to
serve the cannabis industries in their communities. In fact, when I met
with the members of the Community Bankers Association of Ohio, and the
Ohio Bankers League and Ohio Credit Union League earlier this year,
nearly every hand shot up when I asked if this affected them.
But we know serving this industry comes with legal and supervisory
risks, because of the tension between State and Federal law. It
requires extra layers of due diligence that is challenging and costly
for many banks and credit unions.
And, banks and credit unions play a key role in monitoring our
financial system for fraud, money laundering, and other illegal
activities. It's critical that we maintain our robust anti- money-
laundering framework. And access to the banking system is essential to
keeping our communities safe and ensuring full participation in the
economy.
We can't continue to ignore this industry and the thousands of
workers and communities it affects.
We also know that today's hearing is just one piece of the
conversation Congress must have on marijuana policy. People should not
be thrown in jail or have their futures jeopardized by a criminal
record over nonviolent marijuana offenses. And everyone should have
access to the medicine they need to care for themselves and their
families.
I'm looking forward to hearing the perspectives of the witnesses
today when it comes to banking policy and I hope Congress will consider
it as part of a broader approach. Thank you, Chairman Crapo.
______
PREPARED STATEMENT OF SENATOR CORY GARDNER
Thank you, Mr. Chairman, Chairman Crapo, Ranking Member Brown, my
friends and colleagues. Thank you for the opportunity to speak before
you.
Let me start by saying thank you for holding this hearing. It is an
important step toward the Federal Government waking up to the reality
that the cannabis issue is not going away and needs action.
I know this is a difficult topic. But the American People sent us
here to deal with difficult topics.
There has been a dramatic shift in Americans' views of cannabis in
recent years. Polling shows that about 65 percent of Americans support
legalization of marijuana. 93 percent support medical marijuana. In
fact, majorities of both parties support legalization. In a time when
all the talk is about how divided we are, it's hard to find that sort
of support for an issue.
Given that support, it shouldn't be surprising that the vast
majority of States have changed their laws. 47 States now allow some
form of cannabis. (I recognize that my good friends from the 3 that
have not--Idaho, Nebraska, and South Dakota--are on this Committee.)
That represents more than 95 percent of our population living in a
State with laws allowing some form of cannabis.
Thirty-three States have legalized medical marijuana. Eleven allow
regulated adult use.
This is happening in the bluest of blue States, the reddest of red,
and--in Colorado's case--the purplest of purples. It's happening in
traditionally progressive States like Oregon, Massachusetts, and
California. It's happening in fiercely independent States like
Colorado, Alaska, and Maine. It's happening in conservative States like
North Dakota and Georgia. It's happening in rust belt States like
Pennsylvania and Ohio.
Last year alone, Michigan, Missouri, Oklahoma, Utah, and Vermont
all adopted or expanded marijuana programs.
In short, the States are leading on this issue, and the Federal
Government has failed to respond. It has closed its eyes and plugged
its ears and pretended the issue will go away. It won't.
This disconnect between Federal and State marijuana laws has
become, as the Attorney General has testified, both ``intolerable'' and
``untenable.''
The dramatically expanding cannabis industry presents real
challenges for our Nation. I have been a skeptic about cannabis
legalization. It is no secret that I opposed legalization in Colorado
in 2012.
I was concerned about the effects of legalization on Colorado's
youth and public safety. I was leery of breaking with the Federal
Government. I was uneasy about adding another intoxicate in our
culture, and I did not--and still do not--want to encourage my own
children to use marijuana.
Several years into legalization in Colorado, I can say that the sky
hasn't fallen. There are challenges to be sure: Colorado has seen an
increase in transient populations; there are concerns about traffic
safety and hospitalizations; and cannabis has been illegally trafficked
into neighboring States.
But according to a recent JAMA Pediatrics report, youth use is
about 10 percent lower in legalized States. One strong theory as to why
that's the case is that legal dispensaries both force out illegal
sellers and enforce age limits. So youth actually have less access to
marijuana.
The data on crime are mixed. Marijuana offenses are down. Colorado
has also experienced an increase in violent crime, but that's likely a
result of an increase in transient populations moving to the State.
At the same time, the State has brought in over $1 billion in tax
revenue. Last year alone, the State received more than $266 million
marijuana taxes. Millions of those dollars are ending up in Colorado
schools.
In short, the sky is not falling in Colorado.
Instead, what makes the current situation intolerable and untenable
is the disconnect between Federal and State law.
For instance, every single State-legal cannabis transaction in
Colorado is federally illegal. That means the dollars involved are the
proceeds of an unlawful transaction under the Federal money-laundering
statutes. That means that all of the different parts of our economy
that connect to any legitimate business--plumbers, electricians,
lawyers, accountants, landlords, etc.--risk becoming Federal criminals
for serving a client.
That also means that the $1.5 billion industry is nearly all cash.
Banks will not accept industry money for fear of regulatory action or
Federal forfeiture.
Keeping those dollars out of banks means we lose the ability to
trace where the dollars go. It also makes it harder to ensure all taxes
are being paid. It makes it easier for criminals in the illicit market
to pose as legitimate. And it leaves hundreds of millions of dollars of
cash in the State.
For example, the State Department of Revenue has one location that
accepts cash. So business owners in the western part of the State often
have to drive 5 or more hours with tens of thousands of dollars in cash
just to pay their taxes.
That creates a genuine public safety problem. Stockpiles of cash
make the industry a target for thieves. In 2016, a 24-year-old former
Marine was tragically shot and killed while on duty as a security guard
at a dispensary.
And we are making it hard for these businesses to comply with the
law. A few months ago a partner at a major national law firm told me
that the firm's bank accounts were going to be shut down because they
counsel State-legal cannabis clients.
I've also heard from the city officials in the town of Desert Hot
Springs, California. For them, lack of banking means that when they
take in a million dollar bond for a cannabis business, it takes days to
count the cash. It takes several employees off their normal work and it
requires extra security in the city offices.
All of this is just scratching the surface of the financial
services problems caused by the Federal/State disconnect. I haven't
mentioned the problems with research or veterans' access or the EPA
refusing to certify pesticides for use on cannabis or the FDA's
struggle to police advertising claims or the confusion created for law
enforcement or any of the other myriad problems that contribute to this
intolerable and untenable situation.
We have to act.
Our failure to act seems to be grounded in two incorrect
assumptions. The first is that we can continue prohibition. We can't.
We are a Government of the People and the People have changed their
views. So our laws much change.
The second is that we can come to a national consensus for full-
throated legalization in the nearterm. We can't. There are still too
many unanswered questions. Many States that have legitimate concerns.
If those seeking reform insist on swinging for the fences, they will
strike out and lose the chance for real improvement.
I believe Senator Merkley recognizes this. I appreciate his efforts
to provide real concrete improvement for the financial services
industry with the SAFE Banking Act.
I believe Senator Warren recognizes this. I appreciate her efforts
to forge a compromise to allow the States to move at their own pace
with the STATES Act.
And I believe you, Mr. Chairman, Ranking Member Brown, my friends
on the Committee, will see through this hearing that we must act. Thank
you for holding this hearing, and thank you for the opportunity to
speak.
______
PREPARED STATEMENT OF SENATOR JEFF MERKLEY
Chairman Crapo and Ranking Member Brown, thank you for convening
this hearing on the challenges faced by the cannabis industry in the
banking sector, and for considering the legislation put forth by
Senator Gardner and myself, the Secure And Fair Enforcement (SAFE)
Banking Act (S. 1200).
The lack of availability of financial services for cannabis-related
businesses in States where it is legalized has created a scenario where
businesses are forced to operate in all cash, leading to unsafe
environments for all parties involved. Financial institutions support
legal clarity and certainty and a legislative hearing would provide an
opportunity to address outstanding questions and ensure a better
understanding of the proposed bipartisan legislation.
As of today, a majority of States and U.S. territories allow for
some form of legal cannabis. In total, 34 States, the District of
Columbia and various U.S. territories have legal frameworks that allow
for either medical or adult-use of cannabis. Eleven States have allowed
for legal adult and medicinal use of cannabis in a regulated program.
Twenty-three States have a comprehensive medical marijuana program In
addition to these 34 States, another 13 have a limited medical use
program, which includes use of products containing cannabidiol (CBD) or
low tetrahydrocannabinol (THC). \1\
---------------------------------------------------------------------------
\1\ National Conference of State Legislatures. ``Marijuana
Overview''. National Conference of State Legislatures. May, 28, 2019.
Available at: http://www.ncsl.org/research/civil-and-criminal-justice/
marijuana-overview.aspx. Vox. ``Illinois Just Legalized Marijuana'',
June 25, 2019. Available at: https://www.vox.com/2019/6/25/18650478/
illinois-marijuana-legalization-governor-jb-pritzker.
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Legal Uncertainty
Currently, a limited number of State and federally chartered
financial institutions operate under guidance issued in February 2014
by the Financial Crimes Enforcement Network (FinCEN) for cannabis
related businesses in States where cannabis is legal. \2\ While the
FinCEN guidance offers some clarity to financial institutions that are
offering financial services to cannabis businesses, these institutions
are forced to operate in an uncertain legal environment.
---------------------------------------------------------------------------
\2\ Department of the Treasury Financial Crimes Enforcement
Network. ``BSA Expectations Regarding Marijuana-Related Businesses''.
FinCEN. February 14, 2014. Available at: https://www.fincen.gov/sites/
default/files/shared/FIN-2014-G001.pdf.
---------------------------------------------------------------------------
This uncertain legal environment was exasperated when former
Attorney General Sessions rescinded the guidance known as the ``Cole
Memorandum'' on January 4, 2018. \3\ The guidance directed U.S.
Attorneys in States with regulatory and enforcement systems that
marijuana enforcement should be managed at the State and local level.
On April 9, 2019, Treasury Secretary Mnuchin testified before the House
Financial Services Committee that, ``if this is something that Congress
wants to look at on a bipartisan basis, I'd encourage you to do this.
This is something where there is a conflict between Federal and State
law that we and the regulators have no way of dealing with.'' \4\
---------------------------------------------------------------------------
\3\ Department of Justice. ``Memorandum for all United States
Attorneys on Guidance Regarding Marijuana Enforcement''. August 29,
2013. Available at: https://www.justice.gov/iso/opa/resources/
3052013829132756857467.pdf.
\4\ Tom Angell, ``State Financial Regulators Press Congress To
Allow Marijuana Banking Access'', Forbes, April 16, 2019. Available at:
https://www.forbes.com/sites/tomangell/2019/04/16/state-financial-
regulators-press-congress-to-allow-marijuana-banking-access/
#768692a755c9.
---------------------------------------------------------------------------
SAFE Banking Act of 2019
The Secure and Fair Enforcement (SAFE) Banking Act of 2019 would
give legitimate businesses acting in compliance with State cannabis
laws access to the banking system, including protection against
prosecution or asset forfeiture solely for providing services to a
State-sanctioned cannabis-related business.
Financial institutions that provide banking services to legitimate
cannabis businesses, including tribal businesses conducting State-
sanctioned activities in Indian Country, are currently vulnerable to
criminal prosecution under Federal law. Few banks and credit unions are
willing to risk providing services to cannabis-related businesses,
leaving many of them cut off by financial institutions and unable to
accept credit cards, deposit revenues, or write checks to meet payroll
or pay taxes. Cannabis-related legitimate businesses have lost their
accounts at both banks and credit unions because of the uncertainty.
Forcing business and tribes to operate in all cash creates a serious
safety risk for the businesses and the neighboring community. By
allowing banks and credit unions to service legitimate State-regulated
cannabis businesses and tribes engaging in the cannabis industry in
States where it is legal, this bill will help law enforcement protect
our communities, and help local, State, tribal, and Federal taxing
agencies collect taxes due on State-sanctioned cannabis sales.
This legislation:
Provides safe harbor for depository institutions and credit
unions by preventing Federal banking regulators from:
Terminating or limiting depository institutions' Deposit
Insurance Fund or credit unions' share insurance under the
National Credit Union Share Insurance Fund for providing
services to a State-sanctioned and regulated cannabis business,
or to a tribe that has cannabis-related businesses, solely
because that institution is providing services to a legitimate
State-sanctioned and regulated cannabis business;
Prohibiting, penalizing, or discouraging a depository
institutions from providing financial services to a legitimate
State-sanctioned and regulated cannabis business;
Recommending or incentivizing a depository institution to
halt or downgrade providing any kind of banking services to
these businesses; or
Taking any action on a loan to an owner or operator of a
cannabis-related business.
Creates safe harbor from liability and asset forfeiture for
institutions and their officers and employees who provide
financial services to legitimate cannabis businesses pursuant
to State or tribal law.
Does not require depository institutions or credit unions
to provide financial services to a cannabis-related legitimate
business.
Requires depository institutions and credit unions to file
Suspicious Activity Reports under the Bank Secrecy Act pursuant
to relevant FinCEN guidance.
Widespread Support
There is widespread support across local government, law
enforcement, and industry to provide a safe harbor for cannabis
businesses to access financial services. In April 2019, a bipartisan
coalition of 25 State banking regulators sent a letter to Congress
emphasizing the need for a permanent resolution to cannabis businesses'
access to financial services. Their letter highlighted the risk to the
economy, financial institutions, and public safety caused by the
uncertainty between Federal and State law. Another bipartisan coalition
of 17 State treasurers have also supported taking up the SAFE Banking
Act. And in May 2019, a bipartisan group of 38 State attorneys general
sent a letter to Congress urging they take up the SAFE Banking Act, in
the interest of public safety and bringing cannabis into the regulated
banking sector.
A large swath of the financial industry, including the Independent
Community Banks of America, the American Bankers Association, the
Credit Union National Association, the Ohio Bankers League, and the
Ohio Credit Union League have endorsed the SAFE Banking Act as a
mechanism for financial institutions to offer services to cannabis and
cannabis affiliated businesses without violating law. Finally, the
National League of Cities also endorsed passage of the SAFE Banking Act
as a way to provide cannabis businesses access to the banking system.
In the U.S. House of Representatives, the SAFE Banking Act (H.R.
1595) passed through the House Financial Services Committee on June 5,
2019, with strong bipartisan support and a vote of 45 to 11.
Closing
In closing, I thank you for this legislative hearing today, which
will give Members the opportunity to hear directly from witnesses who
have direct experience with the challenges facing the financial sector,
the cannabis industry, and law enforcement. More than half of the
States in our country allow for medical or adult-use of cannabis. As
more States consider legalization of cannabis for medical and adult-
use, it is critical that this Committee create a path for the financial
sector's role in serving the growing cannabis industry.
______
PREPARED STATEMENT OF RACHEL PROSS
Chief Risk Officer, Maps Credit Union, on behalf of the Credit Union
National Association
July 23, 2019
Good afternoon, Chairman Crapo, Ranking Member Brown, and Members
of the Committee. Thank you for this opportunity to testify on a very
important issue: ensuring access to mainstream financial services for
cannabis businesses that operate legally under State law.
My name is Rachel Pross. I am the Chief Risk Officer of Maps Credit
Union, a midsized financial cooperative in Salem, Oregon. I am
testifying today on behalf of the Credit Union National Association,
the Nation's largest credit union advocacy organization. CUNA
represents both State and Federal credit unions and the 115 million
members across the United States that they serve.
Maps Credit Union (Maps) has approximately 270 employees and $770
million in assets. Our credit union was founded in 1935 when a group of
teachers pooled together their scarce resources for the collective,
greater good. Today, Maps has a community charter and serves over
65,000 member-owners in Oregon's relatively rural Willamette Valley.
Our cooperative has 10 branches in addition to a robust educational
outreach program that includes 2 student-operated branches in our local
high schools.
As a community-focused organization, we have seen and experienced
first-hand the many challenges facing both financial institutions and
State-sanctioned cannabis businesses seeking to operate within the
financial mainstream. My testimony will talk about those challenges,
but, before going into great detail, I'd like to start by telling you a
story. It is the story of how my credit union, Maps Credit Union, has
sought to overcome those challenges since 2014 and has become a part of
the solution for the Willamette Valley communities of Oregon. Our
efforts were sparked by the people of the State of Oregon voting in
favor of ballot measure 91 and, as a result, making the use of cannabis
for both recreational and medicinal purposes legal under Oregon law.
\1\
---------------------------------------------------------------------------
\1\ Cannabis usage for medicinal purposes became legal in the
State of Oregon in 1998.
