[Senate Hearing 118-541]
[From the U.S. Government Publishing Office]
S. Hrg. 118-541
EXAMINING CANNABIS BANKING CHALLENGES OF
SMALL BUSINESSES AND WORKERS
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
ON
EXAMINING CANNABIS BANKING CHALLENGES OF SMALL BUSINESSES AND WORKERS
__________
MAY 11, 2023
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available at: https: //www.govinfo.gov /
______
U.S. GOVERNMENT PUBLISHING OFFICE
58-248 PDF WASHINGTON : 2026
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
SHERROD BROWN, Ohio, Chair
JACK REED, Rhode Island TIM SCOTT, South Carolina
ROBERT MENENDEZ, New Jersey MIKE CRAPO, Idaho
JON TESTER, Montana MIKE ROUNDS, South Dakota
MARK R. WARNER, Virginia THOM TILLIS, North Carolina
ELIZABETH WARREN, Massachusetts JOHN KENNEDY, Louisiana
CHRIS VAN HOLLEN, Maryland BILL HAGERTY, Tennessee
CATHERINE CORTEZ MASTO, Nevada CYNTHIA M. LUMMIS, Wyoming
TINA SMITH, Minnesota J.D. VANCE, Ohio
KYRSTEN SINEMA, Arizona KATIE BOYD BRITT, Alabama
RAPHAEL G. WARNOCK, Georgia KEVIN CRAMER, North Dakota
JOHN FETTERMAN, Pennsylvania STEVE DAINES, Montana
Laura Swanson, Staff Director
Lila Nieves-Lee, Republican Staff Director
Elisha Tuku, Chief Counsel
Amber Beck, Republican Chief Counsel
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Pat Lally, Assistant Clerk
(ii)
C O N T E N T S
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THURSDAY, MAY 11, 2023
Page
Opening statement of Chair Brown................................. 1
Prepared statement....................................... 30
Opening statements, comments, or prepared statements of:
Senator Scott................................................ 3
Prepared statement....................................... 31
WITNESSES
Senetor Jeff Merkley of Oregon................................... 4
Prepared statement........................................... 32
Senator Steve Daines of Montana.................................. 6
Prepared statement........................................... 33
Ademola Oyefeso, International Vice President and Director of
Legislative and Political Action Department, United Food and
Commercial Workers International Union (UFCW).................. 8
Prepared statement........................................... 34
Responses to written questions of:
Chair Brown.............................................. 68
Senator Menendez......................................... 68
Senator Fetterman........................................ 70
Kevin A. Sabet, President and CEO, Smart Approaches to Marijuana,
and Fellow, Yale University.................................... 10
Prepared statement........................................... 36
Michelle Sullivan, Chief Risk and Compliance Officer, Dama
Financial...................................................... 12
Prepared statement........................................... 42
Cat Packer, Vice Chair, Cannabis Regulators of Color Coalition... 14
Prepared statement........................................... 43
Responses to written questions of:
Chair Brown.............................................. 70
Senator Menendez......................................... 71
Senator Fetterman........................................ 71
Additional Material Supplied for the Record
Documents submitted regarding the SAFE Banking Act............... 72
(iii)
EXAMINING CANNABIS BANKING CHALLENGES OF
SMALL BUSINESSES AND WORKERS
----------
THURSDAY, MAY 11, 2023
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 9:45 a.m., in room 538, Dirksen Senate
Office Building, Hon. Sherrod Brown, Chair of the Committee,
presiding.
OPENING STATEMENT OF CHAIR SHERROD BROWN
Chair Brown. Thanks to Senators Merkley and Daines for
being here to testify and welcome to our other witnesses on the
second panel. And thank you to Ranking Member Scott for working
with us on this hearing.
The cannabis landscape looks far different than it did even
a few short years ago. Cannabis has been legalized or
decriminalized in almost every State. States and localities
have established licensing and social equity programs to ensure
that small businesses and communities impacted by the war on
drugs are part of the growing legal cannabis industry.
Today, we will hear about the challenges that small
businesses and workers continue to face, and how we can empower
and protect workers, provide stronger consumer and small
business protections, and ensure fair and equitable access to
financial services, all while making sure that our communities
stay safe.
Banking, of course, is critical for small cannabis
businesses who already face hurdles getting their business off
the ground. Like any business, they need to apply for licenses
and raise capital. But that is hard to do when you do not have
a bank account, or if you do, one that might come with lots of
fees.
Without full access to the banking and payments system,
legal cannabis businesses are forced to operate in the shadows.
They cannot access SBA loans and know that even if they try to
apply for a bank loan, they might go through all the costs and
effort only to be denied. So many small businesses rely on
friends and family for funding. They deal with lots of cash,
spend precious time trying to find a work-around, or hire
expensive third-party service providers that take a hefty cut
of their slim profits. This puts a robbery target on the backs
of workers and can make it harder to combat money laundering.
There are also thousands of workers who cannot prove their
income to get a mortgage or a car loan, or keep a personal bank
account, even though their paychecks came from a business that
is perfectly legal in their State.
Many of these workers are represented by unions, important
to this Committee, represented by unions like the UFCW and the
International Brotherhood of Teamsters, which are fighting to
make sure that their workers have more power in the workplace,
in an industry where their physical safety is too often at
risk.
The effects of this patchwork system go beyond just the
cannabis industry. Sheet metal and air conditioning contractors
build service retail locations and other facilities. Lawn care
and gardening companies, like Scotts Miracle-Gro in central
Ohio, sell materials and equipment. They want to continue their
businesses and serve their customers, and they do not want to
worry that it will put their bank accounts at risk.
While small businesses and workers deal with these
challenges, the large cannabis companies are the ones
dominating the market. They have ready access to private
capital and are taking advantage of their workers with unfair
labor practices to maximize profits. I stand by the workers who
are actively fighting for higher wages and safer workplaces.
We do not want the cannabis industry to become like Big
Tobacco--concentrating industry power in just a few giant
places. We know what that leads to. It hurts workers and pushes
out thousands of small businesses, those small businesses
likely to be owned by Black and Brown entrepreneurs, women, and
veterans.
We want small banks and credit unions, MDIs, and CDFIs to
be able to serve small businesses and their workers, and level
the playing field in an industry that is increasingly
concentrated.
Community banks and credit unions in my State want to serve
the legal cannabis industries in their communities, and they
want to rest assured that they can continue to bank their
existing customers.
Banks and credit unions should not have to pick and choose
which services they can offer to customers that happen to earn
their income from a cannabis business. People in the cannabis
industry should be able to have the same types of personal,
commercial, and mortgage loans that any other customer can
have, with the same protections and without additional costs or
fees.
And as we all know, the over-criminalization of marijuana
has disproportionately hurt communities of color and indigenous
communities.
We have a long way to go to right those wrongs. We can
start by ensuring that members of these communities not only
benefit from, but also lead, the growth of the legal cannabis
industry.
MDIs and CDFIs can help reach these communities that are
often overlooked--or worse, preyed upon--by other financial
institutions. And people with prior marijuana convictions,
especially in States where it is now legal, should not be
barred from participating in our economy, whether it is renting
a home or finding a good-paying job.
We all want safe communities and a safe banking system. We
all know, after the recent bank failures sparked by a panic-
induced run, banks must manage the risks of their businesses.
And they need to understand that failure to meet stakeholder
expectations can have dire consequences for their customers.
We must not weaken regulators' ability to protect consumers
and the banking system from these risks.
Financial institutions also play an important role in
monitoring our financial system for fraud, money laundering,
and other illegal activities. We need to ensure that workers
and small businesses in the cannabis industry can access
banking, while maintaining our robust anti-money laundering
framework.
I have heard from law enforcement officials who say that
expanding banking access to cannabis businesses can help
improve public safety, and direct resources toward truly
criminal activity.
Cannabis banking is of course just one part of the
conversation on marijuana policy. People should not be thrown
in jail for a product that others are legally profiting from.
We have been able to work together in the past on a bipartisan
basis to give those with prior convictions a second chance.
Everyone, including our veterans, should have access to the
medicine they need to care for themselves and their families.
And if we truly care about public health, we should consider
more medical and scientific research on this topic, something
that Senator Tester has been particularly involved in, as the
leader of the Veterans Affairs Committee.
There is more work to be done to make sure everyone can
participate in the banking system and the legal cannabis
economy in a fair, safe, and equitable way. I am glad we are
building on the progress we have made over the years, and I
look forward to continuing these conversations.
Ranking Member Scott.
OPENING STATEMENT OF SENATOR TIM SCOTT
Senator Scott. Thank you, Mr. Chairman. Thank you to both
of you for being here with us today, particularly to Senator
Daines for your hard work and dedication on this topic for a
number of years, as well as acknowledging both Senators Cramer
and Lummis for their hard work as well, on such an important
topic.
Each one of us on this Committee represents different
States with different marijuana laws, and I understand that
some of us may be in very different places when it comes to the
legality of marijuana. In my home State of South Carolina,
marijuana is largely still illegal, and I, myself, have
concerns with it.
And at the Federal level, marijuana is considered a
Schedule I drug, which means that the possession, distribution,
or sale of marijuana and other marijuana-derived products is
illegal and that proceeds from marijuana-related businesses are
subject to U.S. anti-money laundering laws.
The Department of Justice and national law enforcement
groups have expressed concerns that the SAFE Banking Act could
create loopholes in our money-laundering laws, making it harder
to catch criminals that traffic weapons, fentanyl, and even
people--much harder, which is a consequence that we must
eliminate if this bill is to become law.
However, there are some States that have legalized
marijuana, and now we have legal State-based marijuana-related
businesses throughout the country that depend on a relationship
with their bank or credit union. And as a former small business
owner, I understand and appreciate the importance of having
that relationship with your financial institution. A banking
relationship is crucial to providing safety and stability for a
company, both employees and the customers it serves.
That is why I am looking forward to hearing from our second
panel of witnesses on how these businesses operate, the
complications faced by these businesses, and how the safe
harbor provided in the SAFE Banking Act would work in practice
or if more is needed to ensure compliance.
Finally, if we are going to have a conversation about SAFE
Banking and banking a product that is illegal at the Federal
level, then we must discuss the importance of banking all
industries. In the past few years, we have seen certain
financial institutions cave to political pressures and take
actions to ``de-bank'' certain legal industries, such as
firearms and oil and gas entities, due to the wild progressive
nature of the radical left and their agenda. These same
institutions that are asking us to take a second look at the
SAFE Banking Act are frankly standing in the way of banking
legal entities today. I find that disappointing and quite
perplexing.
Congress has a responsibility to ensure that all legal
industries have access to financial institutions and services.
I understand that SAFE Banking, as drafted, currently contains
a provision to ensure that legal industries are banked. De-
banking legal industries is inappropriate, and I look forward
to hearing more about that part of the legislation as we
continue the discussion today. I hope today's hearing lends
itself to a thoughtful debate on this issue.
Thank you, Mr. Chairman.
Chair Brown. Thank you, Senator Scott. The first panel I
invite Senator Merkley of Oregon--thank you for your work on
this--and Senator Daines of Montana to speak. Some, as you both
know, as this has moved perhaps more slowly than many hoped,
have tried to use this issue as a back-door way to weaken bank
safeguards that protect our economy. I want to be clear,
nothing--nothing--goes through this Committee that weakens
consumer protections and the safety and soundness of the
banking industry.
Senator Merkley, please begin.
STATEMENT OF SENATOR JEFF MERKLEY OF OREGON
Senator Merkley. Chairman Brown, Ranking Member Scott,
Members of the Committee, thank you for holding this hearing
today on the SAFE Banking Act. I got engaged in this issue some
8 years ago because of the problems created by the cash economy
in cannabis, and from the beginning it has been a bipartisan
effort to address these challenges and a compliment to former
Senator Cory Gardner who worked on this, and it has been a real
pleasure to work with my colleague, Steve Daines of Montana, as
we seek to pursue solutions to the advancement of crime through
a cash economy. And Chairman Brown, thank you for your
partnership and for the collaboration that brought us to this
moment today.
Half of all States across our Nation have some form of
legalized cannabis--37 States have legal cannabis for medicinal
purposes, and 21 have legal cannabis for recreational use. It
is an industry that supports more than 428,000 jobs and
accounts for over $25 billion in retail sales. It is becoming a
sizable industry.
In my home State of Oregon, we had nearly $1 billion in
sales last year, and the taxes generated from those sales
helped fund our schools, mental health and substance abuse
treatment programs, as well as law enforcement and city and
county needs.
But our Federal law has not kept pace with Americans'
changing attitudes toward cannabis, nor with the changing laws
at the State and local level. That failure has denied these
legitimate businesses the ability to access the same basic
necessities as every other business, whether it is access to
banking and credit card accounts, payroll services, and more,
because depository institutions and credit unions, are worried
they may be threatened with prosecution under Federal law, and
they have largely refused to work with this industry.
So three-quarters of the cannabis economy operates entirely
in cash. The few financial institutions that do work with
cannabis businesses charge extraordinary fees because of the
risk and the added layers of compliance. And this cash-only
situation just trickles down far beyond the cannabis retailers
and growers. It proceeds to affect all of the associated
businesses, whether they are providing fertilizer or they are
setting up greenhouses or they are selling seeds, or any other
way connected, and many of them get thrown off their banking as
a result of being a supplier to the cannabis economy.
It affects the employees of these legal cannabis businesses
who cannot be paid by check or direct deposit. They have to
walk around with wallets full of cash, worried that they will
be a target for criminals on payday.
Forcing legal businesses to operate in a cash economy is
terrible for accountability, but it is great for crime. It has
left these businesses, and all that are connected to them, open
to violent crime, open to money laundering, employee theft, tax
fraud, and more.
And Ranking Member Scott, I wanted to mention, there is
nothing like a cash economy to facilitate money laundering. The
lack of electronic records in this world makes it really easy
to move money that should not be moved. So it is a piece of the
conversation I hope will come out as this bill is explored.
There is no national database to compile the stats on
incidents connected to these businesses, but we do have them
for some States. Over the past 12 months, we have had 129
robberies of Oregon cannabis businesses, and we have seen that
in State after State because the criminals know that since they
are operating in cash, there is cash inside those stores, so
they proceed to assault them. They know that the employees
might be taking that cash out for transactions, so employees
get assaulted.
So whether it is the robberies, whether it is the assaults,
whether it is the money laundering, all of it is bad news that
we can address by passing this bill.
If these businesses have the ability to accept debit cards
and credit cards, use the same systems to pay their taxes and
payrolls, all of those incentives for those crimes goes away.
The Secure and Fair Enforcement Banking Act, or SAFE
Banking Act, that Senator Daines and I have introduced and led
together, would ensure that legitimate businesses, operating in
compliance with State laws in those States where citizens have
said they want this--so it is a State's rights issue--will have
access to the same financial services as every other business.
And I do want to mention that as Senator Scott pointed out,
we do have provisions here to address the issue of reputational
risk being used against certain parts of the economy, in an
inappropriate way. So we are pleased to add that as a
strengthening part of this bill.
Financial institutions will be protected against
prosecution or asset forfeiture primarily for providing
services to a State-sanctioned cannabis-related business.
To be clear, banks will not be forced to provide services
to cannabis businesses. It is their choice. But if they provide
that, they will have a safe space for the institutions and the
industry.
It explicitly extends that safe harbor to Community
Development Financial Institutions, that the Chairman
mentioned, and Minority Depository Institutions, MDIs, who
serve underserved communities facing that have been
disproportionately affected by cannabis enforcement in the
past.
After much consultation with colleagues and outside
experts, this bill does include provisions to address concerns
around equity and issues around law enforcement and money
laundering raised in a memo by the Department of Justice last
year.
As a result, we have a piece of legislation that has
significant bipartisan support, significant bicameral support.
It has passed out of the House seven times. It is supported by
people who believe the time has come to end the cash economy
that hurts people in so many different ways.
I would like to submit into the record letters from current
Oregon cannabis retailers, sharing their own stories of the
challenges and dangers facing them in this all-cash
environment.
Chair Brown. Thank you, Senator Merkley. Before Senator
Daines begins I would like to recognize Congressman Blumenauer
from Portland, who is here and worked aggressively in the House
on this issue. Earl, good to see you.
Senator Daines is recognized.
STATEMENT OF SENATOR STEVE DAINES OF MONTANA
Senator Daines. Chairman Brown, thank you. Ranking Member
Scott, thank you as well.
I am very pleased that the Banking Committee is holding a
hearing on this important topic. Across my home State of
Montana and in communities across the country, legal businesses
are facing a public safety crisis. These businesses, often
forced to operate in all cash, are appealing targets for
robbers.
Senator Merkley talked about what is happening in his State
of Oregon. Just to the north of him, in Washington State for
instance, 2022 saw at least 100 armed robberies at cannabis
retail stores, the most in the past 10 years. Tragically,
several of these incidents ended in bloodshed.
