[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

                               ----------                              

  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

                              ----------                              

                         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

                              ----------                              


                         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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
     \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
---------------------------------------------------------------------------
    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 
---------------------------------------------------------------------------
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.
                                ------                                


        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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