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The Maps Credit Union Approach to Cannabis Banking: Offering
Communities in Oregon a Safe Solution
As a financial cooperative, Maps believes that it is our duty to
serve the members of our community and to listen to the needs of the
individuals and businesses who contribute to that community. Though
Maps has no position on whether cannabis should be legalized federally,
we acknowledge that the voters of Oregon have already spoken on that
issue for the people of our State. 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:
1. To serve the underserved-which speaks to the credit union mission
and philosophy as a not-for-profit financial cooperative, and
2. To enhance the safety of our community in the Willamette Valley
by removing large amounts of cash from the streets of our
cities by ensuring that legal cannabis businesses operating in
the State of Oregon had access to mainstream financial
services.
To our knowledge, Maps is the only financial institution in the
State of Oregon that has continuously served the cannabis industry
since 2014. And, in the 5 years since, our organization has come to
provide banking services to 500 Oregon-sanctioned cannabis businesses.
That makes the cannabis banking program at Maps one of the largest in
the United States.
In terms of safety, statistics show that cash-only businesses
increase the risk of crime. This is especially true in the cannabis
industry given the lack of access to mainstream financial services. A
2015 analysis by the Wharton School of Business Public Policy
Initiative found that, in the absence of being banked, one in every two
cannabis dispensaries were robbed or burglarized--with the average
thief walking away with anywhere from $20,000 to $50,000 in a single
theft. Compare that with the statistics from our credit union. In 2017
and 2018 alone, Maps received well over $529 million in cash deposits
from cannabis businesses. So far this year, we've received another $169
million in cash deposits--meaning that we are on track to remove over
$860 million in cash from the sidewalks of Oregon's communities in just
3 years. That's millions of dollars that used to be carried around in
backpacks and shoeboxes by legitimate, legal business owners in the
State of Oregon, making them prime targets for thieves and other
criminals.
When Maps' Board of Directors voted to serve cannabis businesses,
they knew it would be one of the first programs of its kind in the
country, and they committed to fostering the diligent culture of risk
management and compliance necessary to do it properly. Maps' goal was
and is to help set a standard nationwide, enabling other credit unions
to eventually serve the industry with tried-and-true best practices.
The compliance framework Maps utilizes to serve canna-businesses is
based on the U.S. Department of the Treasury's Financial Crimes
Enforcement Network BSA Expectations Regarding Marijuana-Related
Businesses (FinCEN Guidance). Though the February 2014 Cole Memorandum
from the Department of Justice (Cole Memo) was rescinded in January of
2018 by Attorney General Sessions, the guidelines of the Cole Memo
remain in place as part of the FinCEN Guidance.
To comply with 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. We have a centralized team of dedicated
professionals in our cannabis banking program, and the staffing
averages one full time employee for every 40 cannabis business
accounts. Our Bank Secrecy Act and Anti- Money Laundering Compliance
Program has been reviewed by both State and Federal financial
regulators on multiple occasions, and we also obtain an independent,
external compliance audit of the Program annually. In February 2018, I
had the opportunity to represent Maps as a guest presenter on behalf of
the financial sector at U.S. Attorney Billy Williams' Oregon Marijuana
Summit in Portland. The subsequently issued enforcement priorities of
the Oregon U.S. Attorney also play an important role in the monitoring
of cannabis business account activity at Maps.
As part of Maps' initial evaluation and ongoing monitoring of
cannabis-related accounts, we collect corporate records, ownership
information (including criminal background checks on all account
signers), ongoing financial statements, and day-to-day account
transaction activity. All of that information is meticulously
scrutinized to ensure the activity on the accounts is legitimate and,
to the best of our knowledge, completed in accordance with State laws
and the FinCEN Guidance. We work closely and transparently with our
regulators, and we take pride in having a collaborative relationship
with the Oregon Liquor Control Commission to ensure that the cannabis
businesses we serve are operating in compliance with all applicable
State licensure requirements. That information sharing is permissible
under Oregon House Bill 4094, which was signed into law in April 2016
by Oregon Governor Kate Brown. HB 4094 exempts financial institutions
that provide financial services to lawful marijuana-related businesses
from any applicable criminal law in the State of Oregon and includes a
provision on information sharing.
Most importantly, in accordance with the FinCEN Guidance, the
Credit Union files quarterly Suspicious Activity Reports (SARs) on
every cannabis-related business account in the organization, and we
file Currency Transaction Reports (CTRs) on every cash transaction or
group of cash transactions totaling over $10,000 in one business day.
Also, in accordance with the FinCEN Guidance, the Credit Union
prioritizes SARs with regard to which cannabis accounts are acting in
accordance with State law and any accounts we suspect could possibly be
engaged in illegal activities such as diversion into other States,
money laundering, or black-market sales.
To put some numbers around this compliance program, as of June 30,
Maps has filed approximately 19,500 individual reports (CTRs and SARs)
related to cannabis business accounts since January of 2017. Diving
more deeply into that number, Maps has filed 3,489 Suspicious Activity
Reports since January 1, 2017, and 91.5 percent of those SARs were
directly due to our filing obligations for cannabis businesses under
the FinCEN guidance. When filing SARs, Maps provides the names of all
individuals who are involved with the accounts, all account activities
broken down by individual transactions, and a description of that
activity. Once a SAR is filed, law enforcement can request additional
supporting documentation related to the reported activity, giving the
Government a very broad ability to review the information we have so
diligently collected and retained on the accounts.
Because the cannabis industry is primarily cash-based, these
transaction records would not otherwise be available if financial
institutions were not permitted to serve the industry. We firmly
believe that providing banking services to this industry delivers a
significant benefit to law enforcement because Maps is essentially
providing free, highly detailed information at least every quarter on
cannabis-related monetary activity in the State of Oregon. Furthermore,
we educate each and every one of our cannabis-related account holders
about the FinCEN Guidance and the criticality of compliance and
transparency. This ultimately reduces the likelihood of financial crime
on their parts. They want to keep their accounts with us, so they
carefully adhere to the requirements given to them.
As a pressing word of caution, there are numerous unscrupulous
players trying to benefit from the severe shortage of legitimate
financial services available to cannabis businesses, and concerns
around criminal prosecution are only feeding those predatory players'
flames. Cannabis businesses are frequently bombarded with proposals for
payment ``solutions'' that are unregulated (and therefore not subject
to Bank Secrecy Act compliance), and their ``solutions'' are often very
clearly a form of money laundering. We have heard of proposals
involving everything from cryptocurrency to cashless ``chit''
mechanisms to the use of prepaid gift cards--none of which would
provide the Federal Government any valuable information on cannabis-
related financial activity or the movement of cannabis within the
United States. Credit unions, however, are heavily regulated and
prudently abide by State and Federal guidelines, so we are undoubtedly
a safe and transparent choice for both cannabis businesses and the U.S.
Government.
With the momentum currently seen across the United States toward
the legalization of cannabis either medicinally or recreationally in
many States, there is deepening interest in the financial sector for
serving these businesses. Having been founded by a group of teachers,
it should come as no surprise that Maps is passionate in our beliefs
about the importance of education and advocacy. To that end, I
presented Maps' cannabis banking program 16 times nationwide last year.
This collaboration is part of the DNA in credit unions, and we consider
it a privilege and an honor to assist other credit unions with vetting
their own programs.
Even Without Directly Accepting the Cannabis Industry as Clients,
Credit Unions and Banks Operating in States Where Cannabis Is
Legal Still Risk Unknowingly Serving Cannabis-Related
Businesses
Indirect connections to cannabis revenues are hard, if not
impossible, for financial institutions to both identify and avoid. The
simple reality is that growers and retailers in the cannabis industry
do not operate in a vacuum. Instead, like almost every other business,
the industry is dependent upon any number of vendors and suppliers to
function. These are everyday businesses like the printing company that
makes a business card, the office supply company that fulfills order
for pens and copy paper, the housekeeping crew or landlord that cleans
or rents office or retail space, and even the utility company that
provides that office/retail space or growing location with 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 the Federal Controlled Substances Act, USA
Patriot Act, Bank Secrecy Act, and/or the Racketeer Influenced and
Corrupt Organizations Act, among other Federal statutes.
Yet, as a bipartisan group of Senators noted in a 2016 letter to
FinCEN, ``[l]ocking Lawyers, landlords, plumbers, electricians,
security companies, and the like out of the Nation's banking and
finance systems serves no one's interests.'' \2\ The current rift
between Federal and State law has left credit unions and other
financial institutions trapped in a scenario where their mission to
serve the financial needs of their local communities is directly pitted
against the inability to have perfect information regarding every
indirect business activity and the threat of Federal enforcement
action.
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\2\ 2016 Senate Letter to FinCEN requesting guidance on ancillary
businesses (Dec. 14, 2016), available at https://www.warren.senate.gov/
files/documents/12-14-16-SL-FinCEN-Indirect-Businesses.pdf (last
accessed July 10, 2019).
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Without banking services, cannabis businesses and the businesses
indirectly related to them are less able to obey the law, pay taxes,
and follow State regulations. The public safety risks posed by these
businesses are easily mitigated through access to mainstream banking
service providers and keeping the cash off the streets. This is a
critically important public service.
Even Without Directly Accepting the Cannabis Industry as Clients,
Credit Unions and Banks Operating in States Where Cannabis Is
ILLEGAL Still Risk Unknowingly Accepting Funds Derived From
Cannabis-Related Businesses
There are 25 Members of the Senate Banking Committee. Though some
form of cannabis usage for either medicinal and/or recreational
purposes is legal in many States represented by this Committee's
membership, it remains either partially or wholly illegal in a
significant number of the States that the Members of this Committee
have been elected to serve. Given that reality, it may be tempting for
some Senators on this Committee to believe that the issues relating to
this problem do not affect either the financial institutions in their
State or their individual constituents. That belief, however, would be
wrong.
The reality is that the United States benefits from a nationally,
even globally interconnected economy, where a company like Wal-Mart-
based in the State of Arkansas--where recreational cannabis usage is
illegal--could conceivably, or even likely has sold paper or light
bulbs to a recreational cannabis business operating legally in the
State of California through its online platform or the 167 retail
stores it operates in that State. The same is true for companies like
Albertson's, a grocery chain based in the State of Idaho, where
cannabis usage is illegal for both medicinal and recreational purposes.
Yet, the interconnected nature of our national and global economy
understands that Albertson's operates 129 stores in the State of
California, 32 stores in the State of Washington, and 30 stores in
Oregon--States where cannabis usage is legal for both medicinal and
recreational purposes. These examples hint at the truth: every time an
employee of a cannabis-related business uses his or her paycheck to buy
something as benign as groceries, the local Arkansas or Idaho bank or
credit union depositing the companies' profits gained from those sales
is directly impacted by the dilemma before this Committee today.
Wal-Mart is the single largest employer in 21 States in this
country, including Kansas, Arkansas, Louisiana, Mississippi, Virginia,
Alabama, Georgia, South Carolina, and Ohio, making these concerns an
everyday consideration for the credit unions and banks operating in
those States and choosing to accept their corporate profits and
individual employee paychecks for deposit. The same is true for other
nationally prominent retail chains serving as one of a State's largest
employers, such as Lowe's Home Improvement in North Carolina, Kroger
Grocery Stores in Arizona, Albertson's in Montana, and Giant Grocery
Stores and Home Depot in Pennsylvania. Because each of these retail
chains has a significant footprint in States where cannabis-related
businesses are legal for either medicinal or recreational purposes--and
often both--there can be little doubt that some income that they derive
is related to the cannabis industry. Yet, the inability for credit
unions and banks to accept deposits or bank individuals affiliated with
their State's largest employers would have devastating consequences to
the economies of each of those States and, most importantly, its
citizens. That result, however, is exactly what the status quo can be
read to require.
These challenges are not limited to the retail sector alone. In
States like South and North Dakota where Sanford and Avera Healthcare
systems serve as the States' largest employers, recognition of the fact
that each operates medical facilities in Minnesota--where physicians
and nurse practitioners are legally permitted to prescribe Cannabis for
certain medical conditions--suggests that some portion of each
company's earnings could derive from cannabis-related business. Yet, no
one wants to see the credit unions and banks in North and South Dakota
stop accepting deposits related to the largest employers in each State.
Additional examples exist, such as the investment portfolio of
Nebraska's Berkshire Hathaway or the internet and telephone
communication services provided in cannabis-legal States by Sprint and
Century Link. In short, the banking systems in every single member of
this Committee's own State are jeopardized by Congress's failure to
address this issue. And so are the banking abilities of your largest
employers and the banking abilities of your individual constituents.
For each of these reasons, the Members of this Committee, and Congress
as a whole, must act.
Congress Should Grant Financial Institutions That Serve State-
Sanctioned Cannabis or Cannabis-Related Businesses a Safe
Harbor From Criminal Prosecution for Providing Banking Services
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 continue operating outside of the financial mainstream. That
outcome increases the potential of lost tax revenue, increases the
likelihood of criminal thefts in our communities, and deprives both
State and Federal law enforcement of important information about
cannabis activity. We need Congress to resolve the risk financial
institutions face by providing a safe harbor for credit unions and
banks serving State-sanctioned cannabis businesses. That's why both
Maps and the Credit Union National Association support legislation like
``The SAFE Banking Act'', sponsored by Senator Merkley as S. 1200 in
the Senate and Representative Perlmutter as H.R. 1595 in the House
during the current 116th Congress.
If enacted, the SAFE Banking Act would offer narrowly targeted
Federal protections for credit unions and other financial institutions
accepting deposits from, extending credit or providing payment services
to an individual or business engaged in cannabis-related commerce in
States where such activity is legal with a safe harbor, so long as they
are compliant with all other applicable laws and regulations.
Furthermore, the SAFE Banking legislation provides safe harbor to
credit unions and their employees who are not aware if their members or
customers are involved in this business. We believe this is a
reasonable and sound approach.
Conclusion
Credit unions do not have a position on the Federal legalization of
cannabis. The simple fact of the matter, however, is that many credit
unions operate in States and communities that have made cannabis usage
or growth legal for medicinal and/or recreational purposes. 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. For that reason, credit unions will continue to support
the SAFE Banking Act.
On behalf of America's credit unions and their 115 million members,
we urge both Congress and the Administration to work towards turning
this legislation into the law and providing financial institutions with
the certainty needed to better serve our communities.
Thank you for the opportunity to testify today. I am happy to
answer any questions the Committee Members may have.
______
PREPARED STATEMENT OF JOANNE SHERWOOD
President and CEO, Citywide Banks, on behalf of the American Bankers
Association
July 23, 2019
Chairman Crapo, Ranking Member Brown, and Members of the Committee,
I am Joanne Sherwood, President and CEO of Citywide Banks and Chair of
the Colorado Bankers Association. Citywide Banks is headquartered in
Denver, Colorado, with $2.3 billion in total assets.
I appreciate the opportunity to present the views of the American
Bankers Association (ABA) regarding the Federal prohibition preventing
banks from handling money related to cannabis businesses. ABA is the
voice of the Nation's $18 trillion banking industry, which is composed
of small, midsize, regional, and large banks that together employ more
than two million people, safeguard nearly $14 trillion in deposits, and
extend $10 trillion in loans.
ABA supports S. 1200, the SAFE Banking Act and we are grateful to
Chairman Crapo and Ranking Member Brown for your leadership in holding
a hearing to discuss this urgent issue. While some lawmakers would
prefer to avoid this subject, voters have made it clear that this issue
is not going away--with 33 States already having approved cannabis use
and as many as 10 more States with potential cannabis-related
initiatives on the ballot in 2020.
Since 1996, voters across the country have determined that it is
appropriate to allow their citizens to use cannabis for various
purposes. In Colorado, voters approved medical cannabis in 2000 and
voted to approve recreational cannabis sales in 2012.
As the legal State-cannabis industry continues to grow, the
indirect connections to cannabis revenues will also continue to expand.
Without congressional action and clearer guidance from banking
regulatory agencies, that entire portion of economic activity, which
operates across all 50 States, may be marginalized from the banking
system.
Despite the majority of States having adopted cannabis regimes of
some kind, Federal law prevents banks from banking cannabis businesses.
Specifically, The Controlled Substances Act (21 U.S.C. 801 et seq.)
classifies cannabis as an illegal drug and prohibits its use for any
purpose. For banks, that means that any person or business that derives
revenue from a cannabis firm--including real estate owners, security
firms, utilities, vendors and employees of cannabis businesses, as well
as investors--is violating Federal law and consequently putting their
own access to banking services at risk.
Unintended Consequences Are Significant if Cannabis Businesses Cannot
Be Banked
Because cannabis continues to be illegal at the Federal level,
handling funds associated with cannabis businesses can be deemed money
laundering. That Federal/State divide has particularly severe
repercussions for banks and communities like mine, where the cannabis
industry is fully operational, but it also impacts banks in every
State.