The SAFE Banking Act would help address a major cause of
this increase in violent crime by providing a safe harbor for
depository institutions and service providers to transact with
State-sanctioned marijuana businesses. In short, this bill
would make it much easier for businesses to put their cash into
banks. It is really not that complicated.
Some of the witnesses today will say that there are
hundreds of banks and credit unions providing financial
services to State-sanctioned marijuana businesses, and that
SAFE Banking is not needed. However, the truth is that only
approximately 9 percent of the financial institutions in
America have provided services to any marijuana-related
businesses, meaning that those who are providing financial
services face limited competition and charge substantially more
to bank these clients than other businesses, resulting in
services being prohibitively expensive for many businesses.
This legislation would also help Federal and State law
enforcement distinguish between the legal and the illegal
marijuana businesses.
Opponents of this bill will say that SAFE Banking will help
to grow the $25 billion market for marijuana in the United
States. However, the real size of the market is estimated to be
at $100 billion, of which roughly 75 percent is illicit
cannabis production.
Allowing cash from legal, regulated businesses to enter the
banking system will help law enforcement more easily
distinguish legitimate actors and focus more of their resources
on prosecuting the illicit market, and in so doing, may
actually shrink the size of the overall industry and reduce
consumption in the United States. If nothing else, SAFE Banking
will greatly increase tax compliance and tax revenue for
States.
This legislation is widely supported by banks, by credit
unions, by the insurance industry, and many other service
providers who at present do not have clear guidelines for how
they can safely and legally transact with State-sanctioned
marijuana businesses. Roofers, plumbers, electricians, and
other similar service businesses are technically at risk of
engaging in illegal money laundering simply for putting on a
few shingles, fixing a leaky pipe, or safely wiring a building.
In States where these are legally operating businesses, do
opponents of this bill really believe that hard-working
tradesmen and women should be put in this impossible position?
There is a bipartisan coalition of 38 State and territorial
attorneys general who have come out in support of this bill in
the past, and we have strengthened it considerably based on
feedback from the Department of Justice.
I want to quote one of my county sheriffs back in Montana,
Lincoln County Sheriff Darren Short, up in the very northwest
part of Montana. He says this, and I quote:
It concerns me that businesses have such a large amount of cash
on hand, which is clearly a liability and a public safety
issue. I also believe that any all-cash business is going to be
rife with fraud, so it is an accounting problem as I see it
too. As far as marijuana legalization goes, the voters of
Montana made that decision and now it is our role to make it
safe and make it work. I am happy to support the SAFE Banking
Act.
This bill does not legalize marijuana. I personally do not
support Federal legalization of marijuana. The people of
Montana voted 57-43 in a ballot initiative in 2020, to legalize
recreational marijuana.
The people in States across this country have spoken, and
it is abundantly clear that the status quo is not only
untenable, it is very dangerous. The SAFE Banking Act is a
commonsense bill that can and should pass and would immediately
improve the public safety threats we are seeing on the ground
in our States. I ask my colleagues to look at this issue with
open eyes, and I look forward to hearing their input today.
Thank you.
Chair Brown. Thank you, Senator Daines. Senator Merkley and
Senator Daines, thanks for joining us. I know you have places
to go, so thanks for being part of this.
Will the other witnesses please come forward. Three are in
person. I believe Ms. Sullivan is joining us virtually.
I will begin the introductions as you are seated.
Mr. Ademola Oyefeso is International Vice President and
Director of Legislative and Political Action Department at the
United Food and Commercial Workers International Union.
Welcome, Mr. Oyefeso. He was the Senior Director of Political
Affairs and Strategic Initiatives at the Retail, Wholesale, and
Department Store Union.
Dr. Kevin Sabet is the President and CEO of Smart
Approaches to Marijuana, the Foundation for Drug Policy
Solutions. He is an affiliate of Yale University's Institution
for Social and Policy Studies. He received his Doctor of
Philosophy and Master of Science from Oxford. He is a Marshall
scholar. Welcome.
Michelle Sullivan, who is joining us from her home or
office, is the Chief Risk and Compliance Officer at Dama
Financial. Previous to joining she held roles as Senior Vice
President and Director of Corporate Risk Operations and Senior
Vice President and Director of Corporate Fiduciary Compliance.
And Ms. Cat Packer is the Vice Chair of the Cannabis
Regulators of Color Coalition, the Director of Drug Markets and
Legal Regulation of the Drug Policy Alliance. From 2017 to
2022, Ms. Packer served as the first Executive Director of the
city of Los Angeles Department of Cannabis Regulation. She
received a bachelor's and master's degree, a juris doctor, from
Ohio State University. I wish you still lived there, but
whatever.
Mr. Oyefeso, please begin.
STATEMENT OF ADEMOLA OYEFESO, INTERNATIONAL VICE PRESIDENT AND
DIRECTOR OF LEGISLATIVE AND POLITICAL ACTION DEPARTMENT, UNITED
FOOD AND COMMERCIAL WORKERS INTERNATIONAL UNION (UFCW)
Mr. Oyefeso. Good morning, Chair Brown and Ranking Member
Scott, and Members of the Committee. Thank you for the
opportunity to testify today. I am Ademola Oyefeso with the
United Food and Commercial Workers Union.
UFCW represents over 1.3 million hard-working men and women
who work in highly regulated industries, including over 10,000
workers in the cannabis industry. Our cannabis members can be
found everywhere from seed to sale. As the leading union in
cannabis, UFCW is committed to shaping this industry into one
that provides safe, well-paid, and family sustaining jobs for
all workers.
All jobs have challenges, but few industries face the
unique challenge of a Federal prohibition on access to legal
banking. Workers are paid in cash, and the cash-heavy nature of
cannabis retail creates safety and financial problems for
businesses, customers, and workers. The majority of people in
the cannabis industry are workers, and in order for these
workers to have the same opportunities for advancement and
safety, Congress must directly address the cannabis banking
challenge.
There are few banks that are willing to provide their
services to cannabis employers, and this leaves workers
struggling to find a place to do their own personal banking.
Without a bank that will accept their paycheck or proof of
employment, like a pay stub, cannabis workers struggle to
purchase homes and often find themselves having to pay higher
mortgage rates, even though they work in a perfectly legal
profession in their State. The lack of banking makes it
difficult to get personal loans for homes and cars as well.
Ashley Batista, a member of UFCW Local 1776KS and a worker
at Jushi, a cannabis grow and processing facility in Scranton,
Pennsylvania, notes the challenges and benefits of banking for
her and her coworkers:
I have watched several coworkers who saved up every nickel and
dime for a downpayment on a home, just to be denied a home loan
due to the legality of their profession. Cannabis workers face
negative stereotyping and discrimination also. Having the
support of traditional banks would help move away from the
stigma on cannabis and gives us an opportunity to qualify for
home loans, improve financial stability, and allow us a plan
for the future.
Cannabis workers are also targets for robbery and theft,
because they are known to carry cash. Ms. Batista continued:
``Many employers have cut their security teams entirely and
solely rely on workers to watch surveillance cameras.
Dispensaries are burglarized and robbed at roughly the same
rate or greater as cash-intensive businesses. Cannabis workers,
like every other worker, have a right to safe working
conditions.''
Cannabis banking is an equity issue. Equity in this
emerging industry is an empty and hollow phrase unless it is
made real and meaningful to the majority of the working people
living in these communities that were harmed by the war on
drugs. A regular paycheck goes hand-in-hand with good wages,
quality, affordable healthcare, and a secure retirement, all
things that are central to what UFCW negotiates for, for its
members, and they come with a good union contract.
The emerging cannabis industry presents an unparalleled
opportunity for Government to shape an industry from the ground
up. There are many potential paths for cannabis, but not all
paths benefit workers in the industry. A 2021 Economic Policy
Institute report analyzed a high road and a low-road scenario
for the future of the cannabis industry. Under the low-road
scenario, cannabis workers are subject to the same harmful
practices inflicted on workers in similar agricultural
settings. And under the high road scenario, unionization
ensures that cannabis jobs are good jobs.
Access to banking is part of the high road scenario for
cannabis workers.
Cannabis workers do not deserve to be treated as criminals
and should not have to struggle with financial and legal
ambiguity on the job. On behalf of all workers in the cannabis
industry, we urge Congress to give the same access to financial
systems and Federal benefits that all other Americans already
enjoy.
Thank you for the opportunity to testify, and I would be
happy to answer your questions.
Chair Brown. Thank you, Mr. Oyefeso.
Mr. Sabet.
STATEMENT OF KEVIN A. SABET, PRESIDENT AND CEO, SMART
APPROACHES TO MARIJUANA, AND FELLOW, YALE UNIVERSITY
Mr. Sabet. Thank you, Mr. Chairman and Ranking Member
Scott. I did notice that there were five proponents for this
bill, and while I will not ask for equal time, if you do not
mind I have about a 5- or 6-minute oral remarks. Thank you.
So given the obvious and widespread problems in the banking
industry, I have got to say I am a little surprised that we are
discussing this particular issue today, at a time when our
Nation is in danger of defaulting on our debt for the first
time in our history, when we have an overdose epidemic in this
country that is only getting worse, and frankly, the banking
industry is quaking after recent failures.
I should note the hearing also comes right in the middle of
the U.S. Department of Health and Human Services' National
Prevention Week, at a time when suicide rates for young people
are off the charts, mental health challenges are worse than
ever before, and frankly, insurance companies are getting away
with murder by not covering mental illness the way they do
physical illness.
The idea that this Committee decided to spend its time
turbocharging the marijuana industry right now, given
everything else going on, I think is unfortunate. And we are
spending your important time talking about how we can turn our
kids into a great national experiment, an experiment rigged
toward addiction, misery, and our next public health calamity.
But because we are here, let me briefly state why this bill
is not what we need right now. Number one, today's marijuana is
more dangerous than ever, and this bill would open up the
marijuana industry to Wall Street hedge fund managers and
Silicon Valley
investors who will create even more hazardous products to get
them in the hands of even more Americans.
Number two, the bill would open the U.S. financial system
to activity from transnational criminal organizations who
intend to harm Americans.
And number three, it purports to fix essentially a fake
problem. Today's marijuana businesses are not dealing primarily
in cash. There are hundreds and hundreds of banks working with
pot businesses.
So issue one, let's be honest, today's marijuana is not
about Woodstock weed. It is not about 3 to 4 percent THC. It is
more about these problems that I am entering in an appendix in
my written testimony, these edibles, these candies, these
cereals, these concentrates, these waxes, 99 percent,
supercharged THC, that has a deleterious effect on both
physical and mental health. Imagine what this would look like
with even more big investors.
And frankly, you can take it from your former colleague on
the other side, former Speaker John Boehner, one of the biggest
proponents of marijuana today, who has said, quote, ``I was on
the board of a major tobacco company''--Reynolds. ``Do you
think tobacco is staying on the sidelines? I have talked to
these guys. They are not going to sit this one out, and they
have the dollars to acquire whoever they want.''
That may make big banks, Big Tobacco, Big Alcohol very
happy, but it will mean more high-potency products in our
schools and neighborhoods. A drug that is now responsible for a
third of all schizophrenia cases in young men. According to a
very large Danish study that was just released earlier this
week, the number one substance found in youth suicide,
marijuana, not alcohol, the number one drug for youth going to
treatment today, because of supercharged marijuana. There are,
in fact, more daily marijuana users now than alcohol users, a
number that we would have considered unfathomable 10 years ago.
These increases we have seen in States like Colorado
include 1,000 percent increases in emergency room admissions
for psychosis, schizophrenia, Cannabis Hyperemesis Syndrome,
which is uncontrollable vomiting, other physical ailments, and
we have marijuana stores very carelessly recommending, for
example, according to one study, 70 percent of pot shops
recommending marijuana to pregnant women, something no medical
association would endorse. In fact, if we were up here with
every medical association, almost everyone in this country
opposes the legalization and normalization of marijuana, which
I think this bill will expedite.
Issue two, this bill would give banks cover for federally
illegal transactions. That is why the better name for this
legislation, I think, is the ``Addiction Banking Act''. This is
both a legal and financial bailout that will buttress the
banking system at the expense of public health. It will
increase money laundering by transnational criminal
organizations, giving them access to shell corporations within
the United States. It will empower further foreign cartels who
are already targeting kids and communities of color that are
victimized by this industry.
Let's be frank here. Banks have a horrible track record
when it comes to money laundering with other illegal drugs like
fentanyl. That is why five former drug czars, including a few
of my former bosses, in both Republican and Democratic
administrations, oppose this, and I have entered that in my
written statement as well.
And as many of you have likely heard from law enforcement
in your communities, cartel activity now is booming in legal
States. California Governor Gavin Newsom declared a state of
emergency to contend with cartel activity in the marijuana
market, which now dominates about 80 percent of that market. We
should not be fooled this will help when we open up this
illegal industry to the banks.
And finally, issue three. The U.S. Treasury Department says
that marijuana businesses currently work with over 800 banks in
this country. Multiple State regulatory bodies, including
Colorado, on the record, have admitted that marijuana
businesses are being banked by State-regulated banks and credit
unions.
We did our own investigation at SAM, the organization I
founded with former Congressman Patrick Kennedy, because we do
see this as a nonpartisan issue. Our own investigation found
that pot shops were more than willing to take debit and credit
cards and other noncash means.
I have to say one final note as I conclude. As someone who
worked in the Obama administration most recently and is
dedicated to making sure our drug laws are up to date, evidence
informed, and equitable, we are not calling to arrest workers
or arrest users of marijuana, throw them in prison, and
increase criminal justice. But on the other hand, why would we
normalize and commercialize today's super-strength marijuana,
at a time when fewer than 2 percent of marijuana businesses are
owned by people of color, when disparity of arrests is still
happening in legalized States. In fact, young marijuana arrests
in some legal States are going up, not down. When people like
John Boehner represent the industry, and groups like the NAACP
Illinois are our partner, warning us of persistent inequities
in neighborhoods saturated with pot shops the way they are
already inundated with liquor stores and the like. I think we
would be fanning the flames on the addiction crisis that is
staring us right in the face.
The ``Addiction Banking Act'' would reward the industry for
sidelining and targeting communities of color, so I urge you,
Members of the Committee, to do the right thing and not make it
even easier to normalize and commercialize this very new
substance, today's super-strength THC, and not make the same
mistake as we have with other addictive industries in the past.
The fundamental question before us today is whether we
should promote and normalize drug use during an overdose and
addiction crisis or discourage it by helping people get
treatment, achieve full recovery, and discourage use among
youth, of all drugs.
Let's remember that it took us almost 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 to
not repeat those mistakes.
Thank you for your time, and I am happy to answer any
questions.
Chair Brown. Ms. Sullivan is recognized from a remote
location.
STATEMENT OF MICHELLE SULLIVAN, CHIEF RISK AND COMPLIANCE
OFFICER, DAMA FINANCIAL
Ms. Sullivan. Chairman Brown, Ranking Member Scott, and the
esteemed Members of the Committee, my name is Michelle
Sullivan, and I am the Chief Risk and Compliance Officer for
Dama Financial. I am honored to testify before this Committee
to share my experiences and lessons learned in cannabis banking
as well as my opinion on the SAFE Banking Act. I have spent my
career in banking, risk management and compliance, and most
recently with a regional bank in Kansas City, Missouri, before
joining Dama in 2017.
Dama is the largest and the first end-to-end provider of
banking and payment solutions for legal cannabis businesses in
the United States. Today, we partner with banks which allows
our clients a single relationship with multiple financial
solutions. This includes everything from access to banking and
merchant services to cash management, payments, POS, and
inventory management solutions, to also include solutions for
their employees.
Dama was founded in 2016, to provide banking access to
licensed cannabis-related businesses with a compliance-first
approach following the provisions outlined in the ``Cole Memo''
of February 14, 2014, as well the FinCEN Guidance, BSA/AML
requirements, and all applicable Federal and State laws.
Dama partners with banks that would like to provide access
to banking but do not always have the resources or expertise to
run a high-risk, cash extensive business and/or banking program
on their own.
Dama has developed the gold standard of compliance
frameworks to ensure we know our customers through enhanced due
diligence, onboarding, and continued oversight. We do so in a
safe and sound manner to minimize the risk of money laundering
by preventing illegal operators and illicit cash from creating
vulnerabilities in our financial ecosystem.
To understand the true source of funds, Dama goes beyond
the high-risk banking requirements of Federal law by doing the
following: drilling down to 10 percent of ownership under the
UBO rule and performing onsite inspections and risk assessments
that encompass inherent and residual risk throughout the
lifecycle of the relationship. We reject a fair number of
businesses from qualifying for our services because they are
not transparent with us or they do not meet our diligent
standards.
Because of these experiences, we believe the SAFE Banking
Act should be stronger and encompass a more stringent statutory
framework. We cannot simply rely on existing guidance without
more robust legislation from Congress. It is quite possible
that banking standards could be more lax after the passage of
the SAFE Banking Act than there is today.
If Congress gives financial institutions a ``safe harbor''
to provide services to cannabis-related businesses, it must
provide a tougher framework than the existing guidance. At a
minimum, a financial institution should follow enhanced rules
regarding board-approved risk limits, deposit ratios, and
reporting criteria when limits are approached or breached, in
addition to technology and staffing expertise. We must also
include due diligence and ongoing monitoring requirements,
especially as it pertains to cash deposits and legacy cash.
We also believe there is serious potential for confusion in
the banking industry following the passage of this legislation
the way it is currently written. Will the cash truly get out of
the system? We do know that credit card companies have policies
against banking illegal products which may prohibit cannabis
transactions running across those rails even after the SAFE
Banking Act passes. Without solving the larger
decriminalization issues, we worry that the passage of the SAFE
Banking Act alone could actually provide worse problems and a
sense of resolution while huge conflicts at the Federal level
still exist. This will make it difficult for some financial
institutions to proceed.
Last, as Congress wrestles with this issue, we think it
should do so with a clear understanding of the opportunities
for cannabis banking today. This problem is not as dire as it
once was. According to FinCEN, there are over 700 financial
intuitions that work with legal cannabis businesses. Every
company that meets the risk standards that I have briefly laid
out should have access to a banking solution in America. In my
opinion, we should pause and provide more teeth to the existing
bill to protect the financial and banking industry as a whole.
We are happy that Congress is having this hearing today. We
believe that Congress should study these issues very carefully
before moving forward. We look forward to answering your
questions and working with Senators from both parties to
resolve the cannabis banking issues our country is facing.
Thank you.
Chair Brown. Thank you, Ms. Sullivan.
Ms. Packer, welcome.
STATEMENT OF CAT PACKER, VICE CHAIR, CANNABIS REGULATORS OF
COLOR COALITION
Ms. Packer. Good morning, Chairman Brown, Ranking Member
Scott, and Members of this Committee. I am honored to be
addressing you for today's hearing. My name is Cat Packer, and
I serve as the Vice Chair of the Cannabis Regulators of Color
Coalition, the Director of Drug Markets and Legal Regulation
for the Drug Policy Alliance, a cannabis policy practitioner in
residence at the Ohio State University Moritz College of Law,
Drug Enforcement and Policy Center, and an advisor to the
Parabola Center on Law and Policy. I also had the opportunity
to serve as the first Executive Director of the city of Los
Angeles Department of Cannabis Regulation, where from 2017
until last year, I led the city's efforts to license and
regulate commercial cannabis activity.
I first hope to contextualize the topic of today's hearing
within the larger scope of challenges experienced by Americans
across this Nation due to cannabis prohibition and
criminalization. While small businesses and workers in State
legal cannabis industries should not be treated like criminals,
providing protections to financial institutions, as the SAFE
Banking Act would, may be a first step to addressing banking
challenges, but it would not change the fact that small
businesses and workers in the cannabis industry will still be
considered criminal under Federal law, nor would it end the
country's failed approach to marijuana or address the harms of
cannabis criminalization and related collateral consequences,
nor would it address related concerns and challenges of
researchers, doctors, patients, veterans, immigrants,
consumers, or State and local governments. In order to address
these issues we need both Congress and the President to take
actions on more comprehensive reform.
Access to financial services is a basic necessity for any
small business. During my time as a local regulator, I worked
closely with businesses who continuously shared with me the
challenges caused by unfair access to cannabis banking. Many
small businesses and participants in the city's Social Equity
Program described a lack of access to capital, specifically
commercial loans and SBA access, as their number one barrier,
not only to entering the legal market but also to being able to
compete once licensed.
And while I know the city of Los Angeles has a unique
market for a number of different reasons, I know that there are
other States that share these concerns and challenges, and
these challenges are shared by regulators across the country
whose licensees all struggle with inequitable access to
capital, and regulators see access to banking as an opportunity
to promote public safety, economic opportunity, and support the
implementation of an effective regulatory system.
While access to banking is an important issue for many
stakeholders, small businesses, workers, and State and local
regulators alike, there is no better example than the existing
banking industry to illustrate the reality that access to
banking is not necessarily fair access to banking. In 2021, a
Brookings Institution report found that Black individuals and
businesses faced marked disparities compared to their White
counterparts and access to banking services, and deposits,
mortgage credit, and small business loans.
Moreover, a 2021 Federal Reserve report found that Black-
and Latino-owned businesses were less than half as likely as
their White counterparts to be fully approved for loan
applications during the last year.
Last summer, with the support of Ohio State University, the
Cannabis Regulators of Color Coalition published a paper that
called out the difference between expanded access and fair
access, and I am happy to see that after spending last year
working with stakeholders and leaders, folks are making efforts
to ensure that the SAFE Banking Act does not just provide
protections for financial institutions, but that it includes
minor and technical changes to ensure that banking access is
fair. That is, after all, what the F in SAFE stands for.
I ask that you refer to my written remarks for more
comprehensive details about how minor technical amendments to
the SAFE Banking Act can make the bill and cannabis banking
more fair. But I would like to provide one quick example that
illustrates how SAFE can be further improved to promote
fairness.
Existing guidance from Federal banking regulators considers
criminal records a red flag or an automatic indication that a
business may be engaged in illegal activity. One of our
recommendations is to ensure that this updated guidance clarify
that cannabis criminal records, specifically those that have
been expunged or are for activity that has been pardoned or is
no longer prohibited under State law, are not automatically
considered red flags. Addressing this issue would allow SAFE to
better promote fairness.
It is true that small businesses and workers cannot afford
to continue to be shut out of banking, but it is also true that
they cannot afford for the disparities in traditional banking
to become the new norm for cannabis banking, and moreover,
communities all across America cannot afford for the harms of
cannabis criminalization to continue unchecked.
Thank you for your time and consideration, and I look
forward to working with the Committee and Congress as we build
momentum to address not only the challenge of cannabis banking
but all of the challenges caused by the failed policy of
cannabis criminalization. Thank you.
Chair Brown. Thank you very much, Ms. Packer.
The questions will begin by Senator Reed.
Senator Reed. Well first let me thank the Chairman and the
Ranking Member for the courtesy. Thank you all for your
testimony.
This SAFE Banking Act, in the popular image, is focused on
cannabis sales and financing involving those sales. But there
is one section in the bill, Section 10, that does not apply
exclusively to cannabis. It would apply to any entity that is
engaged with the bank, a company, or a customer. And it would
make it more difficult for Federal regulators to raise the
alarm about relationships with any customer that presents
significant risks to the bank. And, as I said, it is not
limited to the marijuana industry--cannabis industry--so it
could allow pyramid schemes or all sorts of other interesting
activity to go on without an effective response by the
regulator.
In addition, Section 10 would require a bank to provide a
notice to a customer when the Federal Government suspects they
may be engaging in illegal activity. That is like warning
people to get out of town, and take the money and run, I think,
is the popular image. And it has drawn some criticism, not all,
some criticism, but significant criticism from consumer groups.
Mr. Chairman, I would request unanimous consent to
introduce a letter from the Americans for Financial Reform,
Consumer Action, Consumer Federation of America, National
Association of Consumer Advocates, the National Consumer Law
Center, and the National Consumers League.
Chair Brown. Without objection, so ordered.
Senator Reed. Thank you.
All of that being said, Ms. Packer, you had very thoughtful
comments in your testimony regarding technical amendments, the
Act, et cetera, to improve it. And would it be sensible, in
your view, to limit the scope of this Act simply to the
cannabis industry and not have this wide-open restraint on
Federal regulation?
Ms. Packer. Thank you, Senator. I have to be frank in that
my expertise and engagement with this bar has been on cannabis
banking. That being said, this hearing today is about cannabis
banking. This bill is supposed to be about cannabis banking.
And for that reason I think if there is an intent to use the
bill to do something else then maybe it is appropriate for
another bill.
Senator Reed. I think that is great. In fact, I think your
reaction is probably the reaction of everyone, saying this is
all about cannabis banking, and suddenly we have a provision
that would stop a regulator from going to a bank and
questioning a relationship with a customer who may be a
surrogate of a foreign power that is doing things here we do
not like to be doing.
And so I would hope that we could look very carefully at
this. I think the trajectory that is designed to provide
reforms for cannabis is appropriate. We have a little more work
to do. But I think this is definitely something that we can
narrow considerably.
And with that, Mr. Chairman, thank you again for your
kindness, and I yield.
Chair Brown. Thank you, Senator Reed.
Senator Scott is recognized.
Senator Scott. Thank you, Mr. Chairman.
Ms. Sullivan, thank you for your testimony today. Given
your role as the Chief Risk and Compliance Officer at Dama, it
seems that you are very familiar with compliance and risk
regimes when it comes to safe banking. Can you walk me through,
if the SAFE Banking Act were to become law, how the current
safe harbor for financial services institutions would work?
Ms. Sullivan. Thank you. If the SAFE Banking Act, the way
it was written today, was pushed forward, the concern would be
is that there would not be steps to ensure that financial
services that would be provided to cannabis-related businesses
would be legitimate. There would not be proper governance and
controls in place, that financial services would have to ensure
that they were doing, to include really addressing some of the
major things that we focus on, and a lot of the other financial
institutions in the industry today focus on, which is legacy
cash.
We also know that credit card networks do not allow
cannabis transactions today. We know merchant acquirers are
establishing fictitious names, such as flower shops, to process
these transactions. So money laundering is happening. And
really, honestly, it is going to dilute the standards that many
in the industry are performing today.
Senator Scott. Thank you. One final question for you. In
your testimony you discussed requirements to ensure that banks
have the appropriate risk controls and processes in place if
they were to bank cannabis. Can you give a little more detail
on what those requirements would look like? You started to talk
about the legacy cash and other issues. I would love for you to
continue that conversation.
Ms. Sullivan. Absolutely. So with our program and with what
our recommendations are, we would like to see that financial
institutions really have to have a strong and robust framework.
They need to really work with their board to make sure they
have board-approved risk limits. Their deposit ratios versus
their total deposits need to be within line so they do not have
a concentration. Legacy cash, for example, all legacy cash
deposits must provide documented evidence of the source and the
origination of that ownership, to include any evidentiary
documentation for those cannabis transactions.
What is important to note is just because cash gets banked,
it does not mean that money laundering is not occurring. If
financial institutions are not taking their role and
responsibility to know who their customers are, ensure that
they understand where the source of funds are coming from, and
do the continued due diligence and transaction monitoring that
has to be done in this industry, it would be a money
launderer's holiday if banks are not going to take this
position seriously.
Senator Scott. Thank you. Dr. Sabet, you talked about
synthetic marijuana and the impact it has on the brain, some of
the challenges that we have. I would love to hear a little bit
more about that, and in my minute and 47 seconds I am going to
ask you a compound question. The second part is can you explain
your concerns about the impact of cartel activity in the United
States as it relates to safe banking allowing for perhaps more
fentanyl to flow through.
Mr. Sabet. Yes, absolutely. So what I am concerned with is
the active ingredient in marijuana, THC. Marijuana has hundreds
of ingredients in it. It is a very complex plant. But we know
that THC acts on receptors throughout the brain and the rest of
our body that regulate a whole host of activity--coordination,
reward, in memory. That is why marijuana can be addictive. In
fact, one-in-three Americans who used in the last year,
according to all the studies, fall under what we call a
cannabis use disorder or addiction.
And so when that THC enters that brain, especially as that
brain is developing, you know, 25-, 30-years old--21 is
political number. It is not a scientific number when we have
age limits of 21. It is really 25 or even 30. And so it has the
ability to really affect that person as that brain is growing,
as that brain is developing.
So now we have learned how to genetically breed marijuana
to increase that THC to levels we could not have imagined 10-
or 15-years ago. The fact that so much of the industry is
selling these high potency concentrates that can be up to, they
claim, 99.9 percent THC shatter, or these waxes, you know,
these are products that did not exist before this industry
started. It is really interesting. You know, not that what we
had before was great either, obviously, with transnational
organizations running the whole thing. But this legal industry
has innovated in such a way that they have created kid-friendly
products. The gummy bears, the candies, the concentrates, it
never existed before legalization.
The second part of your question about the underground
market, you know, I really do worry about the ability of
cartels and transnational criminal groups to take advantage.
They are already taking advantage of the system. Illegal
marijuana markets have grown in legal States, not shrunken.
People might say, well, why is that? We legalized something.
Why would we have that? We have that because the demand goes
way up. It is normalized, commercialized, it is pushed on
social media. That is why I wish Congress would actually
recommence an anti-drug media campaign in social media for kids
to understand the true facts. Not, you know, ``Reefer Madness''
and scare tactics, but the true facts about marijuana, because
this industry advertises.
And so as the demand goes up, the Government cannot fill
that demand. The Government has regulations, taxes, et cetera.
The illegal market is very happy to come in much cheaper and
not follow those regulations.
In fact, as you know, cartels, they are making money from a
diverse set of industries, not just one drug or one thing.
Senator Scott. Wrap up.
Mr. Sabet. Human trafficking, et cetera, it is all mixed
together. So I would be concerned about the cartels.
Senator Scott. Thank you.
Chair Brown. Thank you, Senator Scott.
Dr. Sabet, since I gave you 2 extra minutes at the
beginning I would like a yes or no answer on this. Your
organization states that removing criminal penalties for
possession is a must as part of a comprehensive marijuana
policy. Do you stand by that statement?
Mr. Sabet. Absolutely.
Chair Brown. OK. Thank you. Mr. Oyefeso, thank you for
joining us. I want workers in small businesses in my State to
be able to have access to financial services. I want small
banks and credit unions to provide that in a way that is
equitable and affordable. I am worried about large companies
and Wall Street firms dominating this industry. We have made
that very clear to supporters of this bill.
Do you share that concern? Why is it good for workers and
small businesses to have a fair and competitive market?
Mr. Oyefeso. Simple answer, yes, I do share that concern. A
competitive market allows wages to grow. If there is heavy
consolidation in the industry you will end up with a few
companies able to regulate and control the salaries, the wages,
and the benefits of all of these workers and the pricing of the
products for consumers. So having this bill pass allows more
companies to open up and allows workers the ability to
negotiate a better wage and benefits package.
Chair Brown. Thank you. Borrowers, especially first-time
home buyers and veterans, use federally backed loans from
programs from the VA and FHA that finance their homes. Talk
about the barriers of employees that legal cannabis businesses
face when they are trying to buy a home. You mentioned that
just briefly. Expand that a bit. How does this bill help
address those barriers?
Mr. Oyefeso. I will use an example of Miranda Beck, who
works in a Starbuds in Maryland, in Baltimore, Maryland. Her
and her colleagues get paid in cash, and beyond the risk of
being robbed when they are getting paid, they also have to now
provide proof of employment. But they are being paid in cash,
so they do not have proof of employment. So when you are trying
to get a home and/or rent an apartment, whichever it may be,
you cannot go to a mortgage lender and say, ``Here is my proof
of employment. Here is my salary. Here is my W-2,'' or to a
landlord and say, ``Here is my proof of employment. Please rent
me the apartment.''
So they are completely at a disadvantage in moving up the
ladder of life just because the industry is legal in the State
of Maryland, but it is not federally legal, and the employer is
not fully banked. So while there are 700 to 800 banks that do
business throughout the country, cannabis is legal in just
about every State in the union, and 700 to 800 is minuscule
when you are a worker sitting in the heart of Baltimore, in
Brooklyn, New York, in Cleveland, Ohio, if you have to travel
10, 12 miles to reach your bank.
Chair Brown. Thank you. Ms. Packer, you spent 5 years as a
cannabis regulator. What were the challenges that the
Government faced when it came to banking, and what about small
businesses?
Ms. Packer. Thank you, Chairman Brown. I described a
situation earlier where even trying to create small business
assistance for our city's Social Equity Program was a
challenge. But even things like the collection of taxes and
fees and other regulatory
responsibilities are extraordinarily complicated by an abnormal
banking environment.
I will give you an example of what was happening in the
city of Los Angeles. To handle the cash-intensive nature of the
cannabis industry, the city of Los Angeles had to have a
specific Cannabis Cash Collection Unit at our City Hall. And
anyone who wanted to make an appointment over $1,000 had to do
so in person. This was a headache for small businesses, having
to come in person to make just regular tax payments, regular
fee payments, and for the city of Los Angeles this was not a
small issue. In fiscal year 2022, the city of Los Angeles
accepted over $26.3 million in cash.
Chair Brown. Talk to me about community-based institutions,
including MDIs and CDFIs. How are they important to promote
fairness in cannabis banking and in the broader industry?
Ms. Packer. I appreciate that there has been an intention
to include CDFIs and MDIs in the 2023 version of SAFE. It is
critically important for these particular institutions to be
able to have access to the safe harbor. These are institutions
that regularly provide financial services to Black and Brown
communities. They are specifically serving communities that are
designated as socially vulnerable and prone to economic health
and safety challenge. And given that they are literally serving
the same communities that were targeted by the war on drugs, it
is essential for them to receive this safe harbor and to be
able to participate in providing services.