In Colorado, there was over $1.5 billion in total cannabis sales in
2017, with almost $600 million in total sales in the city of Denver.
With limited access to banking services available, there exists a cash
economy for cannabis which lacks visibility from a regulatory and
taxation perspective. Large amounts of cash remain on site in many of
the cannabis related businesses which creates significant safety
concerns for the communities where they are located. To give you a
sense of the scope of this problem, there are approximately 500 unique
locations for licensed cannabis business in Denver alone.
For banks in States like Idaho and Nebraska, where cannabis has not
been legalized for any purpose, there are still significant compliance
challenges that must be addressed. Cannabis businesses operating in
States where is it legal rely on suppliers, service providers and even
investors to support their business operations. For example, the bank
may have a customer that is an agribusiness, a law firm, a payroll
company, or a real estate investor whose business derives some measure
of revenue from a cannabis related business in a neighboring State. As
a result, a bank may inadvertently serve businesses and individuals
that have connections with and receive funds from legal State cannabis
companies in a nearby State despite the bank's best efforts to identify
and prevent cannabis-related funds of any kind from entering the bank.
Bank customers do not contain their financial activity within State
boundaries, and their economic interactions are varied and may only be
tangentially related to a State cannabis business.
Short of terminating their relationships with all of these
customers who are otherwise unrelated to cannabis but which do receive
money from a cannabis-related business, the bank must dedicate
significant resources to developing a compliance strategy that allows
them to continue to serve their communities in an environment where the
letter of Federal law and the reality of the current marketplace are
irreconcilable.
Many Benefits Accrue From Enabling Banks To Serve This Market
In addition to the unintended consequences for ancillary
businesses, communities with legalized cannabis are also struggling to
address the significant challenges to public safety, regulatory
compliance and tax compliance that go together with cash-reliant
businesses. For example, in Denver, cannabis businesses make up less
than 1 percent of all local businesses but have accounted for 10
percent of all reported business burglaries from 2012-2016. On average,
more than 100 burglaries occur at cannabis businesses each year
according to the Denver Police Department, and burglaries and theft
comprise almost 80 percent of Denver's cannabis industry-related crime.
Providing a mechanism for the cannabis industry to access the regulated
banking system would help those businesses and their surrounding
communities by reducing the high-volume of cash on hand, thereby
reducing instances of cash-motivated crime.
Access to the banking system would also increase the efficiency of
tax collections and improve the financial transparency of the cannabis
industry. Since many cannabis businesses do not have a bank account,
they are forced to pay their taxes in cash at local IRS offices.
Processing such paper-based returns costs the IRS nearly 17 times more
compared to an e-filed return, and sometimes requires local tax offices
to invest in additional security measures because of the cash payments.
Those costs are ultimately borne by taxpayers and could be avoided by
allowing cannabis businesses access to bank accounts, which enable
electronic tax payments.
Due to the lack of transparency associated with cash-based
transactions, taxpayers are also less likely to report cash income than
payments received by check or those subject to third-party reporting or
withholding. Although the cannabis industry is regulated and therefore
likely more tax-compliant than unregulated cash-based businesses,
initial studies show that there are still significant tax evasion
challenges in the current cannabis environment. The city of Sacramento,
for example, estimated that cannabis dispensaries are underpaying their
taxes by up to $9 million per year due to poor recordkeeping or filing
of inaccurate financial statements with local tax collectors. Given
that tax revenues from the cannabis industry are often earmarked for
education and public health initiatives, compliance is critical to the
well-being of local communities. Banking the cannabis industry is a
straightforward way to ensure that businesses have the means and
motivation to remain fully tax compliant.
Allowing cannabis related businesses access to the regulated
banking system would also improve Federal and State oversight of their
financial activities. Bank accounts are monitored in accordance with
existing anti- money laundering and Bank Secrecy Act requirements which
help law enforcement to identify and address suspicious transactions--
an opportunity that is not available in an all-cash environment. One of
the foundations of the Bank Secrecy Act (BSA) is the transparency
provided by bank records of transactions. In fact, when adopting the
BSA in 1970, Congress found that records maintained by businesses
``have a high degree of usefulness in criminal, tax, and regulatory
investigations and proceedings.'' The increased transparency that would
come from processing transactions through bank accounts instead of in
cash would ensure that regulators and law enforcement have the
necessary tools to identify bad actors and remove them from the
marketplace. The activity of cannabis businesses would become part of
the standard process that all banks apply to their customers to
understand customer profiles, assess risk, and monitor for and report
possible suspicious activity and large cash transactions.
For example, currently, when banks open accounts, they verify the
identity of the individuals opening the account and create a risk
profile for the customer based on a variety of factors: the bank
products used, the type of business the customer is in, where the
company plans to do business, and its existing relationships with the
bank, among others. Then, once the account is opened, the bank will
monitor transactions to ensure that the customer is operating in
accordance with the profile presented at account opening. If something
unusual or out of the ordinary occurs that cannot be explained, the
bank will report that to the appropriate authorities by filing a
Suspicious Activity Report (SAR). In addition, if the customer engages
in a large cash transaction, the bank generally will file a Currency
Transaction Report with FinCEN. If a customer is operating on an all-
cash basis without a bank account, none of that takes place and if
unusual transactions occur, it is not reported to FinCEN.
Despite the myriad benefits that would result from banking this
fledgling industry, widespread and consistent financial services will
not be possible until Congress removes the risk of Controlled
Substances Act liability and directs the Federal banking regulators to
issue guidance to help banks understand what procedures are acceptable.
Currently, the only direction available to financial institutions in
connection with cannabis-related accounts comes from guidance issued by
the Financial Crimes Enforcement Network (FinCEN) in 2014. That
guidance, which references a now rescinded memorandum from the U.S.
Department of Justice (the ``Cole Memo''), describes how financial
institutions can report cannabis-related business activity consistent
with their Bank Secrecy Act obligations where there is this conflict
between State law which makes an activity legal and Federal law which
prohibits it. It does not create a safe harbor or otherwise modify
Federal law to protect banks from criminal and civil liability for
money laundering. The guidance specifically reminds banks that
marijuana continues to be illegal under Federal law.
Although a small number of financial institutions have weighed the
prevailing climate of nonenforcement and have decided to shoulder the
risk in order to serve the needs of their communities, the majority of
financial institutions will not accept the legal, regulatory, or
reputational risk associated with banking cannabis-related businesses
absent congressional permission to do so. Because Congress has banned
marijuana, whether for medicinal or adult use, it will require action
by Congress to allow banks to serve this industry.
The SAFE Banking Act Would Help Address the Problem
The bipartisan SAFE Banking Act (S. 1200), which is before the
Committee for consideration, would help address this urgent banking
problem. The bill specifies that proceeds from a State licensed
cannabis business would not be considered unlawful under Federal money-
laundering statutes or any other Federal law and directs FinCEN and the
Federal banking regulators to issue guidance and exam procedures for
banks doing business with cannabis related legitimate businesses.
Explicit, consistent direction from Federal financial regulators will
provide needed clarity for banks and help them to better evaluate the
risks and supervisory expectations for cannabis-related customers.
Although the SAFE Banking Act does not cure all of the cannabis-
related banking challenges, it would help the 33 States that have
legalized cannabis in some form to make their communities safer,
collect their taxes, and regulate their cannabis markets effectively.
It would also help banks and their customers in States without legal
cannabis regimes by addressing the unintended consequences for
unrelated businesses that provide products and services to the cannabis
industry, their employees or service providers, without undermining
each State's ability to prohibit cannabis sales and use within their
borders.
Summary
ABA supports the SAFE Banking Act and urges the Committee to markup
and advance this legislation as soon as possible. Approving a narrow,
banking specific remedy will reap immediate public safety, tax, and
regulatory benefits without undermining broader deliberations about
national drug policy that will take more time.
Thank you for your efforts to address this important issue that has
become a challenge for many of our Nation's communities and the banks
that serve them. I am happy to answer any questions you may have.
______
PREPARED STATEMENT OF GARTH VAN METER
Vice President of Government Affairs, Smart Approaches to Marijuana
July 23, 2019
Chairman Crapo, Ranking Member Brown, Members of the Committee,
thank you for inviting me to testify before you today. My name is Garth
Van Meter, and I am the Vice President of Government Affairs for Smart
Approaches to Marijuana, a nonpartisan, nonprofit organization
dedicated to a public health approach to addiction and recovery. SAM
was founded by former Congressman Patrick Kennedy, current editor of
The Atlantic David Frum, and former senior drug policy advisor to three
Administrations, Kevin Sabet. SAM believes no one should be locked up
or have the rest of their life ruined just because they got caught with
a joint, but we should also not create a new addiction-for-profit
industry in the model of Big Tobacco. SAM partners with a wide variety
of other organizations, including major medical societies, treatment
and recovery advocates, law enforcement groups, AAA, Parent-Teacher
Associations, and drug prevention groups to advocate for a public
health approach to drug policy.
The Addiction Crisis
The fundamental question before us today is whether we want to
promote and increase drug use during an addiction crisis or discourage
drug use and help people find recovery and healing. By skipping ahead
to a technicality over banking rules, the marijuana industry is hoping
to gain many of the benefits of Federal legalization without a debate
over the public health effects. But make no mistake, a policy change
around banking would have massive public policy and public health
ramifications, so we are shirking our duties if we do not consider the
full question. The SAFE Banking Act will allow the expansion of an
industry pushing new, exponentially more powerful forms of marijuana
before any of its health or other societal impacts are fully
understood.
Banks currently want to have it both ways: they say they are not
taking a position on legalization, but they want to profit from a
fabulous new line of business: depositing federally illegal proceeds. I
am amazed that no one has called them on it. It is an untenable
position. If they want to benefit from the sales of 99 percent potency
concentrates, pot candies and gummies, and high potency vapes that are
marketed to young demographics through social media influencers using
the Juul playbook, they should be consistent and argue to have those
things legalized and advertised. But they are not doing that, because
they know that their public reputation would take a hit. So instead,
they argue that they should participate in what is literally the
definition of money laundering for federally illegal proceeds but be
held harmless for the damage to public health and public safety.
The Potential Increase of Wide-Spread Investments in the Marijuana
Industry
I want to examine two scenarios that could result from the passage
of the SAFE Banking Act.
The first is the best-case scenario, and the intended effect of the
bill: let's say only State licensed marijuana producers and stores
participate in the Federal banking system.
For expert testimony on the purpose of the SAFE Banking Act, I
refer you to former Speaker John Boehner's marijuana investing seminar,
\1\ in which you find these statements, ``With traditional investments,
only 17\1/2\ percent of the money comes from little fish like you and
me. The other 82\1/2\ percent is from the big players, the major
investment firms, hedge funds, pension funds, established corporations.
Banking restrictions are preventing almost all of those investment
firms and funds from diving head first into cannabis. Well, they're
dying to get in. I'm helping some of these bigger fish get ready to
invest. There are hundreds of billions of dollars sitting on the
sidelines.''
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\1\ https://www.youtube.com/watch?v=CZXGiRcXLJo
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The SAFE Banking Act could have been drafted to narrowly address
point-of-sale transactions. Instead, the bill is written specifically
to allow those ``hundreds of billions of dollars sitting on sidelines''
to invest. Does anyone think that public health is going to be the
driving force behind these multinational corporations who have to
report quarterly earnings? For a preview, we need only to look to
Canada, where the CEO of a major marijuana corporation was ousted for a
single quarter of poor sales, and Altria (formerly Philip Morris) has
made a multibillion-dollar investment into the marijuana industry. We
should also note that the former CEO of Purdue Pharma--who oversaw all
of Oxycontin's deceptive marketing practices--saw his next big business
opportunity in leading a marijuana company.
The Influx of Potent Products Into the Market
It's also important that we not deal with this question in the
abstract. When you see marijuana on TV, you see fields or warehouses of
what everyone assumes is a harmless plant. It looks very innocuous.
What they don't show you are the concentrates and extraction systems,
because industrial scale extraction looks like something straight out
of the television show ``Breaking Bad''. Yet, concentrates are what
they are heavily promoting on social media. For those who have never
seen concentrates, I refer you to Appendix A of my testimony, where you
can see examples. Marijuana is not just a plant any more. It has been
highly processed into something that cannot be found in nature and has
a devastating impact on the brain in terms of addiction and mental
health. In particular, I refer you to the first page, where you can see
a marijuana concentrate called ``shatter'' from Acreage Holdings, which
is former Speaker Boehner's new gig. Notice the name of the marijuana
strain: ``Thin Mint Girl Scout Cookies''. This is a screen shot of
their webpage from 2 weeks ago, but it mysteriously vanished when we
submitted this picture as a part of written testimony to the House
Judiciary Committee.
I also want to address kid-friendly edibles. Under State
regulations, the pot gummies on page 2 of Appendix A are not considered
kid-friendly. You see, under the marijuana industry's logic, kids are
only attracted to gummies in the shape of animals or cartoon
characters, not to brightly colored, sugar-coated gummies in the shape
of vegetables, geometric shapes, or pot leaves. Washington State got so
frustrated with the number of children ending up in emergency rooms
from accidental ingestion of pot candies that they were going to ban
them completely, but it only lasted a week, and the marijuana industry
released their new plan to self-regulate with brightly colored
geometric shapes and pot leaves only.
So, that is the best-case scenario, if everything goes according to
plan.
The Potential Increase of Cartel Activity
But there is a much darker possibility, and it doesn't require a
stretch of the imagination because it is already happening.
International cartels have infiltrated legalized States and have used
the cover of legalization to conduct massive grow operations, often in
upscale, suburban neighborhoods. \2\ The SAFE Banking Act provides a
scalable new avenue for these cartels to infiltrate the banking system
in a much more systematic way.
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\2\ https://www.nbcnews.com/news/us-news/foreign-cartels-embrace-
home-grown-marijuana-pot-legal-states-n875666; https://www.pbs.org/
newshour/show/how-colorados-marijuana-legalization-strengthened-the-
drugsblack-market
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For example, I refer you to a letter dated July 19, 2019, from
former DEA Administrators and ONDCP Directors who describe a threat
that parallels the multibillion-dollar Black Market Peso Exchange, and
testimony from Colorado law officer Ernest Martinez that lays out an
example of how this would work. These documents can be found in
Appendix B of my testimony.
To quote from the letter:
Because cash made from the sale of marijuana looks the same
regardless of what it was used to pay for, it will be extremely
difficult for banks to know whether large bundles of cash
presented for deposit were made from the sale of marijuana
rather than from the sale of heroin, fentanyl, or
methamphetamine.
In short, the SAFE Banking Act could inadvertently allow
cartels to bring into banks duffel bags of cash made from the
sale of those illicit drugs that are killing tens of thousands
of Americans every year.
And to quote from Lt. Martinez's testimony:
. . . approving the SAFE Banking Act would open more
opportunities for money laundering and black-market investors.
As one possible example, a cartel would drop off backpacks of
cash to a dispensary for deposit, possibly in excess of $10,000
per transaction, which would be a huge advantage over current
constraints. The dispensary would deposit the money in their
bank account, and then bill a shell company for ``security
services,'' ``cleaning services,'' or some other plausible
service that would never be performed. Now the money has been
returned to cartel control and can be transferred
electronically.
Furthermore, Lt. Martinez's testimony explains why even eliminating
cash will never stop pot shops from being targeted for robbery: in the
majority of cases, the burglars are there to steal marijuana, not cash.
The marijuana is more easily accessed and is extremely valuable in its
own right. A marijuana store is more akin to a jewelry store than a
convenience store. A recent illustration comes from thieves who backed
a pickup truck into a Michigan pot shop, stole all of the marijuana,
and then left. They came back 20 minutes later to steal the ATM as an
afterthought. \3\
---------------------------------------------------------------------------
\3\ http://www.fox2detroit.com/news/local-news/thieves-crash-
truck-into-detroit-marijuana-dispensary-steal-pot-atm
---------------------------------------------------------------------------
What This Bill Is Not About
Cannabidiol (CBD) and hemp were federally descheduled through the
2018 Farm Bill, and the FDA is currently conducting a rule-making to
ensure public health and safety are taken into account. When USDA
issues their expedited rule for hemp growing, hemp growers who operate
in accordance with the rule will be fully legal and have full access to
banking services. CBD has been demonstrated through FDA clinical trials
to have a medicinal benefit for certain childhood seizures.