Chair Brown. Thank you.
Senator Daines, of Montana, is recognized.
Senator Daines. Chairman Brown, thank you. Before I get
started I want to recognize Congressman Joyce, a colleague on
the House side, has been instrumental in getting this done. I
am grateful for his leadership and a big thank you.
I would also like to ask unanimous consent to submit a few
statements and letters of support into the record, if I could,
Mr. Chairman.
Chair Brown. Without objection, so ordered.
Senator Daines. Thank you. I would also like to begin my
time by addressing the human factor of this equation. Mr.
Oyefeso, I think you are probably as good a witness on this as
any, on this particular topic, because in your testimony you
touched upon the physical dangers, including being robbed at
gunpoint. Cannabis workers are facing danger because they and
their employer are forced to operate primarily in cash under
the current system.
From what you have heard from your members, is the
situation on the ground getting safer or more dangerous for
cannabis employees and the public?
Mr. Oyefeso. It is not safer. It is getting more dangerous,
because people, as we have heard, more and more people are
going to these stores, so criminals now realize there are more
and more possibilities of robbing large amounts of cash. So now
workers, if your dispensary does not have a security team, you
know, people with guns standing there, you have to worry that
when you are closing at night are people going to rush in and
rob you.
We have had members who, you know, if you are getting paid
in cash, if a former worker knows the payday and you are
getting paid in cash, you are going home, and we have members
who are pharmacists at cannabis dispensaries who make $68 an
hour. So these are good jobs when they are organized, and they
can go home with $2,000 and worry about, I am holding $2,000
cash in my pocket, where the rest of us get paid and it is
direct deposited into our banks. So there is your weekly take-
home that you could lose in a night. There is your life you can
lose. You go to work, you have a good job, you want to go home
to your family, and because it is not banked you have that risk
every night.
Senator Daines. I mentioned in my own testimony, to think
about even the employees of these businesses, when you think
about the other businesses that serve these businesses, the
tradesmen and women. I mean, if they are going to fix a leaky
pipe or fix a wire, that transaction is going to occur in cash.
So the subcontractors that might be trying to do some work with
these legal businesses are also put at risk. So thank you for
your testimony.
I would like to switch gears and touch on the current
cannabis landscape across the United States. Over the past
decade, 22 States have legalized the medical use of cannabis,
which 20 of these States have taken the additional step of
legalizing recreational use, and that includes my home State of
Montana.
Cannabis use is decriminalized in some form in 47 States
and the District of Columbia. While I personally voted against
legalizing recreational use--and here is kind of a part of
politics--I won my re-election 55 to 45 in Montana, while the
ballot initiative passed 57 to 43. I recognize and appreciate
the reality that we face, and that reality is a legal patchwork
that just does not work for banks, for businesses, or for law
enforcement.
Mr. Sabet, has any State that has legalized cannabis,
either medicinally or recreationally, taken any steps to
recriminalize it?
Mr. Sabet. Yes. Actually, in 1990, when Alaska
decriminalized marijuana, they recriminalized it soon after
because of the negative effects. We have also seen lately
States trying to get a handle on THC content and trying to
limit that. But with this industry and the lobbyists and the
people behind it, it is very difficult to do that. Because like
in your State, as you know, Senator, the pro side is
outspending the teachers and the parents something like 20 to
1, so it is very difficult to do that.
I will say----
Senator Daines. You used the example of Alaska. What is the
status of----
Mr. Sabet. Well, then Alaska, after spending $5 million,
legalized in 2012----
Senator Daines. I just want to make sure you paint the
accurate picture. It is a fact what you stated. But I think we
really want to state the truth and the whole picture.
Mr. Sabet. Oh yeah, sure.
Senator Daines. They also then--I mean, maybe we just want
to put that in the record as well, please.
Mr. Sabet. Yes. So what has happened on the local level,
though, I think is very important. The majority of localities
in most legal States have outright banned the sales of
marijuana. So you have the majority--not all legal States have
done that, but the vast majority of legal States, where they
voted for it State-wise, at the local community level, when
people are asked, ``Do you want a marijuana store in your Main
Street, or whatever, in your community,'' according to the
League of Cities and many other sources, we know that, for
example--Ms. Packer would know better about California. It used
to be 70-some percent. I do not know what it is now. But the
vast majority of these localities have actually voted against
that.
Senator Daines. Mr. Sabet, in your testimony you cite an
article from Bloomberg suggesting that cannabis businesses have
widespread access to banking services. However, I pointed out
in my testimony that only 9 percent of financial institutions
offer banking services, and we heard the totality. The article
you cite also states that, and I quote, ``such estimates may
overstate the real number, many say, because they would include
institutions that have only temporarily worked with cannabis
companies,'' end quote.
My question is this. Do you have any data that would
suggest that cannabis businesses have easy and widespread
access to financial services? Because the story here from both
businesses and then financial institutions is quite different.
Chair Brown. Please be very brief.
Mr. Sabet. So the two points of data would be the U.S.
Department of Treasury, and I think it is in my statement that
talks about it. The second one would be the on-the-record
statements of regulatory bodies in States like Colorado that
talk about the local banks and the co-ops, et cetera.
Senator Daines. OK. Thank you.
Chair Brown. Thank you, Senator Daines.
Senator Cortez Masto, of Nevada, is recognized.
Senator Cortez Masto. Thank you, Mr. Chairman, and thank
you and the Ranking Member for having this hearing. It is such
an important bill that I hope we have the ability to pass in a
bipartisan way.
Let me start with, is it Mr. Oyefeso, and Ms. Packer. The
Secure and Fair Enforcement Act, or the SAFE Act, as we are all
talking about today, which finally would allow cannabis
businesses full access to the U.S. banking center. Right now
legitimate cannabis businesses all over Nevada are hurting
because they cannot access traditional banking. My office heard
from one business owner in Las Vegas who said that the lack of
access to banking creates logistical headaches and puts her and
her employees at risk. Her business has to deposit large
amounts of cash at local banks, often at more than one bank in
the same day because of cash deposit limits. This is burdensome
and, quite frankly, dangerous.
Last year, after one of those deposit runs, this business
owner's car was broken into, and fearing that whoever had
broken into her car now knew from her bank deposit slips that
she carried large amounts of cash, her coworkers bought her a
taser, and she keeps it by her bed at night to feel safe.
Now this is outrageous. Banks already accept the money that
legitimate marijuana businesses pay contractors and security
firms, and it is just common sense that they should serve the
actual businesses too.
So there has been a lot of support for the SAFE Act,
bipartisan support. It passed out of the House of
Representatives seven times. Thirty-eight State and territory
attorneys general have called for SAFE to pass.
So let me just ask this question. We had nearly $700
million in total sales last year in Nevada. What are the
consequences for owners and employees operating as mostly an
all-cash business? And Mr. Oyefeso, let me start with you.
Mr. Oyefeso. The simple answer is death. In an industry
that has $700 million in cash in Nevada, we have members in
your State in the cannabis industry. It is a constant fear of
if I am depositing money, what happens? If I am going home with
cash from my pay period, what happens to me? You have a steady
flow of customers. I have been to dispensaries in Nevada. You
have a steady flow of customers, whether it is people who live
there, coming from different parts, or visitors. And everyone
knows you are dealing in cash, so there is a constant worry of
what you are carrying, what you are leaving with.
And you also have the problem for delivery workers. In some
States, you can deliver cannabis. So now you have an individual
who is making deliveries, who everyone knows is carrying cash.
And, you know, I am a New Yorker. Delivery drivers always had
to worry in the 1980s and 1990s about cash. Now if you are
delivering food it is done through one of the apps, but for
cannabis it is not. So you worry about I am just doing a run
and someone could rob me or hurt me.
Senator Cortez Masto. So Nevada has the second most sales
per capita, just behind Colorado, and this is a concern I hear
from businesses all the time. Not only are they concerned about
their safety, but the concern about their workers, the concern
at the end of the day also that a lot of their overhead goes
into security, just because they are an all-cash business.
Ms. Packer, what would be the long-term consequences for
businesses and workers of not passing the SAFE Act, that we
have not talked about already?
Ms. Packer. Yes. I think what has been articulated by many
businesses is that they literally just cannot afford to
continue to pay the high fees, to be at risk; and that is part
of the reason why the organizations that I work with have been
advocating for fair access. It is important that as we move
this bill forward that we do not continue to have categories of
folks who are going to be dealing in just cash. There is a real
opportunity to ensure that we are bringing everyone into the
banking system that provides oversight as a regulator. That is
critically important.
For the workers, in particular, there is a real opportunity
for us to ensure that they are just treated like normal
businesses. There is a real concern that we are going to allow
stigma to continue in this space as well.
Senator Cortez Masto. I appreciate that. Let me ask this
question, and briefly. I only have about 16 seconds left here.
Many business owners, parents, and members of local law
enforcement have expressed concerns about the proliferation of
the gray market. There is no doubt tied to the cost consumers
pay for cannabis is a result of the exorbitant fees and unusual
expenses businesses have to pay to function, like hiring
armored cars, that I talked about. But can you talk to me about
the gray market? Can you define that for me?
Ms. Packer. Yes, and I appreciate you asking me the
question because I have had conversations with folks about what
we use as the term. I encourage folks not to use the term
``black market.'' I know we have heard folks use this term
before. We do not want to equate ``black'' with illegal.
But part of the reality is that this increases a safety
concern. There are businesses in the city of Los Angeles, for
example, particularly I am talking specifically about
unlicensed, unregulated businesses, and that is how I would
define them. They are outside of the regulatory scope. But they
are going to continue to engage in cash. And for some of the
businesses that we engage with in the city of Los Angeles is
primary law enforcement, you had illegal cannabis businesses
that were looking to try and set up and rob legal cannabis
businesses.
Senator Cortez Masto. Thank you. I notice my time is up.
Thank you, Mr. Chairman.
Chair Brown. Thank you, Senator Cortez Masto.
Senator Warren, of Massachusetts, is recognized.
Senator Warren. Thank you, Mr. Chairman.
So I think the SAFE Banking Act is a long-overdue step to
help legal cannabis businesses in Massachusetts and all across
the country be able, finally, to open bank accounts, accept
credit cards, and access other basic banking services.
Businesses need these services to operate safely and
successfully, and workers need the protection from safety risks
of working in cash-only businesses.
So I look forward to working with my colleagues to pass
this bill, but it cannot be the end of our work on marijuana
policy. That is because as long as marijuana remains
criminalized federally, we are not fully fixing the problem. If
people can still get busted for purchasing marijuana, many
banks will find it too risky to serve legal cannabis
businesses, no matter whether we tell them it is technically
OK.
Now I pushed the Administration to use its administrative
authority to deschedule marijuana. Like my friend and neighbor,
Dr. Sabet, said in his opening testimony, no one should be
incarcerated just because they got caught with a joint. The
White House has directed HHS and DOJ to review how marijuana is
scheduled. That will affect research going forward and what we
come to understand about it. But we need to see those agencies
act.
Ms. Packer, you have years of experience in the cannabis
industry, both as a regulator and as a drug reform advocate.
Would fully decriminalizing marijuana at the Federal level help
ensure that small businesses get full access to safe, formal
financial services?
Ms. Packer. Thank you, Senator Warren. I appreciate all the
work you are doing to push the Administration to take further
acts. Yes, it would certainly help. The reality is that even
with the safe harbor, many financial institutions are likely to
continue to view the industry as risky, due to its Schedule I
status. And even if cannabis was rescheduled, for example, to
Schedule V, the small businesses and workers that we are
talking about today, they would still be criminalized.
So I want to just emphasize this. The only way to eliminate
the criminality of small businesses and workers is to
completely remove cannabis from the Controlled Substances
Schedule. We want to deschedule, not reschedule.
Senator Warren. I hear your point, and I recognize that
descheduling not only helps ensure that small cannabis
businesses have access to safe, formal financial services, but
it also deals with a bigger problem, and that is while the SAFE
Banking Act is a critical step on cannabis reform, we risk
creating a system in which banks enjoy a safe harbor from
prosecution for financing marijuana businesses, while thousands
of people remain incarcerated for marijuana activities.
In my view, the best solution is full Federal
decriminalization. But we should also make sure that updates to
our banking laws take equity into account. For example, when
banks consider whether to serve a cannabis business, they
consider the red flags that are laid out in the 2014 FinCEN
guidance. One of those red flags is whether the business' owner
has a drug-related conviction, which could include a conviction
for something like marijuana purchase.
So even as we try to move away from penalizing nonviolent
marijuana activity, a penalty for marijuana activity is baked
into lending decisions. And we know that Black Americans are
almost four times more likely than White Americans to be
arrested for marijuana possession.
So Ms. Packer, would making it clear that financial
institutions should not consider a marijuana criminal record an
automatic red flag make our banking system more equitable?
Ms. Packer. Yes, it absolutely would. The reality is that
we are in a situation today, it is no longer 2014, right? Since
2014, we have had 25 States--we are at a point now where have
25 States that have passed laws to expunge records, provide
folks second chances. We are also in a situation where we have
15 States that include people with past cannabis criminal
records, affirmatively allow these people to participate. We do
not want to sit here and tell States either that their State
policies do not matter and that they cannot pick and choose who
should be a part of their market.
Senator Warren. That is actually a very good point. You
know, the SAFE Banking Act requires FinCEN to update its
guidance when this bill becomes law, and this change should be
at the top of their list.
We need a comprehensive, all-of-the-above approach to
cannabis reform that includes SAFE banking as well as
decriminalization, pardoning and expungement of criminal
records and other steps to begin to address decades of harmful
and racially discriminatory cannabis laws.
Thank you, Mr. Chairman.
Chair Brown. Thank you, Senator Warren.
Senator Fetterman, of Pennsylvania, is recognized.
Senator Fetterman. Thank you, Mr. Chairman.
Mr. Sabet, as far as I understand Canada has now made
marijuana legal. Is it safe to say that it has not slid into
anarchy?
Mr. Sabet. It would be safe to say that. In fact, I spend a
lot of my time in British Columbia, and so I could say that. It
is a beautiful place. But no one predicted it would slide into
anarchy. It has just seen some increases in use. It has seen
some DUI issues. It has seen the doctors of Ontario and Quebec
call for more awareness on high-potency THC, given emergency
room admissions.
Senator Fetterman. So in other words, it is OK.
Mr. Sabet. Well, that part is not OK. That part is not OK.
It has not slid into anarchy. You are right.
Senator Fetterman. And then let me just say with respect,
you know, so really, I know obviously you oppose legalizing
marijuana, and I presume it is because you believe that it is
dangerous, and it could result in a lot of deaths. Right?
Mr. Sabet. That is one reason.
Senator Fetterman. Yes. So how many annual deaths for
alcohol use?
Mr. Sabet. There are about 120,000 annual deaths from
alcohol.
Senator Fetterman. One-hundred-twenty thousand. We agree
with that. That is actually about right. How many deaths do
cigarettes have in America every year?
Mr. Sabet. Still about 400-some-thousand. Our legal drugs
kill many more people than our illegal ones, partly because
they are fueled by a for-profit, addictive industry, that I
know, Mr. Chairman, I appreciate your work on this, fighting
Big Tobacco for so long. Yes, our legal drugs kill a lot of
people because they are advertised and promoted in a system
that----
Senator Fetterman. So in other words, alcohol and tobacco
should be made illegal then.
Mr. Sabet. Well, we are stuck with them because of their
cultural, you know, where they have been in our----
Senator Fetterman. It is addictive and there are a lot of
profits on that. And then also, another question is how many
people have died of aspirin?
Mr. Sabet. A few thousand a year, maybe.
Senator Fetterman. Yes. OK, so you were just talking about
THC earlier. So many people have overdosed from THC death?
Mr. Sabet. Well, overdose--there is a difference between
overdose and overdose death. Overdose, probably hundreds of
thousands of overdoses, not necessarily resulting in death.
Tobacco does not provide an overdose----
Senator Fetterman. So the answer is zero.
Mr. Sabet. Tobacco is also zero. Yes, Senator. Tobacco is
also zero overdose.
Senator Fetterman. Zero, and that is my point.
Mr. Sabet. But thousands of deaths from----
Senator Fetterman. Sir, sir. See, you talked about THC,
saying that this is not my grandpa's weed or whatever. But from
my standpoint, this is like, do you know what grain alcohol is?
Mr. Sabet. Mm-hmm.
Senator Fetterman. Yes. Because it is sold in Pennsylvania
as alcohol at a State store. And I do know anyone that walks in
and is, ``Oh, my God, I ended up with grain alcohol instead of
this bottle of red wine.'' You know, people can understand that
as well, too, and that seems like it. And I do not use
marijuana. You know, it could be made legal tomorrow in
Pennsylvania, and I am not going to. And I am not going to use
tobacco. And I am just saying, I support the SAFE Act, but if
we just made it legal, we do not have this special safe beer,
you know, Act or anything. We just need to make it legal in
that.
So what I am saying to you, and I am going to save you the
last minute here, is that I just believe it is freedom. I
believe it is a freedom issue for people, and I believe that it
is making the legality--and I have been given hundreds and
hundreds of people pardons because of having their lives ruined
by having a B.S. charge. And that is what it is about to me. So
you, sir.
Mr. Sabet. Thank you, Senator Fetterman. I appreciate the
time. I agree with you on pardons and expungement. I agree with
you on removing criminal penalties. I wish we could make a
distinction between decriminalization and the commercialization
and legalization.
Senator Fetterman. Honestly, I really am glad to finally
get together.
Mr. Sabet. No, absolutely. And I also agree with your logic
that, you know, we do not have a ``SAFE Beer Act'', so let's
have an honest debate. We might disagree at the end of the day,
but let's have an honest debate on the legalization of drugs.
Because we are seeing States legalize psychedelics now. There
is talk about heroin and cocaine. Are we going to have a ``SAFE
Psychedelics Act'', a ``SAFE Cocaine or Heroin Act'', a ``SAFE
Fentanyl Act''? I mean, let's have an honest debate on the
merits as opposed to some giveaway for banks. We might
disagree, Senator Fetterman, but we can have that honest debate
and conversation. So I appreciate that.
I will also say that I think we need to talk--we have
talked about the human toll of the industry. We need to talk
about the human toll of the use of this superstrength THC. The
suicides that we are seeing, the schizophrenia and psychosis we
are documenting daily, where scientists are on this. The
driving crashes. We work with a woman named Corinne LaMarca in
your State of Ohio, Mr. Chairman, whose daughter was killed by
someone driving high on marijuana, a 19-year-old daughter. You
know, that is a human story too.
And so we should not lock people up. We should not give
criminal records. We should not have an incarceration-focused
war on drugs. But at the same time I think we are going to this
other extreme of acceptance over normalization, and I think
people are getting hurt as a result.
Chair Brown. Thank you, Senator Fetterman.
Senator Smith, of Minnesota.
Senator Smith. Thank you, Mr. Chair, and thank you, Senator
Fetterman, for those questions. I think you are touching on
something that is very important, which is kind of the question
of freedom.
I would like to draw out another piece here which is how
the Federal prohibition on cannabis is a policy that has
contributed to mass incarceration and over-policing, that it
has not affected all communities the same. It has
disproportionately affected Black and Brown communities. So we
have a lot of work ahead of us to right those wrongs, and I
believe that this includes decriminalizing marijuana and then
expunging convictions. But we also have an important role to
play in our corner of this work, in this Committee, with the
SAFE Banking Act.
So Ms. Packer, let me ask you, the SAFE Banking Act has, in
the latest version, explicitly protects community development
financial institutions and minority depository institutions.
Can you just talk to us about how this could help expand
opportunities for communities that have been disproportionately
harmed by the war on cannabis?
Ms. Packer. Thank you, Senator Smith. CDFIs and MDIs
disproportionately lend to Black and Brown communities. CDFIs,
in particular, are folks who regularly lend to small business,
to do agriculture, to do commercial real estate, and these are
the exact sectors that the cannabis industry and hemp industry
need. So they are serving the undeserved.
Senator Smith. Yes. Thank you for that. I completely agree.
And I am just grateful for the Chair for the timeliness of this
hearing and convening this hearing.
Minnesota is on the cusp of legalizing recreational
cannabis, and this is an exciting development, opportunity for
small businesses and others. And the reality is that cannabis
shops in Minnesota will effectively operate in the shadows so
long as State and Federal laws are out of sync, right?
So for Mr. Oyefeso, could you talk about the challenges
that this presents for workers at cannabis businesses and their
employers in States like Minnesota that are moving to legalize.
What impact does that have on them?
Mr. Oyefeso. One of the impacts is, as Mr. Sabet brought
up, people prescribing to pregnant women. UFCW has created a
training program with employers, but we cannot expand it
without SAFE. So when you pass SAFE you can expand a training
program that allows workers and employers to properly train
workers and brings them out of poorly prescribing different
potency levels to the wrong person. That is a big part of it,
being able to educate workers, but you have to have the funds
and the ability to build this in.
Senator Smith. Right. Thank you. And Ms. Packer, how does
this sort of, you know, one foot in each world regulatory
environment that you have with States legalizing and then these
Federal laws, how does that affect, you know, people who are
cannabis consumers?
Ms. Packer. I think part of it is that it just causes
confusion. I think that there is a lot of confusion amongst
consumers, and folks are not necessarily always able to tell
licensed and regulated businesses from unlicensed businesses.
And the same concerns that folks have about, you know, workers
and the space consumers are entering, these places as well
where cash is on hand. So I think the concern extends to them
as well.
Senator Smith. Mm-hmm. You know, both the Chair and I serve
on the Agriculture Committee as well as the Banking and Housing
Committee, and in 2018, the farm bill legalized hemp
cultivation for commercial use. You know, licensed growers went
up, but then they have been coming down. It was seen as a big
opportunity in Minnesota and other States around the country,
and there are a lot of reasons for that.
But one constant concern I have heard from Minnesota
growers has been a lack of access to basic banking. It is tough
to get loans or to access payment processing. So Ms. Packer,
have you heard similar concerns about this from farmers, and
how can this Committee support hemp growers to help them grow
their business and diversify their business?
Ms. Packer. Thank you. In the city of Los Angeles we were
working primarily with folks who were doing indoor cultivation,
but the reality is that this is an issue across the supply
chain. Whether it is cultivators, manufacturers, distributors,
folks who are engaged in retail sales, they are all similarly
plagued by a lack of fair access to banking.
Senator Smith. Thank you. Thanks very much. Thank you, Mr.
Chair.
Chair Brown. Thank you, Senator Smith.
Thanks to the four witnesses that joined us.
Senators who wish to submit questions for the record, those
questions are due 1 week from today, Thursday, May 18th. For
the witnesses, please, you have 45 days to respond to any
questions.
Thank you again. The hearing is adjourned.
[Whereupon, at 11:37 a.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF CHAIR SHERROD BROWN
Thank you to Senators Merkley and Daines for being here to testify
and welcome to our other witnesses. And thank you to Ranking Member
Scott for working with me on this hearing.
Today the cannabis landscape looks far different than it did even a
few short years ago.
Cannabis has been legalized or decriminalized in almost every
State. States and localities have established licensing and social
equity programs to ensure that small businesses and communities
impacted by the war on drugs are part of the growing legal cannabis
industry.
Today, we will hear about the challenges that small businesses and
workers continue to face, and how we can empower and protect workers,
provide stronger consumer and small business protections, and ensure
fair and equitable access to financial services--all while making sure
that our communities stay safe.
Banking is critical for small cannabis businesses, who already face
hurdles getting their business off the ground. Like any business, they
need to apply for licenses, raise capital.
But that's hard to do when you don't have a bank account, or if you
do, one that might come with lots of fees.
Without full access to the banking and payments system, legal
cannabis businesses are forced to operate in the shadows.
They can't access SBA loans, and know that even if they try to
apply for a bank loan, they might go through all the costs and effort,
only to be denied. So many small businesses rely on friends and family
for funding.
They deal with lots of cash, spend precious time trying to find a
work-around, or hire expensive third-party service providers that take
a hefty cut of their slim profits.
This puts a robbery target on the backs of workers, and can make it
harder to combat money laundering.
There are also thousands of workers who can't prove their income to
get a mortgage or a car loan, or keep a personal bank account, even
though their paychecks come from a business that is perfectly legal in
their State.
Many of these workers are represented by unions like the UFCW and
the International Brotherhood of Teamsters, which are fighting to make
sure that their workers have more power in the workplace, in an
industry where their physical safety is often at risk.
The effects of this patchwork system go beyond just the cannabis
industry.
Sheet metal and air conditioning contractors build service retail
locations and other facilities.
Lawn care and gardening companies, like Scotts Miracle-Gro in Ohio,
sell materials and equipment. They want to continue their businesses
and serve their customers, and they don't want to worry that it will
put their bank accounts at risk.
While small businesses and workers deal with these challenges, the
large cannabis companies are the ones dominating the market.
They have ready access to private capital and are taking advantage
of their workers with unfair labor practices to maximize profits. I
stand by the workers who are actively fighting for higher wages and
safer workplaces.
We don't want the cannabis industry to become like Big Tobacco--
concentrating industry power in just a few giant players, hurting
workers and pushing out thousands of small businesses, which are more
likely to be owned by Black and Brown entrepreneurs, women, and
veterans.
We want small banks and credit unions, MDIs, and CDFIs to be able
to serve small businesses and their workers, and level the playing
field in an industry that is increasingly concentrated.
Community banks and credit unions in my State want to serve the
legal cannabis industries in their communities, and they want to rest
assured that they can continue to bank their existing customers.
Banks and credit unions shouldn't have to pick and choose which
services they can offer to customers that happen to earn their income
from a cannabis business.
People in the cannabis industry should be able to have the same
types of personal, commercial, and mortgage loans that any other
customer can have, with the same protections and without additional
costs or fees.
And as we all know, the over-criminalization of marijuana has
disproportionately hurt communities of color and indigenous
communities.
We have a long way to go to right those wrongs. We can start by
ensuring that members of these communities not only benefit from, but
also lead, the growth of the legal cannabis industry.
MDIs and CDFIs can help reach these communities that are often
overlooked--or worse, preyed upon--by other financial institutions. And
people with prior marijuana convictions--especially in States where it
is now legal--shouldn't be barred from participating in our economy,
whether it's renting a home or finding a good-paying job.
We all want safe communities and a safe banking system.
As we all know after the three recent bank failures sparked by a
panic-induced run, banks must manage the risks of their business.
And they need to understand that failure to meet stakeholder
expectations can have dire consequences for their customers.
We must not weaken regulators' ability to protect consumers and the
banking system from these risks.
Financial institutions also play an important role in monitoring
our financial system for fraud, money laundering, and other illegal
activities.
We need to ensure that workers and small businesses in the cannabis
industry can access banking, while maintaining our robust anti-money
laundering framework.
I have heard from law enforcement officials who say that expanding
banking access to cannabis businesses can help improve public safety,
and direct resources towards truly criminal activity.
Cannabis banking is of course just one part of the conversation on
marijuana policy.
People shouldn't be thrown in jail for a product that others are
legally profiting from. In the past, we have been able to work together
on a bipartisan basis to give those with prior convictions a second
chance.
Everyone--including our veterans--should have access to the
medicine they need to care for themselves and their families.
And if we truly care about public health, we should consider more
medical and scientific research on this topic, so that we understand
all of the impacts.
There is more work to be done to make sure everyone can participate
in the banking system and the legal cannabis economy in a fair, safe,
and equitable way. I am glad we are building on the progress we have
made over the years, and I look forward to continuing the conversation
with our witnesses.
______
PREPARED STATEMENT OF SENATOR TIM SCOTT
Thank you to both of you for being here with us today--particularly
to Senator Daines for your hard work and dedication on this topic for a
number of years. As well as acknowledging both Senators Cramer and
Lummis for their hard work on this, as well, on such an important
topic.
Each one of us on this Committee represents different States with
different marijuana laws, and I understand that some of us may be in
very different places when it comes to the legality of marijuana. In my
home State of South Carolina, marijuana is largely still illegal, and
I, myself, have concerns with it.
And at the Federal level, marijuana is considered a Schedule I
drug, which means that the possession, distribution, or sale of
marijuana and other marijuana-derived products is illegal and that
proceeds from marijuana-related businesses are subject to U.S. anti-
money laundering laws.
The Department of Justice and national law enforcement groups have
expressed concerns that [the] SAFE Banking Act could create loopholes
in our money-laundering laws making it harder to catch criminals that
traffic weapons, fentanyl, and even people--much harder, which is a
consequence that we must eliminate if this bill is to become law.
However, there are some States that have legalized marijuana, and
now, we have legal State-based marijuana-related businesses throughout
the country that depend on a relationship with their bank or credit
union. And as a former small business owner, I understand and
appreciate the importance of having that relationship with your
financial institution. A banking relationship is crucial to providing
safety and stability for a company--both employees and the customers it
serves.
That is why I am looking forward to hearing from our second panel
of witnesses on how these businesses operate, the complications faced
by these businesses, and how the safe harbor provided in the SAFE
Banking Act would work in practice or if more is needed to ensure
compliance.
Finally, if we are going to have a conversation about SAFE Banking
and banking a product that is illegal at the Federal level, then we
must discuss the importance of banking all industries. In the past few
years, we have seen certain financial institutions cave to political
pressures and take actions to ``de-bank'' certain legal industries,
such as firearms and oil and gas entities, due to the wild progressive
nature of the radical Left and their agenda. These same institutions
that are asking us to take a second look at the SAFE Banking Act are
frankly standing in the way of banking legal entities today. I find
that disappointing and quite perplexing. Congress has a responsibility
to ensure that all legal industries have access to financial
institutions and services. I understand that SAFE Banking, as drafted,
currently contains a provision to ensure that legal industries are
banked. De-banking legal industries is inappropriate, and I look
forward to hearing more about that part of the legislation as we
continue the discussion today. I hope today's hearing lends itself to a
thoughtful debate on this issue.
______
PREPARED STATEMENT OF SENATOR JEFF MERKLEY
Chairman Brown, Ranking Member Scott, Members of the Committee,
thank you for holding this critical hearing today on our SAFE Banking
Act. And thank you for the invitation to come and testify on an effort
I began over 8 years ago and have partnered with bipartisan colleagues,
including Senators Gardner and now Daines, to advance. And, of course,
I'd like to thank Chairman Brown for his partnership on this
legislation and for months of collaboration to get us here today.
At this moment, more than half of all States across our Nation have
some form of legalized cannabis--37 States, plus DC have it for
medicinal purposes while 21 have made it legal for recreational use.
Today, legalized cannabis is an industry that supports more than
428,000 jobs \1\ and accounted for over $25 billion in sales in 2021.
In my home State of Oregon, we had nearly $1 billion in sales last
year, with the taxes generated from those sales going to help fund our
schools, mental health and substance abuse treatment programs, as well
as law enforcement and city and county needs.
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\1\ https://flowhub.com/cannabis-industry-statistics#
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But our Federal law has not kept pace with Americans' changing
attitudes towards cannabis, nor with the changing laws at the State and
local level. That refusal to change denied these legitimate businesses
the ability to access the same basic necessities as every other
business--whether it's access to banking and credit card accounts,
payroll services and more--because depository institutions and credit
unions, worried they may be threatened with criminal prosecution under
Federal law, have largely refused to work with this industry.
This has forced nearly three-quarters of legitimate cannabis
businesses to operate entirely in cash. The few financial institutions
that do work with cannabis businesses charge hefty fees because of the
legal risk and added layers of compliance. And this cash-only
requirement trickles down far beyond just the cannabis retailers and
growers. It effects the subcontractors who can only be paid in cash;
the fertilizer providers and the seed sellers--practically any kind of
small business associated in any way with this industry--all of whom
can only carry out transactions in cash. It effects the employees of
these legal cannabis businesses who can't be paid by check or direct
deposit, meaning they have to walk around with wallets full of cash
worried that they'll be a target for criminals on payday.
Forcing legal business to operate in an entirely cash economy is
terrible for accountability, but great for crime as it has left these
businesses, and all those connected to them, open to violent crime,
money laundering, theft, tax fraud and more.
There's no national database to compile the statistics of incidents
connected to these businesses. But over the last 12 months, we've seen
at least 129 robberies of Oregon cannabis businesses. \2\ An unofficial
tracker in the greater Seattle area showed that robberies of Washington
cannabis retailers reached a 10-year high in 2022. A worker at a San
Francisco dispensary was kidnapped in an armed robbery where $30,000 in
cash was stolen back in February. \3\ If these businesses had the
ability to accept debit cards and credit cards, and use the same
systems to pay their taxes and payrolls as every other business uses in
this day of technology it is indisputable the number of violent
robberies would be far smaller.
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\2\ https://www.oregon.gov/olcc/marijuana/Pages/marijuana-
thefts.aspx
\3\ https://sfstandard.com/criminal-justice/armed-kidnappers-
target-cannabis-shop-run-by-anti-violence-leader/
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The Secure and Fair Enforcement Banking Act--or SAFE Banking Act--
that Senator Daines and I have introduced and led together--would
ensure that these legitimate businesses, operating in compliance with
State cannabis laws in those States where citizens have said they want
legal and medical cannabis, will have access to all of the same
financial services as every other business. And those financial
institutions will be protected against prosecution or asset forfeiture
primarily for providing services to a State-sanctioned cannabis-related
business.
To be clear, banks will not be forced to provide services to these
businesses, it simply creates a safe space for both the financial
institutions and the legal cannabis industry.
It explicitly extends the safe harbor to Community Development
Financial Institutions (CDFI) and Minority Depository Institutions
(MDI)--who serve underserved communities facing challenges in accessing
capital and provide affordable access to financial services--so they
can also serve cannabis businesses.