By contrast, marijuana producers are growing and manufacturing
incredibly high potency products that are orders of magnitude stronger
than anything available in the Woodstock days. What we think of as
marijuana from those days was only 1-3 percent THC and contained a
relatively high proportion of CBD, which acted as a neuroprotective
agent. Today's marijuana concentrates can have up to 95 percent THC and
no CBD. A recent study found that high potency marijuana has a five-
fold higher risk of psychosis. \4\
---------------------------------------------------------------------------
\4\ Di Forti, et al. ``The Contribution of Cannabis Use to
Variation in the Incidence of Psychotic Disorder Across Europe (EU-
GEI): A Multicentre Case-Control Study''. Lancet Psychiatry. March 19,
2019. DOI: https://doi.org/10.1016/S2215-0366(19)30048-3.
---------------------------------------------------------------------------
We often hear that supposedly ``47 States have legalized some form
of cannabis'' and we have to do something to accommodate those States.
First of all, many of those States only created programs for
compassionate distribution of nonintoxicating CBD, which was also
federally legalized when produced from hemp in the 2018 Farm Bill. It
is disingenuous to lump in those States when they now have a pathway to
full compliance with Federal law. I disagree that we should be fully
legalizing high potency marijuana, but if the other witnesses want to
do it, they should follow the path of the Farm Bill and have that
debate.
Other States, like New York, Minnesota, Ohio, West Virginia,
Pennsylvania, Utah, and Louisiana, have more cautious medical marijuana
programs, not allowing it to be smoked, and could conduct research
programs that could be converted into legitimate FDA clinical trials
with early access programs for suffering people. There is a right way
to research and prescribe medicines, and the path is through the FDA.
On the other extreme are States like California, where anyone can
qualify for a medical marijuana card under the thinnest of pretexts,
and it essentially functions as recreational marijuana for anyone
willing to go through minor inconvenience of a pot doctor's
recommendation via a 5-minute Skype session.
And then there are the 10 States that have legalized commercial
retail sales for recreational marijuana. These States are doing an
abysmal job of regulating the drug, with rampant black markets, out of
State diversion, the highest rates of youth use in the Nation,
skyrocketing use for 18-24 year olds (when the brain is still
developing), and as much as a doubling in fatalities due to marijuana
impaired driving. \5\ We should not be expanding that failed experiment
to other States.
---------------------------------------------------------------------------
\5\ https://learnaboutsam.org/wp-content/uploads/2019/06/2019-
Lessons-Final.pdf
---------------------------------------------------------------------------
Indeed, New York, New Jersey, Vermont, Connecticut, New Hampshire,
Rhode Island, Delaware, Minnesota, North Dakota, and New Mexico all
turned back major pushes to legalize and commercialize recreational
marijuana as lawmakers and the public saw the disturbing public health
impact of marijuana in legalized States.
Whose Problem Are We Solving?
Today's modern marijuana industry is structured around catering to
heavy users. Daily and near daily users consume 87 percent of the
marijuana in the State of Colorado. \6\ If you want to be successful in
the marijuana business, that's who you have to sell to, and those users
have built up a high tolerance and high dependence. LivWell and other
businesses have to meet the demand they have created if they want to
stay in business versus their competitors. If they don't aggressively
market the highest potency products available, someone else will and
they will lose market share. Therefore, the business model becomes the
highest potency for the cheapest price, and no State has successfully
implemented a potency cap. Advancing a business model of creating new
instances of substance use disorder during an addiction crisis is
grossly irresponsible as a matter of public policy.
---------------------------------------------------------------------------
\6\ Colorado Department of Revenue: Market Size and Demand for
Marijuana in Colorado (2017).
---------------------------------------------------------------------------
We at SAM deal every day with families who have lost loved ones to
addiction, and marijuana is a major part if not the defining feature of
all of their stories. Contrary to the claims of the marijuana industry
and legalization advocates, legalization is not resulting in a
reduction in opioid deaths. These claims have been thoroughly debunked
in recent studies in the Proceedings of the National Academies of
Sciences. \7\ Instead, in a study of 34,000 individuals, marijuana
users were discovered to be more than two times as likely to abuse
prescription opioids or initiate nonprescription use of opioids. \8\
---------------------------------------------------------------------------
\7\ Shover et al., ``Association Between Medical Cannabis Laws and
Opioid Overdose Mortality Has Reversed Over Time''. PNAS, Jun 10, 2019.
https://doi.org/10.1073/pnas.1903434116
\8\ https://www.drugabuse.gov/news-events/news-releases/2017/09/
marijuana-use-associated-increased-riskprescription-opioid-misuse-use-
disorders
---------------------------------------------------------------------------
There is still an opportunity for the other witnesses in the
banking industry at this table to wash their hands of the marijuana
industry and say, ``we want no part of this coming nightmare.'' But, if
they proceed, at least it will be with the full knowledge of what they
are investing in: preying on the vulnerable through the marketing of
high potency and kid-friendly products, and producing new cases of
substance use disorder and serious mental illness.
We can see where this is leading in our neighbor to the north,
where Altria, formerly Philip Morris, the manufacturer of Marlboro
cigarettes, has made a multibillion-dollar investment into the
marijuana industry, paired with an even bigger investment in vaping
giant Juul. These investments will have business synergy, as the latest
data shows a 63 percent increase in youth vaping of marijuana in Juul-
like devices. \9\ It took us over 100 years to reverse the public
health impacts of the tobacco industry, who continually cast doubt on
public health advocates with industry-funded bunk science. We have an
opportunity today not to repeat those mistakes.
---------------------------------------------------------------------------
\9\ Johnston, L.D., Miech, R.A., Bachman, J.G., Schulenberg, J.E.,
and Patrick, M.E. (2018). ``Monitoring the Future National Survey
Results on Drug Use 1975-2018''. Overview, Key Findings on Adolescent
Drug Use. Ann Arbor: Institute for Social Research, University of
Michigan.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
PREPARED STATEMENT OF JOHN LORD
CEO and Owner, LivWell Enlightened Health
July 23, 2019
Chairman Crapo, Ranking Member Brown, and Members of the Committee,
thank you for providing me the opportunity to share my perspective on
the issue of banking in the cannabis industry. It is truly an honor. My
name is John Lord and I am the owner and CEO of LivWell Enlightened
Health, a vertically integrated cultivator, manufacturer, and retailer
of cannabis products under the laws of Colorado. LivWell is one of the
largest cannabis companies in Colorado, with more than 600 employees
and approximately $100 million in annual revenue. Yet because of the
current status of the law, we are forced to operate as an all-cash
business.
Overview of LivWell, CTF, and the Cannabis Industry
I am here today representing not only LivWell but also the Cannabis
Trade Federation, for which I am currently the chair of the Board of
Directors. CTF is a national coalition of cannabis-related businesses
dedicated to professionalizing, diversifying, and unifying the cannabis
business community. Our members are some of the most successful and
responsible operators in the U.S. cannabis market today, generating
billions of dollars in sales while navigating and complying with
regulations that are not only comprehensive in scope, but vary
significantly from State-to-State. Our board is comprised of companies
that cover the full range of the cannabis supply chain. We also have
ancillary companies that focus on technology and others that provide
supplies, such as Scotts Miracle-Gro, which launched a cannabis-focused
subsidiary, Hawthorne Gardening Company, in 2014.
Our industry has experienced a remarkable transformation over the
past decade. What started with caregivers and cooperatives primarily
providing raw flower products to qualifying patients has now evolved
into an industry that provides an incredibly broad range of products to
millions of patients and nonpatients alike. Altogether, 33 States, the
District of Columbia, and numerous U.S. territories have passed
effective medical cannabis laws and 11 of those States, DC, and two
territories have made cannabis legal for all adults. Nationally, the
Marijuana Business Daily's Annual Fact Book estimates State-legal
cannabis sales will exceed $12 billion in 2019. Included in that
overall sales figure are flower products; oils for vaporization; edible
products, such as fine chocolates and infused beverages; topical
products, from salves to lotions to transdermal patches; and other
products, like tablets, capsules, and tinctures. Our company alone now
has 19 stock keeping units (SKUs) on the production side and close to
400 SKUs available overall at our retail outlets. For those of you who
have not seen the cannabis market in person and only have imagined what
it is like, I strongly encourage you to visit Colorado to see it for
yourself. You will see that while cannabis is a truly unique product,
the industry itself operates like any other industry.
Before telling you more about my experience at LivWell, I wanted to
share a bit about my background as a businessperson. As you may have
detected, I was born in New Zealand where I was a dairy farmer until I
found the next chapter of my professional life. I moved into
importation, manufacturing and wholesale of child safety seats and baby
products, ultimately selling my products in over 30 countries,
including the United States. I moved to Denver, Colorado, in 1998 as I
began sales to Walmart, Toys R Us, JCPenny, among other retail outlets.
With the commute from New Zealand being challenging and because I love
the United States, I became an American citizen in March 2007. My
company prospered, and in 2008, I sold it to a public company. However,
I quickly found I was not suited to retirement and began looking for my
next venture just as the medical cannabis industry was getting off the
ground in Colorado. With my experience in manufacturing, compliance,
and warehouse management, I believed I could succeed by applying my
general business acumen and by bringing professionalism to this new
field.
The past decade has been an adventure to say the least. In many
ways, my company and the industry have grown up together. In 2009, we
began with a small warehouse for cultivation and opened a dispensary
under the provisions of the Colorado Constitution, serving the
medicinal needs of a few hundred medical marijuana patients. In 2010,
State policy makers decided that the system needed to be regulated and
controlled, and the Colorado General Assembly passed the world's first
law to establish an open but regulated market for the production and
sale of cannabis products. I was very supportive of that law and
embraced the opportunity to expand our operations in strict accordance
with the rules and regulations established by the State. We gradually
increased our cultivation space and opened additional dispensaries
across the State. After the voters of Colorado legalized cannabis for
all adults in 2012, our facilities became dual-use--for both medical
and what we call ``adult-use'' cannabis--in 2014. Today, we manage 15
retail stores in Colorado with each store averaging close to $20,000
per day in transactions and serve approximately 4,500 people per day.
The Impact and Challenges Current Federal Banking Laws Place on LivWell
and Other Companies Operating in The Cannabis Industry
But our evolution as a company has not always been smooth. And the
greatest reason for that is the lack of reliable access to traditional
banking services. Due to the dichotomy between State and Federal laws,
banks and credit unions have been reluctant to serve cannabis
businesses or have refused to do so altogether. In some cases, banks
that were willing to work with cannabis companies were discouraged or
prevented from doing so by their regulators. As a result, we have
frequently struggled to obtain and maintain bank accounts with
egregiously high fees. At one point, the amount of cash we had on hand
created such a security issue that I rented out a former bank building
just so that I could use the vault to store cash. Another time, I had
no choice but to travel to the Internal Revenue Service office in
Denver with more than $3 million in cash in order to send the Federal
Government our taxes from our State-legal cannabis business. It took
more than 3 hours for them to count it all! Due to the large volume of
cash coming in from the industry overall, the Denver IRS office
actually had to modify the openings in their teller windows and
purchase money counters.
Over our 10 years of operations, we have had accounts closed at
over a dozen financial institutions. As you can imagine, this is
incredibly disruptive. Imagine running a manufacturing, wholesale, and
retail operation with hundreds of employees and having to make all
payments, including payroll, in cash. It is difficult and, frankly, it
is dangerous. This is something hundreds, if not thousands, of State-
legal cannabis companies have had to struggle with. And not just
business accounts are affected. Financial institutions often close
personal accounts of owners and even the accounts of family members. I
have had personal accounts closed, along with my senior staff, as well
as mortgages and car loans denied. In addition, my Chief Financial
Officer served on a regional bank's board of directors, and due to his
association with LivWell, was asked to resign.
While our company now has a more stable banking relationship, we
are still far too dependent on cash. The status of cannabis and banking
at the Federal level has resulted in credit card companies refusing to
process transactions for cannabis stores. So we are forced to take cash
from customers and then have that cash collected by armored car so that
it can be deposited with our bank. There are risks and hazards
throughout this process. And, of course, this situation is not unique
to our company. It affects every cannabis business in the country.
Although the required security systems and equipment at cannabis
facilities are extensive, we still must worry about theft and armed
robberies. During one such robbery attempt in 2016, a security guard at
a dispensary in Aurora, Colorado, who was a Marine Corps veteran, was
shot and killed. Passage of the SAFE Banking Act could prevent similar
tragedies from occurring in the future.
I would note that the news about cannabis banking is not all bad.
Notwithstanding the fact that the Department of Justice rescinded
several memoranda regarding cannabis enforcement in January 2018, the
Department of the Treasury's Financial Crimes Enforcement Network
(FinCEN) has maintained its 2014 guidance titled ``BSA Expectations
Regarding Marijuana-Related Businesses.'' As FinCEN explained, the
``guidance clarifies how financial institutions can provide services to
marijuana-related businesses consistent with their BSA obligations, and
aligns the information provided by financial institutions in BSA
reports with Federal and State law enforcement priorities.'' Of course,
from a law enforcement perspective, this makes eminent sense as it is
always easier for law enforcement to detect illicit activity if the
proceeds of that activity are run through the regulated banking system.
Under the FinCEN guidance there has been a steady increase in the
number of financial institutions serving cannabis businesses. Data
released by FinCEN last month showed that more than 633 financial
institutions had filed marijuana-related businesses suspicious activity
reports in the first quarter of 2019, indicating some level of
interaction with the industry. This was an increase of more than 50
percent over the end of the first quarter of 2018.
But this access to financial institutions comes at a steep cost. As
I mentioned above, due to the significant compliance costs associated
with serving cannabis customers under existing policies, financial
institutions charge cannabis businesses substantial monthly fees. Our
company pays in excess of $3,000 per month for the mere privilege of
having an account. The current situation is especially challenging for
small businesses. While we, due to our size, are able to absorb the
additional costs associated with cash management and exorbitant bank
fees, many small businesses are not. Furthermore, resolving the banking
issue could significantly aid cannabis businesses in securing business
loans. This is critical to small business owners who may not have
access to other sources of capital. It should be noted that these small
businesses are also being squeezed by Section 280E of the Internal
Revenue Code, which prevents all cannabis companies from deducting
standard business expenses when they calculate their taxes. If there is
any hope in helping small businesses--including minority- and women-
owned companies--survive and thrive, we must fix the banking situation
and amend Section 280E so that cannabis businesses are taxed like any
other business.
Thank you again for inviting me here today. I look forward to
answering your questions.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
FROM RACHEL PROSS
Q.1. Many community banks and credit unions want guidance from
the Federal financial regulators to help them navigate cannabis
banking issues, and you indicated in your testimony that your
credit union is using the FinCEN guidance to service the
cannabis industry. What additional guidance should the Federal
banking agencies issue on how institutions can provide services
to cannabis-related businesses?
A.1. Thank you for the question, Senator Brown. You asked what
additional guidance the Federal banking agencies should issue
on how institutions can provide services to cannabis-related
businesses.
At Maps Credit Union, we believe that the most important
Federal action on this issue must come from Congress and not
regulators. Specifically, in order to effectively provide
services to cannabis-related businesses, financial institutions
must have the type of clarity provided by the SAFE Banking Act
in order to ensure the propriety of their actions. With respect
to regulatory action, Maps Credit Union believes that FinCEN's
BSA Expectations Regarding Marijuana-Related Businesses, or
FinCEN Guidance, is an adequate regulatory framework to operate
within in order to serve the cannabis industry. The FinCEN
Guidance clearly lays out how to report cannabis-related
financial activity running through our organization, and it
specifies how to escalate reporting in the event that we are
suspicious of unlawful activity. We do not feel the FinCEN
Guidance is lacking in clarity, and we have operated
successfully under that framework for the last 5 years.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
FROM RACHEL PROSS
Q.1. What is the single biggest risk that we face if nothing is
done to address the challenges facing cannabis and banking?
A.1. Thank you for these questions, Senator Reed. You asked the
single biggest risk that we face if nothing is done to address
the challenges facing cannabis and banking.
I think the single biggest risk is having a multibillion-
dollar industry operating in a cash-based underground economy.
Without providing cannabis businesses with access to
transparent and traditional financial institution
relationships, our Federal, State, and local governments have
no information on cannabis-related financial activity in the
United States. This can lead to tax evasion, money laundering,
diversion into other States or countries, and numerous other
serious safety and crime-related concerns stemming from a cash-
based system. Furthermore, there exists a host of unscrupulous
third-party payment-related vendors who are seeking to benefit
from the current vacuum in traditional financial services for
cannabis businesses in our Nation. These vendors bombard
cannabis businesses with promises of a fix to the cash-only
issue, and the ``solutions'' they offer are very often clearly
a form of money laundering. Such backdoor systems do nothing to
aid law enforcement, and they further push cannabis businesses
into a hidden economy.
Q.2. What is the single biggest benefit that we are likely to
realize if we are able to address the challenges facing
cannabis and banking?