And, after much consultation with colleagues and outside experts,
it now includes provisions to address both concerns around equity and
issues around law enforcement and money laundering raised in a memo
released last year by the Department of Justice.
As a result, we have a piece of legislation that enjoys strong
bipartisan, bicameral support from people who believe the time has come
to change our approach to these industries and how they are able to
operate.
It is beyond unacceptable that, with more than half the country
embracing some form of legalized cannabis, we would continue to allow
this dangerous and untenable situation of forcing legitimate business
to operate entirely in cash here in the 21st Century. I'd like to
submit into the record letters from current Oregon cannabis retailers
sharing their own stories of the challenges and dangers facing them in
this all-cash environment. Each of these stories represents thousands
more just like them all across the country.
So Mr. Chairman, Mr. Ranking Member, and all the Members of this
Committee, I urge you to work quickly to consider and pass this bill
and make our communities safer by ensuring equal access to the
financial system for the cannabis industry. Thank you.
______
PREPARED STATEMENT OF SENATOR STEVE DAINES
Thank you, Mr. Chairman, and thank you to our witnesses for being
here today. I am very pleased that the Banking Committee is holding a
hearing on this important topic. Across my home State of Montana and in
communities across the country, legal businesses are facing a public
safety crisis. These businesses, often forced to operate in all cash,
are appealing targets for robbers. In Washington State for instance,
2022 saw at least 100 armed robberies at cannabis retail stores, the
most in the past 10 years. Tragically, several of these incidents ended
in bloodshed.
The SAFE Banking Act would help address a major cause of this
increase in violent crime by providing a safe harbor for depository
institutions and service providers to transact with State-sanctioned
marijuana businesses. In short, this bill would make it much easier for
businesses to put their cash into banks.
Some of the witnesses today will say that there are hundreds of
banks and credit unions providing financial services to State-
sanctioned marijuana businesses, and that SAFE Banking is not needed.
However, the truth is that only approximately 9 percent of the
financial institutions in America have provided services to any
marijuana-related businesses, meaning that those who are providing
financial services face limited competition and charge substantially
more to bank these clients than other industries, resulting in services
being prohibitively expensive for many businesses.
This legislation would also help Federal and State law enforcement
distinguish between legal and illegal marijuana businesses. Opponents
of this bill will say that SAFE Banking will help to grow the $25
billion market for marijuana in the United States. However, the real
size of the market is $100 billion, of which roughly 75 percent is
illicit cannabis production.
Allowing cash from legal, regulated businesses to enter the banking
system will help law enforcement more easily distinguish legitimate
actors and focus more of their resources on prosecuting the illicit
market, and in so doing, may actually shrink the size of the overall
industry and reduce consumption in the United States. If nothing else,
SAFE Banking will greatly increase tax compliance and tax revenue for
States.
This legislation is also widely supported by banks, credit unions,
the insurance industry, and many other service providers who at present
do not have clear guidelines for how they can safely and legally
transact with State-sanctioned marijuana businesses. Roofers, plumbers,
electricians, and other similar service businesses are technically at
risk of engaging in illegal money laundering simply for putting on a
few shingles, fixing a leaky pipe, or safely wiring a building. In
States where these are legally operating businesses, do opponents of
this bill really believe hard-working tradesmen and women should be put
in this impossible position?
A bipartisan coalition of 38 State and territorial attorneys
general came out in support of this bill in the past, and we have
strengthened it considerably based on feedback from the Department of
Justice.
Nine sheriffs across Montana have publicly voiced support for this
bill. To quote Lincoln County Sheriff Darren Short, `` . . . It
concerns me that businesses have such a large amount of cash on hand,
which is clearly a liability and a public safety issue. I also believe
that any all-cash business is going to be rife with fraud, so it's an
accounting problem as I see it too. As far as marijuana legalization
goes, the voters of Montana made that decision and now it's our role to
make it safe and make it work. I'm happy to support the SAFE Banking
Act.''
This bill does not legalize marijuana and I do not support Federal
legalization of marijuana. However, the people in States across this
country have spoken, and it is abundantly clear that the status quo is
not only untenable, it is dangerous. The SAFE Banking Act is a
commonsense bill that can and should pass, and would immediately
improve the public safety threats we are seeing on the ground. I ask my
colleagues to look at this issue with open eyes and I look forward to
hearing their input today.
______
PREPARED STATEMENT OF ADEMOLA OYEFESO
International Vice President and Director of Legislative and Political
Action Department, United Food and Commercial Workers International
Union (UFCW)
May 11, 2023
Good morning, Chair Brown, Ranking Member Scott, and Members of the
Committee. Thank you for the opportunity to testify today. I am Ademola
Oyefeso with the United Food and Commercial Workers International Union
(UFCW). UFCW represents over 1.3 million hard-working men and women who
work in highly regulated industries including over 10,000 workers in
the cannabis industry. Our cannabis members can be found in a dozen
States everywhere from seed to sale. As the leading union in cannabis,
UFCW is committed to shaping this industry into one that provides safe,
well-paid, and family-sustaining jobs for all its workers.
Cannabis Banking Is a Worker Issue
All jobs have challenges, but few industries face the unique
challenge of a Federal prohibition on access to legal banking. Without
access to banks, cannabis businesses have little choice but to resort
to cash for all parts of their business. Customers pay in cash, workers
are paid in cash, and large amounts of cash must be securely stored and
transported. A cannabis worker in Oregon told us about a friend who
also works in retail cannabis and had to use his own car to carry
upwards of $40,000 cash with no protection or security. The cash-heavy
nature of cannabis retail creates safety and financial problems for
businesses, customers, workers, and the communities they serve.
The majority of people employed in the cannabis industry are
workers, not owners, and lack of banking has become a real issue for
this growing workforce. In order for workers in the legal cannabis
industry to have the same opportunities as all other workers, Congress
must directly address the cannabis banking challenge.
Cash Dominated Industry Puts Workers at Financial Risk
Because of cannabis' Schedule I status under Federal law, banks,
payroll services, and credit card companies are effectively prohibited
from providing traditional financial services to cannabis businesses.
This includes holding deposits and credit card processing of sales.
Consequently, nearly all cannabis retailers and delivery services must
operate entirely on a cash-only basis. Without access to a federally
insured bank, cannabis employers must find alternative arrangements to
pay their workers, which generally means paying them with cash. There
are a few banks that are willing to provide their services to cannabis
employers, most do not, which leaves workers struggling to find access
to personal banking services. As a result, most cannabis workers lack
traditional proof of employment like a paystub.
Without a bank account that will accept their paycheck, cannabis
workers struggle in purchasing homes and must find alternatives to
traditional banking to do so. This includes finding a cosigner or
coborrower, paying in cash, or finding alternative credit unions.
However, none of these alternatives are a guarantee, and workers often
find themselves having to pay higher rates due to their work in a fully
legal profession in their State.
Imagine this scenario: a cannabis worker is filling out an online
apartment rental application and they get to the section for proof of
income with a list of applicable documents to be attached. They work
for a perfectly legal business in their State but get paid in cash and
simply cannot proceed any further on the form because they have no
proof of employment.
The lack of banking makes it difficult to get personal loans for
homes and cars--even with high credit scores. In fact, the Federal
Housing Authority's (FHA) loan program explicitly denies loans for
workers in this industry for this reason.
Ashley Batista, a member of UFCW Local 1776KS and a worker at
Jushi, a cannabis grow and processing facility in Scranton,
Pennsylvania, notes the challenges and benefits of banking for her and
her coworkers.
I've watched several coworkers who saved up every nickel and
dime for a downpayment on a home just to be denied a home loan
due to the legality of their profession. And because cannabis
is still illegal at the Federal level, many cannabis workers
are unable to provide traditional sources of proof of income,
such as tax returns. This can make it challenging for us to
qualify for home loans. Digital transactions through
traditional banks [would] ensure timely and secure payment
processing for both cannabis workers and the patients. This can
help reduce the risk of payment risks such as robberies and can
also eliminate the need for carrying large amounts of cash.
Many of us cannabis workers may face negative stereotyping and
discrimination, which can impact our credit scores. Having the
support of traditional banks would help move away from the
stigma on cannabis and give us the opportunity to qualify for
home loans. This can help improve financial stability and allow
us as workers to plan for the future.
In addition, it is unclear if payroll benefits such as Social
Security, disability, unemployment insurance, Medicare, and Medicaid
are being properly deducted when you do not have access to a
conventional payroll service.
When cannabis employers gain access to conventional banking
services, their workers get the economic security of a steady paycheck,
as well as the peace of mind knowing their payroll taxes and benefits
are being properly funded.
Cash Puts Workers in Physical Danger
Cannabis businesses are forced to have large amounts of cash on
hand, putting targets on the backs of workers and customers alike. We
have seen several instances across the country where cannabis
dispensaries experienced violent robberies. Ms. Batista said, ``Most
dispensaries are still cash only so that not only puts the patients at
risk who are walking in with cash to purchase but also the dispensary
workers who are at the location with large amounts of cash behind the
register. With these MSOs cutting costs this affects the amount of
security that is implemented at these locations. Many employers have
cut their security teams entirely and solely rely on the workers to
watch surveillance cameras. This is a huge safety concern to the
workers because dispensaries are burglarized and robbed at roughly the
same rate as other cash intensive businesses.''
Miranda Beck, a cannabis worker at Starbuds in Baltimore, Maryland,
told us a story of a security guard and a worker who were robbed of
cash and cannabis product at gunpoint. She said, ``It's well known that
there is a lot of cash inside dispensaries because dispensaries can't
accept credit cards. At Starbuds we were also paid in cash--each week
we would have to go in (even on our days off, which was hard for some
people without their own cars) to collect an envelope with our wages.
They took taxes out, but we were paid in cash--so were the vendors. I
worried about safety at work every day--not just for myself and my
coworkers, but our patients. Some patients were robbed in the parking
lot when they were coming in to buy their medicine.''
One local leader in California notes, ``The lack of regulation and
security measures in the cannabis industry also puts delivery drivers
at risk, as they may not have access to proper training or protective
equipment. Without banking, our cannabis delivery driver members carry
large amounts of cash and valuable products, making them a prime target
for robbery and assault.''
Cannabis workers, like every other business venture, deserve the
same right to work in safe conditions.
Cannabis Banking Is an Equity Issue
Equity is an empty and hollow phrase unless it is made real and
meaningful to the majority of working people living in those
communities that were harmed by the war on drugs. Most of the
discussion around equity in the cannabis industry centers upon the
ownership of businesses with emphasis primarily placed on whether
members of communities of color will be positioned for generational
wealth. This misses the point for workers. The greatest benefit of
cannabis legalization will NOT come from creating a handful of
successful, wealthy business owners of color, but from fostering a
pipeline of good paying jobs throughout the cannabis industry that are
widely available to persons from impacted communities. And equity
cannot be achieved as long as we are barring workers from traditional
banking. By denying these services to workers, we have created a
barrier to entry during the infancy of this lucrative industry for
those who did not and still do not have the means to overcome these
personal financial obstacles.
States Are Leading the Way
States have been leading the way in passing legislation and
regulations that ensure a safe, legal, and thriving cannabis industry.
In Washington State, the State government worked with local credit
unions and small banks to encourage them to accept business from
dispensaries. UFCW members in Washington have said that they like the
State cannabis laws because they provide payroll stability.
A regular paycheck goes hand-in-hand with good wages, quality
affordable care, and a secure retirement, all things central to what
UFCW negotiates for its members and that come with a good union
contract.
Even when States do the right thing it is not enough, for even if a
worker DOES have a paystub, it is still illegal for financial
institutions to consider income earned in a CRB when considering
offering services like auto and home loans.
Shaping the Cannabis Industry To Be Good for Workers
The emerging cannabis industry presents an unparalleled opportunity
for Government to shape an industry from the ground up. There are many
potential paths for cannabis but not all paths benefit the workers in
the industry. A 2021 Economic Policy Institute report analyzed a high-
road and low-road scenario for the future of the cannabis industry. \1\
Under a low-road scenario, cannabis workers are subject to the same
harmful practices inflicted on workers in similar agriculture settings:
low wages, few workplace benefits, unprotected statuses as contract
workers, and erratic scheduling. Under the high-road scenario,
unionization ensures that cannabis jobs are good jobs. Cannabis workers
in the high-road scenario could make an estimated $2,810 to $8,690 more
per year than under the low-road scenario. Access to banking is part of
a high-road scenario for cannabis workers.
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\1\ https://www.epi.org/publication/ensuring-the-high-road-in-
cannabis-jobs/
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Many proposals for Federal legalization have focused on taxes,
licensing, plant size, THC levels, and sometimes equity in ownership--
and we applaud many of these efforts. Policymakers, however, have
failed to include measures protecting cannabis workers--and SAFE
Banking will help ensure that the rank-and-file employees share
equitably in the growth of the industry, with good-paying, safe,
family- and community-sustaining jobs. A paycheck is a necessary step
towards making cannabis jobs, good jobs.
Congress Should Support Safe, Legal Banking for Cannabis Workers
UFCW cannabis workers have said that access to traditional banks
and payroll services can help significantly improve their lives by
increasing financial stability, providing more and convenient secure
payment processing which leads to safe working conditions and benefits.
Cannabis workers do not deserve to be treated as criminals and
should not have to struggle with financial and legal ambiguity while on
the job. On behalf of all the workers in the cannabis industry, we urge
Congress to give the same access to the financial systems and Federal
benefits that all other American workers already enjoy.
Thank you for the opportunity to testify and I would be happy to
answer your questions.
______
PREPARED STATEMENT OF KEVIN A. SABET
President and CEO, Smart Approaches to Marijuana, and Fellow,
Yale University
May 11, 2023
Chairman Brown, Ranking Member Scott, Members of the Committee,
thank you for inviting me to testify before you today. My name is Kevin
Sabet, and I am the President and CEO of Smart Approaches to Marijuana,
a nonpartisan, nonprofit organization dedicated to promoting a health-
first approach to drug policy. I served in three White House drug
policy offices, for both Democrats and Republicans, most recently for
President Obama from 2009 to 2011. In 2013, Representative Patrick
Kennedy and I founded SAM, along with top scientists from around the
country. SAM believes no one should be incarcerated just because they
got caught with a joint, but we also believe that we should not create
a new addiction-for-profit industry in the model of Big Tobacco. SAM
partners with a wide variety of like-minded organizations, including
major medical societies, treatment and recovery advocates, law
enforcement organizations, the NAACP, AAA, Parent-Teacher Associations,
and drug prevention groups to advocate for a better, safer, more
equitable approach to drug policy.
Overview
There are three main problems with passing the so-called SAFE
Banking Act:
1. Today's marijuana is dangerous, and this bill would open the
marijuana industry to major institutional investors who will
create even more hazardous products.
2. This bill would open the U.S. financial system to activity from
transnational criminal organizations who intend to harm
Americans.
3. It purports to fix a fake problem. Today's marijuana businesses
are not dealing primarily with cash; there are hundreds of
banks working with pot businesses, as outlined, for example, in
a recent Bloomberg News piece entitled ``Cannabis Banking Is
Booming Despite Federal Uncertainty''. \1\
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\1\ See https://www.bloomberg.com/news/newsletters/2022-01-18/
marijuana-banking-is-moving-forward-despite-federal-uncertainty
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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. This presents us with
problem number one.
For expert testimony on the purpose of the SAFE Banking Act, I
refer you to former Speaker John Boehner's marijuana investing seminar,
\2\ in which you find these statements, ``I was on the board of a major
tobacco company, Reynolds. You think Big Tobacco is staying on the
sidelines? I've talked to these guys, they are not going to sit this
one out. And they have the dollars to acquire whoever they want . . .
.'' His seminar partner said, ``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 headfirst into cannabis.'' Boehner continued, ``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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\2\ 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 must 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.
Moreover, despite assurances to the contrary, the marijuana
industry has little interest in advancing racial equity. Following more
than a decade of commercialization, only 2 percent of business owners
in the industry are Black. We have also seen how the industry targets
vulnerable communities, including low-income communities and
communities of color. The industry is disproportionately concentrating
dispensaries in these communities, which results in the
disproportionate concentration of marijuana's health-related harms and
the continuation of preexisting disparities. Legalization and
commercialization will continue to fail to live up to their lofty goals
of achieving racial equity.
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 many assume is a harmless plant. They make it look 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. Marijuana is not just a plant
anymore. 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. One kind of marijuana concentrate, called
``shatter,'' from Acreage Holdings, is from former Speaker Boehner's
new gig. It has marijuana strains with names like ``Thin Mint Girl
Scout Cookies''.
I also want to address kid-friendly edibles. 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.
For evidence of the adverse effects of these products, one can look
at our 10-year experience in the United States with the legalization,
commercialization, and normalization of marijuana. According to the
National Survey on Drug Use and Health, there were 52.45 million past-
year marijuana users 12 or older in 2021, compared to 31.53 million in
2012 and 25.76 million in 2002. The rate of past-month use, a measure
indicative of more frequent use, has grown at an even more concerning
rate: there were 14.58 million in 2002, 18.86 million in 2012, and
36.36 million in 2021. The rate of daily or almost daily use has more
than quadrupled, increasing from 3.13 million in 2002 to 5.35 million
in 2012 and 13.25 million in 2021. For context, there were 12.58
million daily users of alcohol in 2021. More people are using
marijuana, and they are using it more heavily.
Similarly, the rate of marijuana use disorder, also known as
addiction, has been trending upward. In 2002, 4.29 million Americans 12
or older had a marijuana use disorder, compared to 4.42 million in 2018
and 4.84 million in 2019, the last year the DSM-IV definition was used.
Following the transition to DSM-V, 14.21 million were estimated to have
marijuana use disorder in 2020 and 16.27 million were estimated to have
it in 2021. More Americans are getting addicted to marijuana.
Alongside increases in the rates of use have been increases in the
adverse effects related to use. There were 804,285 marijuana-related
emergency department visits in 2021, according to the Drug Abuse
Warning Network. Of concern, more than 72,000 involved children younger
than the age of 18. Black individuals accounted for more than 195,000,
or 24.27 percent, indicating that the adverse effects of use are
disproportionately harming communities of color.
In 2021, according to the National Poison Data Center, there were
7,692 calls to poison control centers about marijuana-infused edibles,
7,625 about dried marijuana, 1,138 about concentrated extracts of
marijuana, and 1,014 about synthetic marijuana, among other forms.
Regarding single exposures involving edibles, for example,
approximately 43 percent of calls, or nearly 3,000, were for children 5
or younger, and approximately 18 percent, or nearly 1,300, were for
children between the ages of 6 and 12. Irresponsible adults are leaving
their marijuana out around the house, and it is having tragic
consequences for their children, who unknowingly eat it and find
themselves needing to be rushed to the hospital.
In fact, 1 in 3 users are estimated to have a marijuana use
disorder. Daily users of marijuana above 10 percent THC are nearly five
times more likely to develop psychosis than non-users of marijuana.
Users of high-potency marijuana are four times more likely than users
of low-potency products to become addicted to marijuana. The National
Institute on Drug Abuse states, ``The risks of physical dependence and
addiction increase with exposure to high concentrations of THC, and
higher doses of THC are more likely to produce anxiety, agitation,
paranoia, and psychosis.'' Just last week, a study came out about the
link between marijuana use disorder and schizophrenia, finding that as
many as 30 percent of cases of schizophrenia among males aged 21-30
could have been prevented if we had averted marijuana use disorder.
So, that is the best-case scenario, if everything goes according to
plan: more money, more customers, more profit, more destruction.
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. This is
concern number two. International cartels have infiltrated legalized
States and have used the cover of legalization to conduct massive grow
operations, often in upscale neighborhoods. \3\ The SAFE Banking Act
provides a scalable new avenue for these cartels to infiltrate the
banking system in a much more systematic way.
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\3\ 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-
drugs-black-market
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For example, I refer you to a letter from 2023 from a bipartisan
group of former Administrators of the Drug Enforcement Administration
and Directors of the White House Office of National Drug Control Policy
who describe a threat that parallels the multibilliondollar Black
Market Peso Exchange.
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.
Notably, they concluded, ``We urge the Senate Banking Committee
to reject the SAFE Banking Act and other legislation that would
give these cartels more cover and more access to the U.S.
financial system.''
This letter helps explain why eliminating cash will never stop
marijuana dispensaries 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. \4\ Moreover, in December 2022, thieves in Los Angeles
stole ``hundreds of pounds of marijuana'' from a dispensary. And in
March 2023, criminals in Santa Cruz stole ``half-a-million dollars
worth'' of marijuana.
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\4\ http://www.fox2detroit.com/news/local-news/thieves-crash-
truck-into-detroit-marijuana-dispensary-steal-pot-atm
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This leads us to reason three--the fake excuse to support this
bill. It is built around a lie that these businesses mainly deal only
with cash. In fact, the U.S. Department of Treasury's Financial Crimes
Enforcement Network reported that nearly 800 banks worked with
marijuana businesses in the fourth quarter of 2022, up from 54 in the
first quarter of 2014. Our own investigation revealed that many
marijuana dispensaries accept credit and debit cards as payment,
debunking the myth that they are forced to operate as cash-only
businesses.
More broadly, supporters of legalization assured the general public
that this policy experiment would result in the displacement of the
illicit market--consumers would purchase from dispensaries, not dealers
on the corner, they argued. However, as we have seen in States across
the country, the opposite has occurred. The expansion of the illicit
market has coincided with the legalization of marijuana, to the
detriment of public health and safety.
According to a September 2022 report from Leafly, a pro-marijuana
publication, 80 percent of marijuana sales in New Jersey continue to
occur in the illicit market. In Michigan, they estimated that 60
percent of sales occur in the illicit market. And in California and
Illinois, it is 55 percent. As we have recently seen in New York,
particularly in New York City, legalization has given illicit operators
cover to open unregistered, unlicensed dispensaries--1,400 illicit
shops have popped up in New York City alone. Evidently, legalization
has failed to eliminate the black market and, in some regards, has
exacerbated it. The SAFE Banking Act would add fuel to the fire by
allowing illicit actors to launder and deposit their illicit proceeds.
The U.S. Department of State's International Narcotics Control
Strategy Report mentioned, ``U.S. consumer demand for illicit marijuana
has increased following marijuana regulation in several U.S. States,
due to higher costs for legal marijuana and reduced illicit domestic
production.'' Additionally, the DEA's most recent National Drug Threat
Assessment stated, ``some marijuana produced by State-licensed growers
is diverted and sold illicitly rather than through State-licensed
retailers,'' suggesting that legalization often fuels the black market
rather than replaces it.
What This Bill Is Not About
Cannabidiol (CBD) and hemp were federally descheduled through the
2018 Farm Bill, and hemp growers have full access to banking services.
FDA-approved CBD products have been demonstrated through 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. Between 1995 and 2021, the average potency of marijuana
increased from 3.95 percent to 15.34 percent THC, while the percentage
of CBD has remained below 0.5 percent. The average potency of vapes and
concentrates has increased at a similar rate.
Nora Volkow, the director of NIDA, testified, ``The increasing
availability and potency of cannabis along with the proliferation of
new cannabis products and methods for consuming them raise serious
public health concerns,'' adding ``the risks of physical dependence,
addiction, and other negative consequences increase with frequent use
and exposure to high concentrations of THC.'' And the Colorado
Department of Public Health & Environment concluded, ``it is clear that
use of products with high concentrations of THC are associated with
higher rates of psychiatric disorders, such as schizophrenia,
psychosis, and generalized anxiety disorder.''
What do you think is driving the increase in the potency of
marijuana? The profit-driven marijuana industry. By getting more
individuals addicted to marijuana, they can convert nonusers and
occasional users into lifelong customers. Drawing on the previously
cited rates of use and marijuana use disorder across the country, we
are seeing this strategy play out with tragic consequences. What's
more, though the American Medical Association has called for the
potency of marijuana to be limited--only a few States have adopted
sensible potency caps--the industry continues to lobby fiercely against
these regulations. The marijuana industry will continue to produce,
promote, and sell ever-stronger products, with little to no regard for
public health and safety.
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 non-intoxicating 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 and commercializing 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 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 that path runs through the FDA approval
process.
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 the minor inconvenience of a pot doctor's
recommendation via a 5-minute Skype session.
And then there are the States that have legalized and
commercialized recreational marijuana. These States are doing an
abysmal job of regulating the drug, with rampant underground markets,
out-of-State diversion, the highest rates of youth use in the Nation,
skyrocketing use for 18- to 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.
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\5\ https://learnaboutsam.org/wp-content/uploads/2019/06/2019-
Lessons-Final.pdf
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Indeed, the voters in Arkansas, North Dakota, South Dakota, and
Oklahoma recently rejected ballot measures to legalize and
commercialize recreational marijuana. These outcomes suggest that
support for legalization was initially overestimated and that the
public is becoming increasingly aware of the unintended consequences
associated with this incautious policy.
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. Marijuana
businesses must meet the demand they have created if they want to stay
in business and not lose their customers to 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. Notably,
according to the 2021 National Survey on Drug Use and Health, among
past-month users, there were about five times as many daily users of
marijuana as alcohol.
---------------------------------------------------------------------------
\6\ Colorado Department of Revenue: Market Size and Demand for
Marijuana in Colorado (2017).
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The Addiction Crisis
The fundamental question before us today is whether we should
promote and normalize drug use during an overdose and addiction crisis
or discourage it and help people seek treatment and achieve recovery.
By skipping ahead to a technicality over banking rules, the profit-
driven marijuana industry is hoping to gain many of the benefits of
Federal legalization while averting a debate over the public health
effects associated with this policy. But make no mistake, a policy
change around banking would have massive public health and safety
ramifications, so we are shirking our duties if we do not consider the
full question. The so-called SAFE Banking Act--which should be called
the Addiction Banking Act--will allow the expansion of an industry
pushing new, exponentially more powerful derivatives 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.
As I am sure you know, marijuana remains a Schedule I substance,
meaning it has a high potential for abuse and no accepted medical
benefit. I am amazed that no one has called them on it. It is an
untenable position. If they want to benefit from the sale of 99 percent
potency concentrates, marijuana-infused candies and gummies, and high-
potency vapes that are marketed to young demographics through social
media influencers using the playbook pioneered by Big Tobacco, 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.
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 and elsewhere. \7\ Instead, in a study of 34,000 individuals,
marijuana users were discovered to be more than two times as likely to
misuse 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, June 10,
2019. https://doi.org/10.1073/pnas.1903434116
\8\ https://www.drugabuse.gov/news-events/news-releases/2017/09/
marijuana-use-associated-increased-risk-prescription-opioid-misuse-use-
disorders
---------------------------------------------------------------------------
There is still an opportunity for the other witnesses 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 a
chance today not to repeat those mistakes.
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\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.
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I appreciate the opportunity to appear before this Committee and
thank the Committee in advance for thinking about our Nation's youth as
you craft drug laws. I look forward to answering any questions you may
have.
______
PREPARED STATEMENT OF MICHELLE SULLIVAN
Chief Risk and Compliance Officer, Dama Financial
May 11, 2023
Chairman Brown, Ranking Member Scott, and the esteemed Members of
the Committee, my name is Michelle Sullivan, and I am the Chief Risk
and Compliance Officer for Dama Financial. I am honored to testify
before this Committee to share my experiences and lessons learned in
cannabis banking as well as my opinion on the SAFE Banking Act, S.
1323. I have spent my career in banking, risk management and
compliance, most recently with a regional bank in Kansas City,
Missouri, before joining Dama in 2017.
Dama is the largest and the first end-to-end provider of banking
and payment solutions for legal cannabis businesses in the United
States. Today, we partner with banks which allows our clients a single
relationship with multiple financial solutions. This includes
everything from access to banking and merchant services to cash
management, payments, POS, and inventory management solutions.
Dama was founded in 2016 to provide banking access to licensed
cannabis-related businesses with a compliance first approach following
the provisions outlined in the ``Cole Memo'' of February 14, 2014, as
well the FinCEN Guidance, BSA/AML requirements and all applicable
Federal and State laws.
Dama partners with banks that would like to provide access to
banking but do not always have the resources or expertise to run a
high-risk, cash extensive cannabis banking program on their own.
Dama has developed the gold standard of compliance frameworks to
ensure we know our customers through enhanced onboarding, due
diligence, and continued oversight. We do so in a safe and sound manner
to minimize the risk of money laundering by preventing illegal
operators and illicit cash from creating vulnerabilities in our
financial ecosystem.
To understand the true source of funds, Dama goes beyond the high-
risk banking requirements of Federal law by doing the following:
Drilling down to 10 percent of ownership under the UBO rule and
performing onsite inspections and risk assessments that encompass
inherent and residual risk throughout the life cycle of the
relationship. We reject a fair number of businesses from qualifying for
our services because they are not transparent with us and/or they don't
meet our diligent standards.
Because of these experiences, we believe the SAFE Banking Act
should be stronger and encompass a more stringent statutory framework.
We can't simply rely on existing guidance without more robust
legislation from Congress. It is quite possible that banking standards
will be more lax after the passage of the SAFE Banking Act than there
is today.
If Congress gives financial institutions a ``Safe Harbor'' to
provide services to Cannabis Related-Businesses (CRB), it must provide
a tougher framework than existing guidance. At a minimum, a financial
institution should follow enhanced rules regarding board approved risk
limits and deposit ratios and reporting criteria when limits are
approached or breached with required technology and staffing expertise.
We must also include enhanced due diligence and ongoing monitoring
requirements, especially as it pertains to cash deposits and legacy
cash.
We also believe there is serious potential for confusion in the
banking industry following the passage of this legislation. Will the
cash truly get out of the system? Credit card companies have policies
against banking illegal products which may prohibit cannabis
transactions running on those rails even after the SAFE Banking Act
passes. Without solving the larger decriminalization issues, we worry
that the passage of the SAFE Banking Act alone could make problems
worse by giving us a sense of resolution while huge conflict in Federal
law still exists. This will still make it difficult for some financial
institutions to proceed.
Lastly, as Congress wrestles with this issue, we think it should do
so with a clear understanding of the opportunities for cannabis banking
today. This problem is not the urgent one that it once was. According
to FinCEN, there are over 700 financial intuitions that work with legal
cannabis businesses. Every company that meets the risk standards we've
laid out should already be able to access a banking solution in
America. In my opinion, we should pause and provide more teeth to the
existing bill to protect the financial and banking industry as a whole.
We are happy that Congress is having this hearing today. We believe
that Congress should study these issues very carefully before moving
forward. We look forward to answering your questions and working with
Senators from both parties to resolve the cannabis banking issues
facing our country.
______
PREPARED STATEMENT OF CAT PACKER
Vice Chair, Cannabis Regulators of Color Coalition
May 11, 2023
Dear Members of the Senate Committee on Banking, Housing, and Urban
Affairs: I urge you to support several recommendations offered to
improve the SAFE Banking Act, especially to ensure that cannabis
banking is fair--which is what the F in SAFE stands for.
The Secure and Fair Enforcement Act of 2023, or ``SAFE Banking
Act'', includes new provisions to ensure timely and more comprehensive
data collection and reports that are inclusive of the hemp industry,
veteran-owned businesses and small businesses. These are changes the
Drug Policy Alliance (DPA) and the Cannabis Regulators of Color
Coalition (CRCC) fought to include. Additional positive changes to the
bill include granting marijuana workers access to Federal mortgage
loans and explicitly extending the bill's protections to Community
Development Financial Institutions (CDFIs), another provision DPA,
CRCC, and our allies advocated for. \1\
---------------------------------------------------------------------------
\1\ https://drugpolicy.org/press-release/2023/04/statement-
reintroduction-safe-banking-act-congress
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These new, commonsense provisions focused on promoting fairness are
encouraging signs that the bill is headed in the right direction.
However more can, and should, be done to ensure that all communities
have the opportunity to benefit from this limited but critical reform.
Fortunately, with a few additional minor and technical amendments the
SAFE Banking Act could be a significantly improved means to promote
fair access to banking for those participating in the hemp and cannabis
market.
This letter details technical amendments to SAFE's existing
provisions regarding updated guidance from Federal banking regulators
and studies and reports on diversity and inclusion that seek to promote
fair access to cannabis banking.
Recommendations To Promote Fairness in Updated Guidance
Past Cannabis Criminal Records as Red Flags
The SAFE Banking Act would require Federal banking regulators to
provide updated guidance to financial institutions regarding the
provision of financial services to the cannabis and hemp industry.
However, without additional provisions to ensure fairness, updated
guidance may fail to adequately address access.
My top priority is to ensure that past cannabis criminal records
are not considered ``red flags'' or an automatic indication that a
business may be engaged in unlawful activity.
Existing guidance considers criminal records to be a ``red flag''
or information that serves as an automatic indication that a business
may be engaged in illegal activity. \2\ Although the guidance doesn't
make specific reference to cannabis criminal records, I am concerned
that past cannabis criminal records, especially those that have been
expunged or are for activity that has been pardoned or is no longer
prohibited under State law, will be considered automatically be
considered information that serves as an automatic indication that a
business may be engaged in illegal activity.
---------------------------------------------------------------------------
\2\ https://www.fincen.gov/resources/statutes-regulations/
guidance/bsa-expectations-regarding-marijuana-related-businesses
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Without proper context or consideration of State laws, failure to
address this issue is likely to result in discriminatory practices
against State-sanctioned cannabis businesses. I understand the
importance of protecting financial institutions from involvement in
illegal activities, but I also recognize that many individuals have
been unfairly impacted by cannabis criminalization, particularly those
in marginalized communities. Fortunately, existing guidance clarifies
that future guidance can update what's considered a red flag and the
SAFE Banking Act's existing requirement for updated guidance provides a
timely and meaningful opportunity to address this issue.