A.2. Senator Reed, you asked what the single biggest benefit is
that we are likely to realize if we are able to address the
challenges facing cannabis and banking.
The single biggest benefit will be an increase in financial
institutions who are willing to serve the cannabis sector. This
will result in financial transparency, compliance with guidance
from the U.S. Treasury, community safety stemming from the
removal of millions of dollars in cash off the streets, and the
dissemination of vital data and statistical information and
economic trends to law enforcement and Government officials.
Q.3. A critical part of addressing the challenges facing
cannabis and banking is ensuring that our anti- money-
laundering laws remain robust and that our law enforcement
officials are still able to enforce the law and deter
criminals. What specifically needs to be done to ensure these
priorities?
A.3. Senator Reed, you asked what specifically needs to be done
to ensure the priorities of robust anti- money-laundering laws
and the ability of law enforcement officials to still enforce
the law and deter criminals.
I believe the best way to ensure that our law enforcement
officials are still able to enforce the law and deter criminals
under robust anti- money-laundering laws is to keep the U.S.
Treasury's FinCEN Guidance in place as a regulatory framework
for financial institutions to follow. As a practitioner of
cannabis banking, I can emphatically state that the FinCEN
Guidance is and will continue to be vital to financial
institutions lawfully serving cannabis businesses, even under
the legal protection of the SAFE Banking Act, in order to meet
all compliance obligations of the Bank Secrecy Act and anti-
money-laundering law. The FinCEN Guidance is an essential
rulebook for appropriately monitoring and maintaining cannabis
business accounts. Without it, Maps Credit Union would not be
serving the cannabis industry at all.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
FROM RACHEL PROSS
Q.1. The Federal prohibition of marijuana continues to create
significant harm for communities across the country. However,
as dozens of States--including Massachusetts--have implemented
their own marijuana laws, there are still significant barriers
posed by these outdated Federal laws. \1\
---------------------------------------------------------------------------
\1\ National Conference of State Legislatures, ``State Medical
Marijuana Laws'', http://www.ncsl.org/research/health/state-medical-
marijuana-laws.aspx.
---------------------------------------------------------------------------
This includes the inability of financial institutions to
allow marijuana businesses acting in compliance with State laws
access to banking services. Forcing these businesses to operate
entirely in cash presents a dangerous public safety concern
that Federal policymakers must swiftly address. That is why I
am a cosponsor of the SAFE Banking Act, commonsense legislation
that would help resolve this important issue for these
marijuana businesses and the ancillary businesses that support
them. \2\
---------------------------------------------------------------------------
\2\ Secure and Fair Enforcement Banking Act, S. 1200, https://
www.congress.gov/bill/116th-congress/senatebill/1200.
---------------------------------------------------------------------------
I'm also the lead sponsor of the STATES Act--bipartisan,
bicameral legislation with Senator Gardner that would protect
States, territories, and tribal Nations from Federal
interference as they determine their own marijuana laws. \3\
This bill addresses the financial issues caused by Federal
marijuana laws by clearly stating that compliant transactions
are not trafficking and do not result in proceeds of an
unlawful transaction. It has been endorsed by organizations
such as the American Bankers Association, Cooperative Credit
Union Association, Credit Union National Association,
Massachusetts Bankers Association, and others representing
financial institutions.
---------------------------------------------------------------------------
\3\ Strengthening the Tenth Amendment Through Entrusting States
Act, S. 1028, https://www.congress.gov/bill/116th-congress/senate-bill/
1028.
---------------------------------------------------------------------------
Finally, I support efforts to legalize marijuana by
removing it from the list of controlled substances under the
Controlled Substances Act. While this action will have
important and wide-reaching implications, it will also provide
the fullest resolution to the marijuana banking issues that the
Senate Banking Committee is discussing today.
As Congress explores legislative action, it is important
that we consider ways to support legal marijuana businesses and
their consumers--including medical marijuana patients--as soon
as possible.
Do you believe that our current marijuana laws that force
marijuana businesses to operate as cash-only enterprises pose a
public safety risk? Do you believe that they hinder economic
growth?
A.1. Thank you for these questions, Senator Warren. You asked
if I believe that our current marijuana laws that force
marijuana businesses to operate as cash-only enterprises pose a
public safety risk, and you asked if I believe that they also
hinder economic growth.
I received a similar question from Senator Cortez Masto,
and I'd like to quote my response here. In summary, yes, I do
believe that having a multibillion-dollar industry operate
primarily in cash is an immense public safety risk and
hindrance to economic growth. As I stated in response to
Senator Cortez Masto, ``Unbanked or underbanked individuals and
businesses live with great risk of robbery or violence, and
communities also suffer as a result. A 2015 analysis by the
Wharton School of Business Public Policy Initiative found that,
in the absence of being banked, one in every two cannabis
dispensaries were robbed or burglarized--with the average thief
walking away with anywhere from $20,000 to $50,000 in a single
theft. Here at Maps, we have heard anecdotal evidence of this
very thing. We had one cannabis business experience a
frightening robbery on a Sunday, and the business owners opened
an account with Maps 5 days later to remove cash from their
location. One cannabis business owner who banks with Maps, with
24 licensed businesses, commented that his employees used to be
terrified to leave their stores on payday, because they had to
walk out carrying 2 weeks' wages in cash. He was ecstatic about
being able to offer them direct deposit now because of having
accounts at Maps. It isn't very often, in this modern day and
age, that someone is ecstatic about something as basic and
simple as direct deposit, but this is the world that cannabis
businesses and their employees live in.''
As for economic growth, I believe that lacking access to
mainstream financial services simply makes it difficult for
businesses to operate. Unbanked cannabis businesses face
barriers that other types of businesses do not even need to
consider: paying taxes in cash, paying employees in cash,
paying vendors in cash, tracking expenses and inventory
purchases manually without the benefit of bank statements or
check copies or point-of-sale receipts for reference . . . the
list goes on. They also lack access to capital because, without
legislation like the SAFE Banking Act, financial institutions
generally will not lend to the cannabis sector due to the risk
of collateral loss. Without basic financial services such as
deposit accounts and business loans, cannabis businesses must
overcome significant barriers, hindering growth and limiting
the positive economic impact of a multibillion-dollar industry
in local communities across our Nation.
Q.2. You represent a financial institution that provides
banking services in a State that has legalized marijuana for
medical and recreational purposes. Can you please describe in
detail the decision-making process in determining whether you
would provide these services to State-legal marijuana
businesses?
A.2. Senator Warren, you asked if I can describe in detail the
decision-making process in determining whether Maps Credit
Union would provide these services to State-legal marijuana
businesses.
The volunteer, member-elected Board of Directors of Maps
Credit Union voted to serve the cannabis industry in 2014 for
two main reasons: community safety (removing cash from the
streets) and serving an underserved industry--which is truly in
the ``DNA'' of credit unions as community-based, not-for-profit
financial cooperatives. The Board vote was not unanimous, but
they have maintained a strong and united front regarding the
outcome of that ``yes'' vote. Before making the decision, the
Board evaluated a legal opinion of the risk involved in serving
the cannabis industry given the Federal status, and they
extensively reviewed the FinCEN Guidance and the DOJ's Cole
Memo, which was in place at the time. The Credit Union's legal
counsel spent a great deal of time visiting with cannabis
businesses to better understand their operations and banking
needs, and this information was also reported to the Board for
consideration.
To help mitigate legal and compliance risk, the Board
determined that the Credit Union would invest in a holistic
risk infrastructure with a designated executive leader to
ensure that the compliance for the cannabis banking program was
top-notch. The Board realized that our cannabis banking program
would be one of the first of its kind in the United States, so
they emphasized the need to ``set the bar'' and ensure that we
operated transparently and in full compliance with the FinCEN
Guidance from U.S. Treasury. Lastly, the Board evaluated
liquidity risk and ensured that the Credit Union had a
documented exit strategy to deploy in the event of a change in
Federal prosecutorial priorities, and they also placed limits
on the cannabis banking program's size in order to ensure that
cannabis-related funds could be divested of very quickly in the
event of a change at the Federal level. This protects the
Credit Union from deposit concentration risk and from a
liquidity crisis should the program need to be shuttered.
Q.3. Please describe any challenges your financial institution
faces in providing these services to marijuana businesses due
to current Federal laws, including any regulatory barriers.
A.3. Senator Warren, you asked me to describe any challenges
Maps Credit Union faces in providing these services to
marijuana businesses due to current Federal laws, including any
regulatory barriers.
Serving the cannabis industry is complex and labor-
intensive, but our Credit Union believes it is worth the work,
because it speaks to our mission and helps keep our community
safe. Our biggest concern is that, without a legal safe harbor
at the Federal level for serving the cannabis industry, we run
the risk of being prosecuted for Federal money laundering. On a
personal level, it is truly difficult for me as a Chief Risk
Officer to put so much effort into a program that is serving
local Oregon businesses in a fully transparent and fully
compliant manner, while knowing that a simple change in
prosecutorial priorities could risk my freedom at worst and my
financial future as a working mom at best. We need a Federal
solution to remove this risk for financial institutions, and
financial institution professionals like myself, allowing us to
transparently serve State-sanctioned cannabis businesses in
accordance with FinCEN Guidance without worrying about Federal
prosecution for doing our jobs. Thank you for your efforts in
cosponsoring the SAFE Banking Act.
Q.4. Please describe any services, if any, that you provide to
ancillary marijuana businesses (e.g., legal or security firms,
food safety businesses, real estate) and any challenges you
face in providing such services.
A.4. Senator Warren, you asked me to describe any services that
Maps Credit Union provides to ancillary marijuana businesses,
such as legal or security firms, or food safety or real estate
businesses, and any challenges we face in providing such
services.
Maps Credit Union does provide banking services to
ancillary marijuana businesses, such as landlords, garden
stores, real estate investment enterprises, and others. These
businesses do not require the same SAR filing frequency as
direct ``plant-touching'' cannabis businesses, in the FinCEN
Guidance \4\ (quoted below and highlighted [Ed. italicized]
regarding ancillary businesses, specifically), but we do
monitor these accounts quite carefully and consider them high-
risk accounts under our organization's Bank Secrecy Act risk
profile.
---------------------------------------------------------------------------
\4\ FinCEN recognizes that a financial institution filing a SAR on
a marijuana-related business may not always be well-positioned to
determine whether the business implicates one of the Cole Memo
priorities or violates state law, and thus which terms would be most
appropriate to include (i.e., ``Marijuana Limited'' or ``Marijuana
Priority''). For example, a financial institution could be providing
services to another domestic financial institution that, in turn,
provides financial services to a marijuana-related business. Similarly,
a financial institution could be providing services to a nonfinancial
customer that provides goods or services to a marijuana-related
business (e.g., a commercial landlord that leases property to a
marijuana-related business). In such circumstances where services are
being provided indirectly, the financial institution may file SARs
based on existing regulations and guidance without distinguishing
between ``Marijuana Limited'' and ``Marijuana Priority.'' Whether the
financial institution decides to provide indirect services to a
marijuana-related business is a risk-based decision that depends on a
number of factors specific to that institution and the relevant
circumstances. In making this decision, the institution should consider
the Cole Memo priorities, to the extent applicable[.]
Q.5. What has the community response been, if any, to your
financial institution providing banking services to legitimate
---------------------------------------------------------------------------
marijuana businesses?
A.5. Senator Warren, you asked what the community response has
been to Maps Credit Union providing banking services to
legitimate marijuana businesses.
The community response to our efforts in serving legitimate
marijuana businesses has been overwhelmingly positive. There
were some early murmurs in the media about a local credit union
``secretly'' serving the cannabis sector, but the resulting
commentary from the community was a rallying cry of support.
One commenter expressed disbelief that a news outlet would post
a story that essentially stated, ``A financial institution in
Oregon is providing financial services to legal businesses in
Oregon,'' and the commenter punctuated his response by saying,
``Must be a slow news day.'' That seems to be the sentiment of
the vast majority of those we speak with. At Maps Credit Union,
we understand that the cannabis legalization issue is
controversial, but the voters of our State have made their
wishes clear. Our duty now is to serve that sector and assist
those businesses with accessing the mainstream economy. I
believe the majority of our community members understand that
and support our efforts. To further mitigate reputation risk,
the cannabis banking program at Maps keeps separate financials
and, from its outset, the Board mandated that the program must
pay for itself. That way, credit union members at large--
particularly those who do not support the cannabis industry--
are not having their resources utilized to pay for cannabis
banking services and the necessary supportive infrastructure.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM RACHEL PROSS
Q.1. During your testimony, you discussed your credit union's
interactions with FinCEN and Suspicious Activity Reports
(SARs). Can you describe your credit union's role in working
with State and local law enforcement, if any?
A.1. Thank you for these questions, Senator Cortez Masto. You
asked if I can describe my credit union's role in working with
State and local law enforcement.
One of the things Maps Credit Union (Maps) takes great
pride in is our collaboration with law enforcement. Prior to
serving the cannabis industry, Maps filed less than 50
Suspicious Activity Reports (SARs) per year. Since January
2017, however, Maps has filed nearly 3,500 SARs, with
approximately 3,200 of them being directly related to the
cannabis industry. This is vital data that law enforcement
would not otherwise have if we were not serving this sector.
SARs include a detailed export of every single financial
transaction on a cannabis business account for the reporting
period, allowing law enforcement to identify trends and
investigate any activity that could indicate a crime has taken
or is taking place. Additionally, Maps files thousands of
Currency Transaction Reports (CTRs) per year on cash
transactions aggregating to over $10,000 in a single business
day. Again, this is vital data for law enforcement. Our ongoing
monitoring of these accounts also ensures that worrisome
activity is promptly reported, giving law enforcement the
benefit of early indication.
Q.2. Outside of the SARs process, how does law enforcement
benefit from the information you collect on your account
holders?
A.2. Senator Cortez Masto, you asked how, outside of the SAR
process, law enforcement benefits from the information Maps
Credit Union collects on our account holders.
CTRs also provide substantial benefit to law enforcement,
particularly because the cannabis sector operates primarily in
cash. CTR data informs law enforcement of every cash
transaction or series of cash transactions aggregating to over
$10,000 in a single business day. This helps law enforcement
track business activity that would otherwise be in an
underground, unreported economy.
Q.3. If Congress passed legislation, such as the SAFE Banking
Act, do you think financial institutions and law enforcement
would have the tools needed to find and investigate money
laundering and other financial crimes?
A.3. Senator Cortez Masto, you asked if I think financial
institutions and law enforcement would have the tools needed to
find and investigate money laundering and other financial
crimes, if Congress passed legislation such as the SAFE Banking
Act.
Yes, I think that the SAFE Banking Act would provide
substantial benefit to both financial institutions and law
enforcement. By removing the enormous legal risk of serving the
cannabis sector, more financial institutions would open their
doors to cannabis businesses. Each of those financial
institutions would be filing SARs and CTRs, and this would
increase the volume of data being reported to FinCEN.
Additionally, each of those financial institutions would be
implementing their own Bank Secrecy Act and Anti- Money-
Laundering programs, and financial institution staff would be
trained to identify and report indicators for money laundering
and other financial crimes. Upon suspicion of activity that
would trigger a SAR, and barring unusual circumstances, the
activity is reported within 30 days. Finally, bringing an all-
cash industry into a transparent financial relationship means
attaining data that would otherwise be lost to the underground,
unregulated, unreported, hidden economy.
Q.4. Do you believe there are additional tools we should
provide to financial institutions that work with cannabis
businesses in order to better assist law enforcement?
A.4. Senator Cortez Masto, you asked if I believe that there
are additional tools lawmakers should provide to financial
institutions that work with cannabis businesses in order to
better assist law enforcement.
I feel that the FinCEN Guidance is adequate to assist law
enforcement, as SARs allow a financial institution to
communicate with law enforcement about suspected financial
crime without running afoul of privacy law.
Q.5. According to the FDIC's 2017 survey of unbanked and
underbanked individuals, 6.1 percent of Nevadans were unbanked.
And Nevada has one of the highest rates of underbanked citizens
in the country--more than 1 in 4 Nevadans were underbanked. Can
you discuss any harms or risks associated with a large
population of unbanked and underbanked individuals,
particularly those in the cannabis industry who are already
being paid in cash?
A.5. Senator Cortez Masto, you asked if I could discuss any
harms or risks associated with a large population of unbanked
and underbanked individuals, particularly those in the cannabis
industry who are already being paid in cash.
Unbanked or underbanked individuals and businesses live
with great risk of robbery or violence, and communities also
suffer as a result. A 2015 analysis by the Wharton School of
Business Public Policy Initiative found that, in the absence of
being banked, one in every two cannabis dispensaries were
robbed or burglarized--with the average thief walking away with
anywhere from $20,000 to $50,000 in a single theft. Here at
Maps, we have heard anecdotal evidence of this very thing. We
had one cannabis business experience a frightening robbery on a
Sunday, and the business owners opened an account with Maps 5
days later to remove cash from their location. One cannabis
business owner who banks with Maps, with 24 licensed
businesses, commented that his employees used to be terrified
to leave their stores on payday, because they had to walk out
carrying 2 weeks' wages in cash. He was ecstatic about being
able to offer them direct deposit now because of having
accounts at Maps. It isn't very often, in this modern day and
age, that someone is ecstatic about something as basic and
simple as direct deposit, but this is the world that cannabis
businesses and their employees live in.
Q.6. Do you believe employees of marijuana businesses, or
marijuana-related businesses are more likely to be unbanked or
underbanked?
A.6. Senator Cortez Masto, you asked if I believe that
employees of marijuana businesses, or marijuana-related
businesses, are more likely to be unbanked or underbanked?
Yes I do, and I have seen the evidence of that first-hand,
as Maps regularly receives new account requests from employees
of cannabis businesses, and employees of cannabis-related
businesses, who have had their accounts closed at other
financial institutions.
Q.7. Does the current FinCEN guidance allow financial
institutions to provide information to State tax agencies when
performing audits?
A.7. Senator Cortez Masto, you asked if the current FinCEN
Guidance allows financial institutions to provide information
to State tax agencies when those agencies are performing
audits.
The FinCEN Guidance does not explicitly allow financial
institutions to provide information to State tax agencies when
those agencies are performing audits; however, if a financial
institution suspected tax evasion efforts by a cannabis
business entity, that information would be reported in an
escalated SAR (a Marijuana Priority SAR or Marijuana
Termination SAR), and FinCEN could then route that SAR to the
appropriate authorities for further investigation.
Q.8. If Congress passed legislation allowing the cannabis
industry to access financial services, do you believe that
States would be able to more accurately audit businesses and
individuals associated with cannabis businesses or cannabis-
related businesses?
A.8. Senator Cortez Masto, you asked if States would be able to
more accurately audit businesses and individuals associated
with cannabis businesses or cannabis-related businesses, if
Congress passed legislation allowing the cannabis industry to
access financial services.
Absolutely. It is very difficult to audit a business that
operates solely in cash or an individual who operates solely in
cash. Providing access to mainstream financial services means
having access to bank statements and CTR/SAR data that would
not otherwise be available in the underground economy.
Q.9. You noted in your testimony that your credit union, Maps,
serves the Willamette Valley, a rural area in Oregon. Has
legalization of cannabis driven economic development in your
area?
A.9. Senator Cortez Masto, you asked if legalization of
cannabis has driven economic development in the rural
Willamette Valley of Oregon, which is inside the service area
of Maps Credit Union.
I believe it has. There are currently 2,221 active cannabis
business licenses in the State of Oregon, per Oregon Liquor
Control Commission (OLCC) data as of August 9, 2019. The OLCC
also reports 46,992 active Worker Permits as of August 13,
2019. That means nearly 47,000 Oregonians are permitted to work
in the cannabis sector--a sector that was largely illegal just
5 years ago. With numbers like that, I believe it is a logical
conclusion that the cannabis industry has contributed to
economic development in the Willamette Valley.
Q.10. In your experience, has a legalized cannabis industry
bolstered the economy of our rural and tribal communities?
A.10. Senator Cortez Masto, you asked if a legalized cannabis
industry has bolstered the economy of our rural and tribal
communities.
I do not yet have experience with the tribal communities in
Oregon, but we have an upcoming meeting with one tribal leader
to discuss the tribe's plans for economic expansion and how the
cannabis sector may play a part in that. As for rural
communities, I recall one Maps member, in particular. He owns a
three-generation farm and used to sell produce to big-box
stores such as WalMart. He was being so squeezed on price
margins that he was concerned his entire operation would go out
of business. When cannabis became legal in Oregon, his family
invested in an overhaul of their farm to grow ``specialty''
strains of cannabis instead of produce, and he likened it to
different varietals of wine. He commented to me, ``Being part
of the cannabis industry saved a three-generation farm. We
invested our entire life savings into this, and it's paying
off. We don't live at the mercy of WalMart anymore. Now we
control our own destiny.'' I believe that is a powerful message
about the impact of this industry on our rural communities.
Q.11. As a provider of financial services to a rural community,
do you believe that rural communities face greater challenges
when accessing financial services for cannabis or cannabis-
related businesses?
A.11. Senator Cortez Masto, you asked if, as a provider of
financial services to a rural community, I believe that rural
communities face greater challengers when accessing financial
services for cannabis or cannabis-related businesses.
I do believe that rural communities are challenged when it
comes to accessing traditional financial services. We are
regularly contacted by State legislators and mayors of small
towns who have seen their local community bank branches close
altogether, and they are asking if there is any chance we could
open a branch for their community. The challenges in doing so
are often insurmountable. And that challenge regarding access
to banking is just for rural, mainstream ``Mom and Pop''
businesses. It's far worse for cannabis businesses, who only
have a handful of options currently in the State of Oregon. We
have members who drive 6 hours round-trip to make their
deposits at Maps. We are currently working on a potential
solution to help our members deposit their cash more locally.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
FROM JOANNE SHERWOOD
Q.1. Many community banks and credit unions want guidance from
the Federal financial regulators to help them navigate cannabis
banking issues, and you indicated in your written testimony
that financial institutions need clearer guidance. What
additional guidance should the Federal banking agencies issue
on how institutions can provide services to cannabis-related
businesses?
A.1. As a preliminary matter, it is important to note that the
Federal banking agencies cannot provide the needed clarity for
financial institutions without Congress first providing a
change to Federal law. Since marijuana is illegal under Federal
law, it is difficult for Federal regulators to advise financial
institutions on how best to navigate the divide between the
letter of Federal law and the reality of State marijuana
industries. (See Feinstein/Grassley letter to FinCEN.) It is
impossible for banking regulators to shield banks from the
potential civil and criminal liability that accompanies
violations of the Controlled Substances Act and anti- money-
laundering statutes. Federal banking regulators will need to
issue clear guidance for banks, but first Congress must allow
them to do so by enacting the SAFE Banking Act, or similar
legislation. The content of marijuana banking regulation will
necessarily be shaped by the Federal approach to marijuana. If
Congress preserves the illegality of marijuana but provides a
mechanism for banks to accept the proceeds of State-licensed
marijuana businesses, as contemplated by the SAFE Banking Act,
regulatory clarity will be essential in creating a reliable
pathway for banks to serve marijuana businesses without fear of
triggering criminal, civil, or regulatory censure.
Once Federal legislation is in place, the Federal banking
agencies should review and revise the existing FinCEN guidance
to ensure that banks are able to treat proceeds received from a
marijuana-related business or service provider in the same
manner that they would treat proceeds from any other legal
business. Currently, the only guidance that banks have from any
regulatory agency is the FinCEN guidance that was issued on
February 14, 2014. However, that guidance only addresses
marijuana-related businesses which, although not defined,
FinCEN has informally indicated are businesses that have direct
contact with the plant or plant products. FinCEN has also
pointed out that the guidance is only to help banks address the
conflict between State and Federal law when filing a Suspicious
Activity Report and does not address the risk factors that
banks should consider if banking any business related to the
marijuana industry.
While the Federal banking regulators will tell visiting
delegations of bankers that following the FinCEN guidance is
the standard that they expect for compliance, that is not
written down and there is no clarity about whether or not all
examiners and auditors are adhering to a uniform standard when
evaluating banking relationships with marijuana-related
businesses. And so, bankers would also welcome clarity from the
Federal banking regulators about what steps are needed to
ensure they are acting in compliance with the laws. This does
not need to be prescriptive but should outline the steps for a
bank to ensure it is complying with regulatory expectations.
The other area where banks would welcome further clarity,
as discussed during the hearing, are the many ancillary
businesses that do not directly handle marijuana but receive
some income from those businesses. These are the employees, the
landlords, the suppliers and even the investors. In a letter to
FinCEN in December 2016, ten Senators urged FinCEN to provide
additional guidance on those relationships but, to our
knowledge, nothing has been provided.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
FROM JOANNE SHERWOOD
Q.1. What is the single biggest risk that we face if nothing is
done to address the challenges facing cannabis and banking?
A.1. There are many negative repercussions that will result
from failing to address the cannabis banking problem, but
perhaps the biggest single risk is the continued risk to public
safety caused by forcing these businesses to continue to
operate on an all-cash basis.
Q.2. What is the single biggest benefit that we are likely to
realize if we are able to address the challenges facing
cannabis and banking?
A.2. Actually, there are two key benefits from banking these
businesses. On the commercial side, allowing these businesses
to have access to banking services would eliminate the need to
operate on an all-cash basis and would provide a paper trail
for examiners and auditors as well as ensure monitoring of
these accounts under standard Bank Secrecy Act procedures that
have been in effect since 1986. The improved transparency
provided by banking marijuana-related businesses would help
identify and eliminate unlawful actors in State markets as well
as facilitate accurate tax assessment and collection.
On the consumer side, it would allow employees of these
businesses to maintain or open bank accounts which facilitates
payments for normal daily transactions and creates a paper
trail that helps individuals establish a credit record.
Q.3. A critical part of addressing the challenges facing
cannabis and banking is ensuring that our anti- money-
laundering laws remain robust and that our law enforcement
officials are still able to enforce the law and deter
criminals. What specifically needs to be done to ensure these
priorities?
A.3. While there are separate steps that can be taken to
improve the AML system in the United States, as currently being
considered in the House of Representatives and draft
legislation soon to be introduced by Senators Cotton, Jones,
Rounds, and Warner, changing the access to banking services
through adoption of the SAFE Banking Act would likely improve
the system. First, it would ensure that these businesses are
brought into mainstream banking where there is a regular audit
trail of all transactions. Second, and perhaps more important,
if these businesses open bank accounts, they would be subject
to all the standard AML procedures that banks have had in place
for over 30 years. Their activity would be subject to
monitoring, as it is for any bank customer, and any suspicious
transactions would be reported to law enforcement to
investigate. Under the current system, where these businesses
are compelled to operate in an all-cash environment, there is
no paper trail, no monitoring, and no responsibility to report
suspicious activity to law enforcement.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
FROM JOANNE SHERWOOD
Q.1. The Federal prohibition of marijuana continues to create
significant harm for communities across the country. However,
as dozens of States--including Massachusetts--have implemented
their own marijuana laws, there are still significant barriers
posed by these outdated Federal laws. \1\
---------------------------------------------------------------------------
\1\ National Conference of State Legislatures, ``State Medical
Marijuana Laws'', http://www.ncsl.org/research/health/state-medical-
marijuana-laws.aspx.
---------------------------------------------------------------------------
This includes the inability of financial institutions to
allow marijuana businesses acting in compliance with State laws
access to banking services. Forcing these businesses to operate
entirely in cash presents a dangerous public safety concern
that Federal policymakers must swiftly address. That is why I
am a cosponsor of the SAFE Banking Act, commonsense legislation
that would help resolve this important issue for these
marijuana businesses and the ancillary businesses that support
them. \2\
---------------------------------------------------------------------------
\2\ Secure and Fair Enforcement Banking Act, S. 1200, https://
www.congress.gov/bill/116th-congress/senate-bill/1200.
---------------------------------------------------------------------------
I'm also the lead sponsor of the STATES Act--bipartisan,
bicameral legislation with Senator Gardner that would protect
States, territories, and tribal Nations from Federal
interference as they determine their own marijuana laws. \3\
This bill addresses the financial issues caused by Federal
marijuana laws by clearly stating that compliant transactions
are not trafficking and do not result in proceeds of an
unlawful transaction. It has been endorsed by organizations
such as the American Bankers Association, Cooperative Credit
Union Association, Credit Union National Association,
Massachusetts Bankers Association, and others representing
financial institutions.
---------------------------------------------------------------------------
\3\ Strengthening the Tenth Amendment Through Entrusting States
Act, S. 1028, https://www.congress.gov/bill/116th-congress/senate-bill/
1028.
---------------------------------------------------------------------------
Finally, I support efforts to legalize marijuana by
removing it from the list of controlled substances under the
Controlled Substances Act. While this action will have
important and wide-reaching implications, it will also provide
the fullest resolution to the marijuana banking issues that the
Senate Banking Committee is discussing today.
As Congress explores legislative action, it is important
that we consider ways to support legal marijuana businesses and
their consumers--including medical marijuana patients--as soon
as possible.
Do you believe that our current marijuana laws that force
marijuana businesses to operate as cash-only enterprises pose a
public safety risk? Do you believe that they hinder economic
growth?
A.1. There is no question that lack of access to banking
services means that marijuana-related businesses must operate
in an all cash environment which definitely poses a public
safety risk. The epitome of those risks was identified in an
article in The Hill written by Representatives Ed Perlmutter
(D-CO) and Denny Heck (D-WA): a young man, just out of the
Marines and just accepted to his dream job as a police officer,
was acting as a security guard for a State-legitimate marijuana
dispensary when he was shot and killed during an attempted
robbery of the dispensary.
Because these businesses do not have ready access to
banking services in the current environment, they are
handicapped in their access to capital. ABA recently issued a
white paper, which examines the public benefits of banking
cannabis businesses, including for public safety, tax
collection, and local economic growth.
Q.2. You represent a financial institution that provides
banking services in a State that has legalized marijuana for
medical and recreational purposes. Can you please describe in
detail the decision-making process in determining whether you
would provide these services to State-legal marijuana
businesses?
Please describe any challenges your financial institution
faces in providing these services to marijuana businesses due
to current Federal laws, including any regulatory barriers.
A.2. Under current Federal law, any income from a marijuana-
related business is, by definition, the product of an illegal
activity and therefore, processing those funds is deemed money
laundering. Consequently, Citywide Banks does not offer
financial services to marijuana-related businesses. That is why
so many banks have also declined to enter this business. At the
moment, even if marijuana were not federally illegal, there is
also a lack of clarity from the regulatory community about what
steps are necessary to appropriately identify risks and, more
important, what steps are needed to ensure a robust compliance
program when banking these businesses. Unfortunately, until the
Federal prohibition on handling marijuana-related proceeds is
addressed, the regulatory uncertainties cannot be addressed.
It is important to recognize that existing regulatory
guidance does not address the underlying illegality of
marijuana funds, and as such, is insufficient to enable banks
to provide financial services to marijuana-related businesses.
Every memorandum from the Department of Justice, before they
were rescinded on January 4, 2018, by then-Attorney General
Jefferson Sessions, such as the one issued on August 29, 2013,
emphasized that marijuana was illegal under Federal law and the
guidelines were designed to allocate limited law enforcement
resources, not create a safe harbor to bank marijuana-related
businesses. Similarly, the FinCEN guidance issued on February
14, 2014, emphasized that ``The Controlled Substances Act (CSA)
makes it illegal under Federal law to manufacture, distribute,
or dispense marijuana.''
Therefore, any bank that elects to bank one of these
businesses runs the constant risk of prosecution for money
laundering under Federal law.
Q.3. Please describe any services, if any, that you provide to
ancillary marijuana businesses (e.g., legal or security firms,
food safety businesses, real estate) and any challenges you
face in providing such services.
A.3. Citywide Banks will consider opening accounts for
ancillary businesses where some of their revenue may derive
from cannabis-related businesses. In these situations, we
review the nature of business and why they receive funds from
cannabis-related businesses. We search the ancillary business
and their owners to determine if they have any ownership in a
cannabis-related business. If we decide to open accounts for an
ancillary business, they are considered high-risk for BSA/AML
and are monitored more closely than other businesses that don't
receive revenue from cannabis-related businesses.
Challenges with banking ancillary businesses is if they
would like a loan. For example, real estate owners who have
tenants that are cannabis-related, we are unable to provide
loans using collateral on the property. We have also had
situations with existing customers where we were not able to
renew a loan due to them having a cannabis-related tenant on
the collateral.
Q.4. What has the community response been, if any, to your
financial institution providing banking services to legitimate
marijuana businesses?
A.4. Since the bank does not offer those services, it has not
been an issue.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM JOANNE SHERWOOD
Q.1. If Congress passed legislation, such as the SAFE Banking
Act, do you think financial institutions and law enforcement
would have the tools needed to find and investigate money
laundering and other financial crimes?