Many States have changed their laws and established programs to
remove barriers associated with past cannabis criminal records
including through expungement or licensing opportunities for cannabis
businesses. At least 25 States have pardoned or expunged past cannabis
criminal records, either for some or all types of offenses. \3\ And at
least 15 States have laws that allow individuals with past cannabis
criminal records to participate in State-legal markets. \4\ Moreover,
in order to ensure that future guidance does not interfere with related
State and local interests, I recommend that the SAFE Banking Act ensure
that updated guidance from Federal banking regulators clarifies that
cannabis criminal records that have been expunged or those that are
associated with activity that has been pardoned or is no longer
prohibited under State law will not automatically be considered as red
flags.
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\3\ Arizona, California, Colorado, Connecticut, District of
Columbia, Delaware, Hawai`i, Illinois, Maryland, Massachusetts,
Michigan, Missouri, Montana, North Dakota, New Hampshire, Nevada, New
Jersey, New Mexico, New York, Oregon, Rhode Island, Utah, Vermont,
Virginia, and Washington. https://ccresourcecenter.org/state-
restoration-profiles/50-state-comparison-marijuana-legalization-
expungement/
\4\ Arizona, California, Colorado, Illinois, Massachusetts,
Michigan, Nevada, New Jersey, New Mexico, New York, Rhode Island,
Oregon, Vermont, Virginia, and Washington.
---------------------------------------------------------------------------
By doing so, we can ensure that financial institutions have clear
guidelines to follow when serving the cannabis industry, and that
individuals who have been impacted by past cannabis criminalization are
not unfairly penalized. Without this type of change, cannabis criminal
records will continue to be a significant barrier towards participation
in State-legal marijuana industries, disproportionately impacting Black
and Brown entrepreneurs and undermining State efforts to address
barriers associated with cannabis criminal records.
Best Practices To Promote Fairness
Although the SAFE Banking Act has provisions to study barriers to
access to financial services for those in the hemp and cannabis
industry, it lacks measures to proactively promote fairness in access
to banking.
The SAFE Banking Act inexplicably requires that Federal banking
regulators' guidance for financial institutions servicing the hemp
industry include best practices for financial institutions but includes
no corresponding requirement for best practices within the requirements
for updated guidance for the cannabis industry. Moreover, it's
important that fairness be a primary goal of best practices.
As such, I recommend that the SAFE Banking Act be amended to ensure
that updated guidance from Federal banking regulators includes best
practices for financial institutions to follow, including best
practices to promote fairness, when providing financial services,
including processing payments, to State-sanctioned marijuana businesses
and hemp-related legitimate businesses.
Information Sharing With Regulators
For many State and local regulators the cannabis and hemp
industry's ability to access financial services provides an opportunity
for greater insight into their market and a means for increased
regulatory oversight. However, although financial institutions and
regulators already regularly share information back and forth, both
could benefit from an established process that is consistent,
transparent, and fair.
In order to facilitate information sharing between financial
institutions and regulators, I recommend that the SAFE Banking Act be
amended to establish a process for financial institutions to follow,
including best practices to promote fairness, when providing financial
services, including processing payments, to State-sanctioned marijuana
businesses and hemp-related legitimate businesses.
Recommendations To Promote Fairness in Studies and Reports on Diversity
and Inclusion
Although the SAFE Banking Act would allow Federal officials to
study and report on diversity and inclusion, these studies and reports
can be significantly improved with a few technical amendments.
Study State and Local Strategies To Address Barriers
SAFE would require the GAO to study barriers to marketplace entry
and success and barriers to access financial services for potential and
existing minority-owned, veteran-owned, women-owned, and small State-
sanctioned marijuana businesses and hemp-related legitimate businesses.
It would also require the GAO to report its findings and
recommendations to remove barriers and expand access. However, the SAFE
Banking Act does not explicitly require the GAO to study or report on
existing strategies, including those taken by State and local
governments, to remove barriers and expand access. In order to ensure
that the GAO report is informed by existing strategies and related
lessons learned, I recommend that the SAFE Banking Act be amended to
ensure that the GAO report on diversity and inclusion specify that the
GAO is required to study and report on strategies, including those
taken by State and local governments, to address barriers to market
place entry and success, including in the licensing process, and the
access to financial services for potential and existing minority-owned,
veteran-owned, women-owned, and small State-sanctioned marijuana
businesses and hemp-related legitimate businesses.
Barriers to Marketplace Competition
As mentioned above, SAFE would require the GAO to study and issue a
report related to barriers to marketplace entry and success. However,
as is the case with all businesses, and especially is the case with
cannabis businesses, success is not guaranteed but largely dependent on
a businesses' ability to compete. As such I recommend that the SAFE
Banking Act be amended to clarify that the GAO's study on diversity and
inclusion address barriers to marketplace entry and competition, or at
least clarify that barriers to competition should be included in its
consideration of marketplace barriers to success.
Reports and Studies on Diversity and Inclusion Should Promote Fair
Access not Expanded Access
In addition to the GAO's report on diversity and inclusion, SAFE
also requires a diversity and inclusion report from Federal banking
regulators. SAFE requires both the GAO and Federal banking regulators
to specifically make recommendations for ``expanding access'' to
financial services.
A quick example highlights why the SAFE Banking Act should be
amended to require Federal officials to develop recommendations for
promoting fair access to financial services instead.
If Black Americans are 14.2 percent of the population, \5\ but
found to represent only 2 percent of those with access to financial
services, under a standard of ``expanding access'', Federal officials
could simply make recommendations to raise this percentage from 2
percent to 3 percent. Without fair access as the standard, minority-
owned, veteran-owned, women-owned, and small State-sanctioned marijuana
businesses and hemp-related legitimate businesses--and others will
continue to be underserved by cannabis banking.
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\5\ https://www.pewresearch.org/social-trends/fact-sheet/facts-
about-the-us-black-population/
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Other Technical Amendments and Recommendations
SAFE's Purpose
Although the 2021 version of SAFE included a purpose section, the
2023 version does not. The purpose within the 2021 version stated ``The
purpose of this Act is to increase public safety by ensuring access to
financial services to cannabis-related legitimate businesses and
service providers and reducing the amount of cash at such businesses.''
I recommend reinserting a purpose section and amending the purpose
of SAFE to read as follows: ``The purpose of this Act is to provide
protections for financial institutions that provide financial services
to State-sanctioned marijuana businesses, hemp-related legitimate
businesses and related service providers, and to promote fairness and
safety in the provision of related financial services.''
Beyond ensuring that fairness and safety are explicitly stated as
priorities, the inclusion of a purpose section is particularly
important because SAFE would require that updated guidance from Federal
banking regulators for financial institutions servicing the cannabis
industry ``ensure consistency with the purpose and intent'' of SAFE.
Without a purpose, this requirement is not practicable.
Legacy Deposits
SAFE includes new provisions that would create restrictions for
financial institutions accepting cash deposits, which SAFE refers to as
``Legacy Deposits''.
First as a matter of principle, the term legacy within the cannabis
and hemp community has come to mean a number of different things, but
generally centers around the idea of a longstanding participant in
trade and or community. However, the SAFE Banking Act's use of the term
``legacy'' in reference to cash deposits, is largely disconnected from
how this term is used in the cannabis and hemp trade community,
especially considering that it creates a requirement that would likely
prevent most legacy operators from accessing banking in that it limits
a financial institution's ability to accept cash from a State-
sanctioned marijuana business to a 90-day period. Moreover, these
restrictions apply to all cash deposits. And the term legacy here
doesn't add value but may instead cause contention and confusion.
Therefore, instead of referring to these deposits as legacy deposits, I
recommend that the SAFE Banking Act be amended to strike any reference
to the term legacy and simply refer to these deposits as cash deposits.
Moreover, the 90-day period should be reconsidered to specifically
assess what impact this limitation has on promoting fair access to
financial services for State-sanctioned marijuana businesses.
Technical Clean Up
Technical Clarification--Sec. 11(1) should be amended to ensure the
Federal banking regulator's diversity and inclusion report includes
``hemp-related legitimate businesses.''
Technical Clarification--Sec. 12 (a) should be amended to ensure
the GAO study on diversity and inclusion includes ``removing barriers
to marketplace success.''
I urge your consideration of these requests for technical but
meaningful improvements to SAFE to promote fairness and for your
ongoing efforts to continue to work towards creating a more safe and
fair regulatory framework.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
RESPONSE TO WRITTEN QUESTION OF CHAIR BROWN
FROM ADEMOLA OYEFESO
Q.1. Mr. Oyefeso, can you discuss how businesses that do not
directly work with cannabis but provide products or services to
legal cannabis businesses, such as gardening or construction
companies, might also have their banking impacted by the
Federal status of cannabis? How does this affect the workers of
these businesses?
A.1. UFCW represents workers who work directly for cannabis-
related businesses and not ancillary businesses. Our members
can be found in growing and cultivating facilities, in
manufacturing and processing facilities, as well as in
laboratories and dispensaries. The people who grow, process,
test, distribute, and sell cannabis deserve a fair and safe
workplace like any other worker in America.
UFCW has established a cannabis apprenticeship program and
been limited by the national banking laws. We are not able to
take the program national, because of limits on interstate
banking. UFCW believes all jobs in the cannabis industry should
be family sustaining with good wages, benefits, and
opportunities for advancement at every level from seed to sale.
These jobs should have the skills and training that build the
public and consumers' confidence in both the safety of the
product and industry as a whole. One of the building blocks to
achieve this is the professionalization of work in the industry
through the establishment of cannabis industry apprenticeships.
Training through apprenticeships ensures workers in this
emerging industry have the skills and training required to be
successful in the field. The SAFE Banking Act will enable UFCW
to grow our apprenticeship program to meet the needs of
workers, the industry, and the community.
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RESPONSES TO WRITTEN QUESTIONS OF
SENATOR MENENDEZ FROM ADEMOLA OYEFESO
Q.1. Multiple surveys have shown that the cannabis industry is
largely White and male dominated. Minority groups that
disproportionately lack access to credit and preexisting
relationships with banks and regulators face extra challenges
in an industry like cannabis where financial service access is
sharply limited and regulatory burdens are high.
Would passing SAFE Banking reduce barriers to entry and
make the cannabis industry more equitable?
A.1. Cannabis banking is an equity issue. Since banks cannot
loan money to CRBs you need to either self-capitalize or have
access to capital--two things which prospective minority
business owners have traditionally had less access to than
their White, male counterparts.
Many of the States legalizing cannabis have developed
licensing schemes designed to meet the specific State's needs
and policy goals including strong social equity provisions.
Federal permitting, taxation, or regulation should build upon
State laws rather than set a single Federal standard. It is
important that Federal legislation preserve the State-based
nature of the industry as much as possible. This will allow
States to continue to regulate the industry in a way that
respects established laws and community standards.
Equity is an empty and hollow phrase unless it is made real
and meaningful to the majority of working people living in
those communities that were harmed by the war on drugs. The
discussion of equity in the cannabis space is more than about
who owns these businesses, but about all of the stakeholders--
especially the industry's workers. The greatest benefit of
cannabis banking will not come from creating a handful of
successful, wealthy business owners of color, but from
fostering a pipeline of good paying jobs throughout the
cannabis industry that are widely available to persons from
impacted communities. And equity cannot be achieved as long as
we bar workers from traditional banking. This creates another
race and class-based barrier of entry for workers.
Q.2. Without access to traditional banking services, cannabis
enterprises are forced to operate entirely in large sums of
cash. As a result, news reports from the last few years have
shown an uptick in armed robberies at cannabis dispensaries.
What safety risks does forcing marijuana businesses to
operate exclusively with cash raise for workers, businesses,
and the broader community?
A.2. Miranda Beck, a cannabis worker at Starbuds in Baltimore,
Maryland, told us a story of a security guard and a worker who
were robbed of cash and cannabis product at gunpoint. She said:
It's well known that there is a lot of cash inside
dispensaries because dispensaries can't accept credit
cards. At Starbuds we were also paid in cash--each week
we would have to go in (even on our days off, which was
hard for some people without their own cars) to collect
an envelope with our wages.
They took taxes out, but we were paid in cash--so were
the vendors. I worried about safety at work every day--
not just for myself and my coworkers, but our patients.
Some patients were robbed in the parking lot when they
were coming in to buy their medicine.
One UFCW local leader in California notes: ``The lack of
regulation and security measures in the cannabis industry also
puts delivery drivers at risk, as they may not have access to
proper training or protective equipment. Without banking, our
cannabis delivery driver members carry large amounts of cash
and valuable products, making them a prime target for robbery
and assault.''
Cannabis workers, like every other business venture,
deserve the same right to work in safe conditions. SAFE Banking
is one very easy way to make our worksites safer, by allowing
them to take debit and credit card transactions and thus not
being such tempting targets for theft.
Q.3. Illegal cannabis operations pose a serious public health
risk. A study from the New York Medical Cannabis Industry
Association found that 40 percent of cannabis products from
illicit stores in New York City contained harmful contaminants,
such as E. Coli, lead, and salmonella.
Will allowing legitimate marijuana businesses, which abide
by State and local health and safety regulations, access to
banking and insurance services mitigate some of these safety
concerns?
A.3. UFCW has experience in well-regulated industries, like
meat processing. We know that treating cannabis as a regulated,
age-restricted, legal consumer product will protect the
industry and its workers. Operating in a legal gray area is not
good for consumers, workers, and businesses.
Currently legal cannabis businesses have the oversight and
accountability of any other business, without all of the
financial tools and resources. Cannabis-related businesses
should have access to conventional financial services and the
oversight that comes with it, so that the businesses, as well
as the workers, will have the tools to ensure a safe product
and safe working environment.
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RESPONSE TO WRITTEN QUESTION OF
SENATOR FETTERMAN FROM ADEMOLA OYEFESO
Q.1. I have heard stories from union members and leaders who
have significant safety concerns about working conditions in
cannabis-related businesses. Can you elaborate on this and
speak to potential solutions to their concerns?
A.1. Cannabis workers throughout the industry chain are exposed
to a large number of hazards and risks--many of which are still
not fully known. Cannabis employees work with high-intensity UV
lights that can harm skin and eyes; with CO2 and
other gases which become poisonous without constant monitoring;
and with pesticides and other chemicals. Cannabis employees are
also exposed to mold, heat stress, dust, aerosols, flammable
solvents, toxic gases, and other volatile chemicals and fire
hazards. Finally, workers risk physical safety when their place
of business is cash only, making them a greater target for
crime.
As for solutions, Congress should ensure that the highest
possible workplace safety standards are set in this industry.
Congress should:
Allow OSHA to immediately start work on a national
workplace safety standard for legal cannabis business,
using the regulations set by California as a model.
Fund longitudinal studies on the long-term effects
of exposure to the chemicals involved with growing,
processing, and selling cannabis.
Give the Department of Agriculture the ability to
set standards for the use of pesticide application.
Pass SAFE Banking to protect cannabis workers and
businesses from the violent crime all cash businesses attract.
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RESPONSE TO WRITTEN QUESTION OF CHAIR BROWN
FROM CAT PACKER
Q.1. Ms. Packer, when small cannabis businesses do find banks
and credit unions that are willing to provide financial
services to them, they sometimes have to pay exorbitantly high
fees and encounter other barriers. Can you talk about why this
is and how it can impact small cannabis businesses and their
workers?
A.1. Response not received in time for publication.
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RESPONSES TO WRITTEN QUESTIONS OF
SENATOR MENENDEZ FROM CAT PACKER
Q.1. Under current law, State authorized cannabis business are
not only locked out of the banking system, they are unable to
obtain necessary insurance products such as workers
compensation, property, casualty, and title insurance. This is
a problem that needs to be fixed in order to ensure these
businesses have access to the full range of financial services
they need to run a business.
Does lack of access to insurance negatively impact or even
outright prevent business owners from obtaining bank financing?
A.1. Response not received in time for publication.
Q.2. According to estimates from cannabis data firm New
Frontier Data, the national market for illicit marijuana is
worth around $60 billion, twice as much as the legally
regulated market.
What are the consequences for legally operating businesses
when a large portion of the market is operating illegally?
A.2. Response not received in time for publication.
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RESPONSES TO WRITTEN QUESTIONS OF
SENATOR FETTERMAN FROM CAT PACKER
Q.1. The SAFE Banking Act is a crucial first step, but it can't
be the last. What do you see is the next step towards
legalization after the SAFE Banking Act?
A.1. Response not received in time for publication.
Q.2. I believe expungement is crucial. Too many Americans have
had their lives derailed because of a nonviolent marijuana
conviction. My understanding is that even if the SAFE Banking
Act were to pass, there would be potential problems when it
comes to business owners who have previously been convicted of
marijuana-related charges having access to financial services--
even if these charges have been expunged. Can you speak more to
this potential problem? And what we can do to prevent it?
A.2. Response not received in time for publication.
Additional Material Supplied for the Record
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