A.1. Yes. These accounts would be monitored in accordance with
existing Bank Secrecy Act requirements, which are designed to
detect suspicious financial transactions. It would be helpful
to eliminate the many Suspicious Activity Reports (SARs) that
are currently being filed on each and every transaction
conducted by a marijuana-related business in order to enable
law enforcement to focus on areas where truly suspicious
transactions are occurring. Anecdotal responses from bankers
suggest that, were the SAFE Banking Act to become law, more
marijuana-related businesses would have access to banking
services where there account activity is monitored as a matter
of course in compliance with the expectations banks have met
under the Bank Secrecy Act since the Money Laundering Control
Act of 1986.
As we pointed out in our testimony, ``The increased
transparency that would come from processing transactions
through bank accounts instead of in cash would ensure that
regulators and law enforcement have the necessary tools to
identify bad actors and remove them from the marketplace. The
activity of cannabis businesses would become part of the
standard process that all banks apply to their customers to
understand customer profiles, assess risk, and monitor for and
report possible suspicious activity and large cash
transactions.''
Q.2. Do you believe there are additional tools we should
provide to financial institutions that work with cannabis
businesses in order to better assist law enforcement?
A.2. If FinCEN and the Federal banking regulators issue
additional guidance and examination procedures to clarify what
steps banks should take to identify and manage the risks
associated with banking marijuana-related businesses, it should
go a long way toward helping banks feel more comfortable with
offering banking services to these businesses. As the process
evolves, it is possible that law enforcement or the financial
sector might find the need for additional clarity, but at this
point that should be something that can be accomplished through
an advisory from FinCEN.
Q.3. According to the FDIC's 2017 survey of unbanked and
underbanked individuals, 6.1 percent of Nevadans were unbanked.
And Nevada has one of the highest rates of underbanked citizens
in the country--more than 1 in 4 Nevadans were underbanked. Can
you discuss any harms or risks associated with a large
population of unbanked and underbanked individuals,
particularly those in the cannabis industry who are already
being paid in cash?
A.3. There are many difficulties associated with a lack of
access to banking accounts. As pointed out during the hearing,
operating in an all-cash environment with large amounts of cash
presents a safety risk to employees, customers, and the
communities where these businesses operate. For the individual
consumer, such as an employee of a marijuana-related business,
lack of access to a bank account and paying all bills in cash
prevents the consumer from developing a credit history or
credit score, presenting challenges in getting loans, renting
an apartment, or even getting a job. Lack of access to a bank
account also means the individual has to rely on check cashers,
payday lenders, and other high-cost services for routine
transactions.
An article in U.S. News summarizes the disadvantages
consumers face in not having access to banking services.
Q.4. Do you believe employees of marijuana businesses, or
marijuana-related businesses are more likely to be unbanked or
underbanked?
A.4. Absolutely. One of the challenges that employees of
marijuana-related businesses face is that, because the bulk if
not the entirety of their income comes from an activity that is
illegal under the Controlled Substances Act, their income is
considered ``tainted'' and handling those funds can be
considered money laundering. As a result, if the source of
their income is known at the time an account is opened, it
would be risky for a bank to open the account and so that
increases the likelihood that the individual will be unbanked.
For consumers with existing bank accounts, it might not be
readily apparent that the source of the income is from a
marijuana-related business. If there is a sudden increase in
cash activity or other unusual behaviors in the account, then
it is likely that the bank's monitoring system will detect the
anomaly and prompt an investigation by the bank, which could
result in the account relationship being terminated.
Q.5. If Congress passed legislation allowing the cannabis
industry to access financial services, do you believe that
States would be able to more accurately audit businesses?
A.5. Yes. In testimony before the House Financial Services
Committee last February 13, California Treasurer Fiona Ma
pointed out some of the challenges associated with operating in
an all-cash environment. During the hearing, she indicated that
having the paper trail provided by bank accounts would
definitely make it simpler to audit these businesses. Clearly,
having the information provided in regular bank statements
would create a set of data that can be audited, data that is
lacking in an all-cash environment.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
FROM GARTH VAN METER
Q.1. What is the single biggest risk that we face if nothing is
done to address the challenges facing cannabis and banking?
A.1. Since States began licensing the production and
distribution of marijuana, there has been a marked increase in
potency as business investors have been able to improve
technology, growing techniques, and extraction to produce
products that did not exist prior to the legalization and
commercialization of marijuana. What we think of as Woodstock
weed was approximately 1-3 percent potency, while today's
concentrates go up to 95 percent potency. The biggest risk we
face is accelerating this trend through increased investment in
the marijuana industry, which will increase both prevalence and
frequency of use for high potency products, including
concentrates. These have demonstrated impacts on a variety of
public health measures, including increased impaired driving
crashes and fatalities, increased workplace accidents and
reduced participation, increased instances of addiction and
damage to mental health, and reduced educational attainment and
life outcomes. \1\
---------------------------------------------------------------------------
\1\ https://learnaboutsam.org/wp-content/uploads/2019/07/
2019LessonsFinal.pdf
---------------------------------------------------------------------------
Currently, legalization and commercialization have only
happened at the State level, which has put a damper on the
amount of investment into the marijuana industry in the United
States. Changing Federal laws to increase investment into the
marijuana industry without restrictions on potency or other
public health measures will make public health outcomes worse.
Q.2. What is the single biggest benefit that we are likely to
realize if we are able to address the challenges facing
cannabis and banking?
A.2. It will be a Pyrrhic victory: we will gather much more
data about the damaging effects of heavy use of high potency
marijuana products, but without any of the normally required
safeguards for participants in research experiments. No State
has been able to successfully institute a potency cap due to
stiff opposition from the marijuana industry. \2\ State
regulations allow all manner of products that are appealing to
children, leading to a Wild West atmosphere in which the
marijuana industry has been able to recreate the Big Tobacco
playbook largely without interference (case in point, the same
style of social media advertising for which Juul got in trouble
is still being used by marijuana vaporizer and concentrate
companies).
---------------------------------------------------------------------------
\2\ https://mjbizdaily.com/wp-content/uploads/2016/07/Healthy-
Colorado-quits.pdf
---------------------------------------------------------------------------
The goal of the marijuana industry is to initiate new users
of their products through ease of use and product innovation,
and convert casual users into heavy users by introducing them
to high potency concentrates (including vapes), which are
prominently advertised in social media, print advertising, and
product promotions. Concentrates and high potency vapes have
increased in popularity and market share. \3\ The proportion of
heavy users has also markedly increased, corresponding with the
increase in the average potency available. \4\ The science has
not yet caught up to understand the long-term effects of high
potency use, but the early indicators are very concerning on
the impact to mental health. \5\
---------------------------------------------------------------------------
\3\ https://www.globenewswire.com/news-release/2019/06/25/1873754/
0/en/Global-Cannabis-Concentrate-Market-Will-Reach-Over-USD-13-78-
Billion-By-2026-Zion-Market-Research.html
\4\ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6312155/; https:/
/www.nbcnews.com/health/mental-health/chronic-pot-use-may-have-serious-
effects-brain-experts-say-n924441; https://www.ncbi.nlm.nih.gov/pmc/
articles/PMC5719106/
\5\ https://www.cbsnews.com/news/marijuana-psychosis-smoking-
strong-pot-daily-increases-risk-of-psychosis-study-finds/
Q.3. A critical part of addressing the challenges facing
cannabis and banking is ensuring that our anti- money-
laundering laws remain robust and that our law enforcement
officials are still able to enforce the law and deter
criminals. What specifically needs to be done to ensure these
---------------------------------------------------------------------------
priorities?
A.3. SAM agrees that money laundering is a crucial issue to
address. We understand that some believe that money laundering
has become a bigger problem due to some dispensaries dealing in
cash. But as the former DEA Administrators and ONDCP Directors
explained in their letter to the Committee, the thing that
cartels and organized crime prize the most is access to
banking. Lt. Martinez of the Denver Police Department describes
how cartels can use dispensaries with access to banks to
launder money in excess of $10,000 per deposit, which is a very
large incentive.
Here are additional questions that should be answered by
banks or credit unions prior to the drafting of any legislation
related to money laundering:
How often do your dispensary, processor, or grower clients
deposit cash in your institution? What sort of documentation do
you require with each deposit? Do you verify deposits against
their record of inventory? Do you cross reference their
inventory with the State's seed-to-sale tracking system? Do you
place holds on any deposits before this documentation is
verified?
Does every one of your marijuana clients use an external
auditor? Does the auditor physically verify inventory or run
checks against the seed-to-sale tracking system? Is that a
requirement of your institution before you will do business
with them?
Given the Oregon Secretary of State found that the Oregon
Liquor Control Board only had resources to audit 3 percent of
licensed dispensaries \6\ and the State of California only has
15 staff to conduct enforcement in the entire State, \7\ how do
you ensure your customers are compliant with State regulations?
Do you conduct routine site visits for customers that have not
been audited by the State?
---------------------------------------------------------------------------
\6\ https://www.oregonlive.com/news/2019/01/oregon-marijuana-
regulators-fail-to-meet-even-basic-standards-state-audit-finds.html
\7\ https://ktla.com/2019/07/17/california-officials-struggling-
to-regulate-weed-market-audit/
---------------------------------------------------------------------------
SAM suggests that all of these items should be addressed in
any legislation or amendments proposed.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
FROM JOHN LORD
Q.1. In your written testimony, you indicated that it costs you
$3,000 a month to maintain your bank account, and that these
high fees are especially difficult for smaller businesses to
afford. How would additional certainty for banks, through
regulatory guidance or the SAFE Banking Act, affect smaller
businesses in particular?
A.1. Uncertainty created by the dichotomy between State-legal
cannabis programs and Federal prohibition increases operating
costs within the cannabis industry, disproportionately hurting
smaller businesses. While larger, existing companies struggle
to absorb these costs, they are often fatal for small
businesses and new businesses, as these hefty costs represent a
larger percentage of their operating budget. Further, banks
refusing to lend to cannabis businesses removes the opportunity
for many potential smaller businesses to enter the industry
because they lack access to the necessary capital. The SAFE
Banking Act would eliminate much of this uncertainty, reducing
banking-related costs and creating more access to capital.
Q.2. Overcriminalization of marijuana has led to a mass
incarceration crisis that disproportionately affects
communities of color. What steps has the Cannabis Trade
Federation taken to ensure diversity in the State-legal
cannabis industry? Are members of the Cannabis Trade Federation
required to commit to diversity and inclusion standards? Please
describe employee diversity at LivWell and any current or
planned efforts to increase diversity.
A.2. The Cannabis Trade Federation (CTF) has formed a
Diversity, Equity, and Inclusion (DEI) Task Force as a means to
create commitment and action to further a core part of CTF's
mission--to promote diversity in the industry. (The full
membership of this impressive board, which includes the current
CEO of the NAACP and the current CEO of the National Urban
League, is available here: https://
www.cannabistradefederation.com/dei-task-force.) As an initial
step, the CTF board formed two committees--a Diversity
Committee and a Social Impact Committee. The DEI Task Force
will work with these committees to develop an industrywide DEI
policy to be adopted by the full CTF board. Upon adoption, CTF
member companies will have to agree to CTF's DEI policy as a
requirement of membership. The DEI Task Force will also develop
benchmarks and goals to measure the industry's progress.
LivWell keeps diversity at the forefront when hiring,
striving to hire candidates who represent the diverse
communities we serve. We are continuously identifying
additional avenues to recruit diverse applicants and retain
those employees when hired. When we hold traditional career
fairs, we work to increase the diversity of those attending,
including cooperative efforts with the Hispanic Chamber of
Commerce and Association of Black and Latino Corporate
Directors. In addition, our Director of Human Resources sits on
the Cannabis Trade Federation DEI Task Force discussed above.
LivWell also believes that nurturing true diversity cannot
stop at the hiring of diverse candidates, but also requires a
heavy focus on management development, allowing employees to
grow with the company. As such, we have developed a 10-week
Manager Development Program that helps associates develop as
managers so they can grow their careers within LivWell. We
believe that such on-going efforts have yielded results, with
our hiring statistics reflecting or exceeding State diversity
percentages. In addition to a highly diverse population
companywide, five out of our twelve Senior Executives are women
with continuing recruitment for diverse people to fill the
company's senior management roles.
Q.3. Please describe your efforts, on behalf of LivWell and the
Cannabis Trade Federation, to support changes to State laws to
allow cannabis businesses to hire employees who have prior,
nonviolent marijuana offenses that have served their sentences.
A.3. In Colorado this year, LivWell actively supported and
lobbied SB19-224, Sunset Regulated Marijuana, which contained a
provision that reduced the timeframe during which an individual
convicted of felony was ineligible for a license from the
Marijuana Enforcement Division from 5 years to 3 years.
In addition, LivWell is actively engaging in discussions
concerning automatic expungement of marijuana offenses that
policymakers will be holding in the coming months. The Cannabis
Trade Federation (CTF) strongly supports policies that promote
an inclusive cannabis industry, including providing those with
previous marijuana convictions employment opportunities in the
industry. CTF recently formed a Diversity, Equity, and
Inclusion Task Force (DEI Task Force) comprised of prominent
national civil rights and cannabis industry leaders. (The full
membership of this board, which includes the current CEO of the
NAACP and the current CEO of the National Urban League, is
available here: https://www.cannabistradefederation.com/dei-
task-force.) The DEI Task Force is charged with developing an
industrywide diversity, equity, and inclusion policy. Once
approved by the CTF board, CTF member companies will have to
abide by this policy as a condition of membership.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
FROM JOHN LORD
Q.1. What is the single biggest risk that we face if nothing is
done to address the challenges facing cannabis and banking?
A.1. The biggest immediate risk is and will remain the security
issues created by a cash-based industry. Not only is it cash-
based, but it is famously cash-based. Those with nefarious
purposes know that employees of cannabis businesses could be
carrying a lot of cash. With the cannabis industry growing, the
longer we maintain the status quo, the more the vulnerability
to becoming a crime victim increases for cannabis workers. In
the long term, these security concerns will be accompanied by a
second large risk: an industry permanently distorted against
small businesses. Without banking services and access to loans,
those with limited access to capital struggle to enter the
cannabis industry. The longer it takes to fix the banking
situation, the longer these small businesses will be excluded,
and the more difficult it will be for new companies to compete
with the established companies.
Q.2. What is the single biggest benefit that we are likely to
realize if we are able to address the challenges facing
cannabis and banking?
A.2. The biggest benefit of fixing the banking issue is
increased security for cannabis industry employees and
customers. Decreasing the likelihood that they will be carrying
large quantities of cash reduces their attractiveness as
targets of criminal actions. A proper banking solution will
also help secure against money laundering and tax evasion by
bringing transactions into a more easily monitored and
transparent system.
Q.3. A critical part of addressing the challenges facing
cannabis and banking is ensuring that our anti- money-
laundering laws remain robust and that our law enforcement
officials are still able to enforce the law and deter
criminals. What specifically needs to be done to ensure these
priorities?
A.3. The Cannabis Trade Federation (CTF) supports the vigorous
enforcement of our Nation's anti- money-laundering laws (AML)
which is one reason why CTF supports the Safe Banking Act.
Banks are accustomed to the rigorous compliance with the Bank
Secrecy Act and other AML rules and regulations. Currency and
suspicious transaction reports are important tools that aid in
identifying illegal activity. Because of CTF's support for AML,
we are particularly grateful that FinCEN has maintained its
guidance titled BSA Expectations Regarding Marijuana-Related
Businesses (FIN-2014-G001) (February 14, 2014). According to
FinCEN, as of March 31, 2019, they have received more than
81,000 SARs from MRBs or Marijuana Related Businesses. This
information helps law enforcement deter and detect illegal
operations and increases transparency into MRBs. Unfortunately,
only a fraction of financial services organizations bank MRBs
and even fewer bank cannabis businesses. Law enforcement would
be greatly aided by maximizing the number of cannabis
businesses and MRBs that can obtain standard banking services.
To increase compliance with AML rules and regulations, we
recommend that Congress enact the SAFE Banking Act and the
STATES Act, the latter of which will remove the legal
uncertainty that arises from the conflict between Federal and
State cannabis laws and allow more financial services companies
to do business with cannabis businesses. Once this is done,
FinCEN should immediately include a representative from the
cannabis industry into its Bank Secrecy Act Advisory Group
(BSAAG). CTF stands ready to assist any Government agency,
including FinCEN, increase its knowledge and understanding of
the cannabis industry.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR MENENDEZ FROM JOHN LORD
Q.1. Mr. Lord, if Congress were to provide legal clarity around
the provision of insurance at the Federal level and help legal
marijuana businesses reduce their insurance costs, would we be
lowering the entry costs into the industry and thereby making
it easier for smaller businesses--including the communities
targeted by the war on drugs--to share in the economic
opportunity of the legal marijuana industry?
A.1. Yes. The uncertainty created by Federal illegality of a
State-legal industry makes procuring insurance more costly.
Increased insurance costs, like all of the other costs raised
by the legal uncertainty surrounding the industry,
disproportionately hurts businesses with less access to
capital. Many people of color, people in communities targeted
by the war on drugs, and people wanting to start small, local
businesses have limited access to capital. High costs, limited
access to capital, and the refusal of banks to make loans to
the cannabis industry combine to keep many potential small
businesses out of cannabis industry all together. Excessive
costs for insurance policies worsens the situation. I and the
Cannabis Trade Federation very much appreciate your efforts to
provide legal protection to insurance companies that wish to
make coverage available to State-legal cannabis businesses.
Passage of your legislation would result in more insurance
companies providing coverage, which will lead to greater
competition and lower costs.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
FROM JOHN LORD
Q.1. I'm pleased that the Banking Committee is holding today's
hearing to discuss how Congress can approach this issue.
However, it is critical that Congress take the opportunity to
advance marijuana policy reforms in a holistic manner that not
only advances our Federal marijuana laws but reverses the harm
of these policies on our communities--particularly communities
of color that have been greatly impacted by the failed War on
Drugs.
In addition to legalizing marijuana, these efforts must
include Federal and State legislative action to wipe clean the
records of those unjustly jailed for minor marijuana offenses,
and allowing any individual currently incarcerated for these
offenses to petition for release. They must also allow those
communities that have been disproportionately hurt by these
failed policies with greater access to the economic
opportunities presented by marijuana reforms.
As the CEO and owner of a marijuana businesses, what steps
have you taken to ensure employment opportunities are provided
to diverse populations?
A.1. LivWell keeps diversity at the forefront when hiring,
striving to hire candidates who represent the diverse
communities we serve. We are continuously identifying
additional avenues to recruit diverse applicants and retain
those employees when hired. When we hold traditional career
fairs, we work to increase the diversity of those attending,
including cooperative efforts with the Hispanic Chamber of
Commerce and Association of Black and Latino Corporate
Directors. In addition, our Director of Human Resources sits on
the Cannabis Trade Federation Diversity, Equity, and Inclusion
Task Force.
LivWell also believes that nurturing true diversity cannot
stop at the hiring of a diverse candidate, but also requires a
heavy focus on management development, allowing employees to
grow with the company. As such, we have developed a 10-week
Manager Development Program that helps associates develop as
managers so they can grow their career within LivWell. We
believe that such on-going efforts have yielded results with
our hiring statistics reflecting or exceeding State diversity
percentages. In addition to a highly diverse population
companywide, five out of our twelve Senior Executives are women
with continuing recruitment for diverse people to fill the
company's senior management roles.
Q.2. The Massachusetts Cannabis Control Commission (CCC)
recently announced that it selected six organizations to
support efforts to implement the first social equity program in
the country. According to CCC Commissioner Shaleen Title, this
will ``ensure our legal marketplace is accessible to impacted
individuals and off[er] the resources participants need to
overcome barriers to entry.'' \1\ Do you believe that each
State should implement a similar social equity program that
levels the playing field for every individual?
---------------------------------------------------------------------------
\1\ Boston Globe, ``Cannabis Commission Taps Six Groups To Boost
Social Equity Efforts'', Colin A. Young, July 18, 2019, https://
www.bostonglobe.com/news/marijuana/2019/07/18/cannabis-commission-taps-
six-groups-boostsocial-equity-efforts/AnKNafJyemxeKslZk8dmKN/
story.html.
A.2. The cannabis industry is a unique industry, given the fact
that it revolves around a substance that was not only
previously illegal (and still is at the Federal level and in
many States), but also resulted in the arrest and prosecution
of millions of individuals whose lives have been harmed, often
times significantly, by those criminal sanctions. And these
sanctions disproportionately affected individuals and
communities of color. As the industry grows, we have a
responsibility to ensure that those individuals and communities
that were negatively impacted by marijuana prohibition derive
substantial benefits from the legal cannabis industry.
Accordingly, I certainly support States and localities
implementing social equity programs that further their specific
objectives. The objectives could include greater diversity in
ownership, greater diversity in the workforce, worker training
for individuals previously incarcerated or underemployed due to
prior marijuana convictions, or direct investment in affected
communities for programs and projects that are not cannabis-
---------------------------------------------------------------------------
related, such as after-school programs or recreational centers.
Q.3. How are you working among your community and within your
State to further opportunities to own and manage marijuana
businesses across diverse populations?
A.3. In Colorado this year, LivWell actively supported
provisions contained in SB19-224, Sunset Regulated Marijuana,
that created ``accelerator cultivator'' and an ``accelerator
manufacturer'' licenses. These licenses, once the law is fully
implemented will allow currently licensed marijuana businesses
to host and offer technical and capital support to accelerator
license holders. The law sets forth the qualifications
necessary for an individual to obtain an accelerator license: a
person who has lived in a ``census tract designated by the
[Colorado] Office of Economic Development and International
Trade as an opportunity zone for 5 of the 10 years prior to
application.'' LivWell looks forward to extending this support
to the law's implementation and will investigate opportunities
to be a meaningful part of this program.
Q.4. Are there steps that you believe Congress should take to
support these efforts?
A.4. The Cannabis Trade Federation supports ending the Federal
prohibition on cannabis as soon as possible. The illegal status
of cannabis at the Federal level is a significant impediment to
State and local equity programs. As reported in the Boston
Globe late last year, John Barros, the City of Boston's Chief
of Economic Development, ``said the Federal prohibition on
marijuana has been a major obstacle to equity, since it
prevents banks from loaning money to cannabis firms--and
because most of the city's small business assistance efforts
are funded by Federal dollars that cannot go toward [cannabis]
companies.'' \2\ Accordingly, in addition to expanding access
to banking through the enactment of the SAFE Banking Act, we
strongly support passage of the bipartisan STATES Act, of which
you and Senator Cory Gardner of Colorado are the Senate
sponsors. The STATES Act would reconcile State and Federal
conflicts in cannabis law by bringing any entity or individual
acting in accordance with State law into compliance with the
Controlled Substances Act.
---------------------------------------------------------------------------
\2\ https://www.bostonglobe.com/metro/2018/12/04/boston-city-
council-questions-walsh-administration-over-marijuana-licensing/
5xCPOzM18jQixA03IMVb2J/story.html
---------------------------------------------------------------------------
The passage of the SAFE Banking Act would help in the
effort to expand minority ownership in the cannabis industry.
Currently, access to financial institutions comes at a steep
cost. As I mentioned in my testimony, due to the significant
compliance costs associated with serving cannabis customers
under existing policies, financial institutions charge cannabis
businesses substantial monthly fees. Our company pays in excess
of $3,000 per month for the mere privilege of having an
account. The current situation is especially challenging for
small businesses. While we, due to our size, are able to absorb
the additional costs associated with cash management and
exorbitant bank fees, many small businesses are not.
Furthermore, passage of the SAFE Banking Act could
significantly aid cannabis businesses in securing business
loans.
This is critical to small business owners who may not have
access to other sources of capital. If there is any hope in
helping small businesses--including minority- and women-owned
companies--survive and thrive, we must resolve the banking
situation. Finally, minority- and women-owned cannabis
businesses would benefit from passage of a bill like Rep. Nydia
Velazquez's (D-NY) Ensuring Safe Capital Access for All Small
Business Act of 2019 (H.R. 3540), which would make cannabis
firms eligible for Small Business Administration-backed
assistance such as microloans and loan guarantees. The lack of
access to financial services and Federal assistance to small
businesses in the industry erects barriers to entry that
Congress has the ability to eliminate if it simply chooses to
act.
Q.5. Are there steps that you believe the marijuana industry
should take nationally to focus on the importance of racial
equity within the industry?
A.5. It is crucial for the cannabis industry to be proactive
with respect to the issue of diversity in the industry. We must
ensure that when the cannabis industry matures it is diverse
and inclusive and has helped right some of the wrongs of past
criminalization. To that end, the Cannabis Trade Federation
(CTF) has formed a Diversity, Equity, and Inclusion Task Force
(DEI Task Force) comprised of prominent national civil rights
and cannabis industry leaders to develop a diversity, equity,
and inclusion policy for the industry. (The full membership of
this board, which includes the current CEO of the NAACP and the
current CEO of the National Urban League, is available here:
https://www.cannabistradefederation.com/dei-task-force.) After
completion and adoption by the CTF Board, compliance with that
policy will become a required condition of membership for CTF.
The DEI Task Force is looking at State leaders in equity like
Massachusetts and Illinois as well as Congressional proposals
like Rep. Barbara Lee's RESPECT Resolution and other industry
best practices to ensure this policy is comprehensive and
effective in creating a diverse and inclusive industry.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM JOHN LORD
Q.1. According to the FDIC's 2017 survey of unbanked and
underbanked individuals, 6.1 percent of Nevadans were unbanked.
And Nevada has one of the highest rates of underbanked citizens
in the country--more than 1 in 4 Nevadans were underbanked. Can
you discuss any harms or risks associated with a large
population of unbanked and underbanked individuals,
particularly those in the cannabis industry who are already
being paid in cash?
A.1. Access to adequate banking services is important for many
reasons but particularly to reduce security risks and increase
financial stability. Cannabis industry employees typically do
not have access to financial services like direct deposit that
can provide individuals with a tool to manage their finances.
Instead of direct deposit or a paycheck, cannabis industry
employees are often paid in cash, making them attractive
targets for criminals. Increasing access to banking services
through the SAFE Banking Act will reduce the risk of cannabis
industry employees becoming victims of crime while also
allowing them a tool to manage finances readily available to
those who work in other industries.
Q.2. Do you believe employees of marijuana businesses, or
marijuana-related businesses are more likely to be unbanked or
underbanked?
A.2. I am not aware of any statistics that provide clarity on
the percentage of cannabis industry employees who are unbanked
or underbanked. However, anecdotally I have heard that
individuals do struggle to access financial services that
employees in other industries take for granted, such as direct
deposit. For a worker who may be paid in cash, such an
individual may choose to eschew banking altogether, leading to
less interaction with banking services, which harms
opportunities for mortgages, car loans and other financial
mechanisms that create a solid and stable financial life. The
current tension between Federal and State laws across the
country exacerbates the situation for those currently
underbanked and prohibits an avenue forward for the unbanked
population. The SAFE Act would help alleviate these issues.
Q.3. In your testimony, you noted that you and many of your
employees have been denied access to financial services,
including having personal accounts closed or a mortgage denied.
How has this affected you or your employees' finances and
financial planning? Have you or your employees had to use other
financial products, such as a check cashing service or money
orders?
A.3. To protect employees to the best of our abilities from
adverse banking actions, we created an employment firm from
which we lease our employees. However, this barrier does not
always prevent our employees from being denied financial
services, such as mortgages, or from having to accept terms
less favorable from those that would be offered to an
individual not working in cannabis. Employees often struggle to
refinance their homes, and in one instance, an employee had to
accept a car loan with an exceptionally high interest rate or
forgo the car purchase. The human resources department counsels
employees with such issues when possible. In addition, LivWell
offers a 401k to its employees with the hope that such a
benefit will assist employees with their long-term financial
planning.
Q.4. In your experience, has a legalized cannabis industry
bolstered the economy of our rural and tribal communities?
A.4. Yes, the early returns show that the cannabis industry
bolsters the economy in every location where it is legal, often
significantly. For example, a study of Pueblo County in
Colorado by the Colorado State University-Pueblo's Institute of
Cannabis Research found that in the first few years of
legalized adult-use cannabis, the cannabis industry contributed
more than $58 million to the local economy. Legal cannabis
brings in needed tax revenue that can be used for important
infrastructure improvements. Since January 1, 2014, the State
of Colorado has collected more than a billion dollars in
cannabis taxes and fees, not including the hundreds of millions
of additional tax revenue generated by local governments. The
Marijuana Business Daily's Annual Fact Book estimates that the
State-legal cannabis industry currently employees the
equivalent of 175,000 to 215,000 full-time workers, many of
whom live or work in rural areas. This economic development has
attracted the interest of many tribal communities. For example,
in Nevada, Ely Shoshone Tribe Chairwoman Diane Buckner said the
opportunity presented by cannabis ``is huge for us.'' \1\ The
Ely Shoshone opened a medical and recreational dispensary in
December of 2017, immediately creating new jobs and then used
the revenue generated by that dispensary to build a grow
facility, resulting in the hiring of more people. At least
seven other tribes have entered into marijuana agreements with
the State of Nevada hoping to take advantage of this
opportunity.
---------------------------------------------------------------------------
\1\ https://newsmaven.io/indiancountrytoday/news/many-tribes-say-
billion-dollar-cannabis-business-is-a-gateway-to-economic-development-
2mDYegq8v02VmO-7SzjyQg/
Q.5. Has the industry helped propel economic development,
outside of cannabis, for communities, such as those in rural
---------------------------------------------------------------------------
areas or tribal lands?
A.5. The cannabis industry brings jobs and economic development
to many areas, including rural and tribal areas. Cannabis
cultivation and product manufacturing often takes place further
away from population centers and can be a real boon to those in
rural and tribal areas. Currently, the cannabis industry is
very localized with the effect of having most cannabis spending
staying in the local economy. The Marijuana Policy Group found
that each dollar of spending within the cannabis industry in
Colorado brought between $2.13 to $2.40 of local output and
employment. \2\ Some estimate that the cannabis could have up
to a $5 billion economic on North American Tribal Communities.
\3\ Further, the revenue generated from sales creates
opportunities for tribes to invest in themselves. The Port
Gamble S'Klallam Tribe on Washington's Kitsap Peninsula opened
a cannabis dispensary and plan to invest the resulting revenue
in either social programs or college scholarship programs, both
of which will spur further economic development. \4\ This
investment of cannabis revenue has the opportunity to drive
economic activity in these areas and keep the benefits of that
spending in the local community.
---------------------------------------------------------------------------
\2\ https://www.mjpolicygroup.com/pubs/summary/MPG-Economic-
Impact-Summary.pdf
\3\ https://newfrontierdata.com/marijuana-insights/cannabis-
potential-5-billion-economic-impact-ontonorth-american-tribal-
communities/
\4\ https://newsmaven.io/indiancountrytoday/news/many-tribes-say-
billion-dollar-cannabis-business-is-a-gateway-toeconomic-development-
2mDYegq8v02VmO-7SzjyQg/
Q.6. Does a lack of access to financial services
disproportionately impact rural communities who want to engage
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in the cannabis industry?
A.6. While the lack of access to financial services affects the
entirety of the cannabis industry, it makes sense that this
lack of access is disproportionately harmful to those living or
operating in rural areas. Cannabis businesses located or
operating in rural areas have to transport cash across longer
distances, making owners and employees more vulnerable to
potential robberies. Also, having many nearby banking options
greatly increases the likelihood that at least one local bank
will be one of the few willing to provide services to the
cannabis industry. Those chances greatly diminish when
operating in areas with fewer banking options.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
FROM JOHN LORD
Q.1. As the owner and operator of a cannabis company, can you
speak to the safety risks that employees at State-compliant
cannabis businesses face by having to do business solely in
cash?
A.1. The cannabis industry is not only mostly cash-based, it is
famously so. This means that those with nefarious purposes know
that cannabis employees will often have large quantities of
cash on their person. This knowledge makes them attractive
crime targets compared to most other businesses, where sales
and transfers are predominantly made electronically or by
check. The status of cannabis and banking at the Federal level
has resulted in credit card companies refusing to process
transactions for cannabis stores. So we are forced to take cash
from customers and then have that cash collected by armored car
to be delivered to a Federal Reserve Bank. There are risks and
hazards throughout this process. And, of course, this situation
is not unique to our company. It affects every cannabis
business in the country. Although the required security systems
and equipment at cannabis facilities are extensive, we still
must worry about theft and armed robberies. During one such
robbery attempt in 2016, a security guard at a dispensary in
Aurora, Colorado, who was a Marine Corps veteran, was shot and
killed. Passage of the SAFE Banking Act could prevent similar
tragedies from occurring in the future.
Q.2. How would the SAFE Banking Act help to mitigate those
security risks and keep both the public and employees safe?
A.2. Making it easier for cannabis companies to operate like
businesses in other industries will greatly reduce the risk of
armed robbery and other crimes. Those looking to commit a
robbery now know that cannabis establishment employees often
carry large quantities of cash, making them attractive targets.
A fully banked cannabis industry, with the current product
tracking and security systems in place, would no longer be an
attractive target for crime. Further, a proper banking solution
will also help secure against money laundering and tax evasion
by bringing transactions into a more easily monitored and
transparent system.
Additional Material Supplied for the Record
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