March 20, 2021

Bipartisan Senate Bill Would Give Marijuana Businesses Access To Insurance Coverage

A bill to protect banks that work with state-legal marijuana businesses that was reintroduced in…

A bill to protect banks that work with state-legal marijuana businesses that was reintroduced in the House this week will advance before lawmakers tackle more comprehensive cannabis reform, a key congressman said on Friday.

During a press call to discuss the Secure and Fair Enforcement (SAFE) Banking Act, Reps. Ed Perlmutter (D-CO), Earl Blumenauer (D-OR) and other cosponsors answered questions about the state of play of the legislation, which cleared the chamber as a standalone bill in 2019 and twice as part of COVID-19 relief packages last year.

Blumenauer, co-chair of the Congressional Cannabis Caucus and an original cosponsor of the bill, said that the plan is to pass the banking reform first because it “is a public safety crisis now,” and it’s “distinct—as we’ve heard from some of my colleagues—distinct from how they feel about comprehensive reform.”

“Comprehensive reform is coming,” he said. “There’s no need, however, for us to wait on the banking issue. This is an issue that is putting the public at risk” because marijuana businesses are currently forced to operate on a largely cash-only basis, making them targets of crime, among other issues, he said.

When the standalone legislation was scheduled for a vote in 2019, there was pushback from some advocates who felt that Congress should have prioritized comprehensive reform to legalize marijuana and promote social equity, rather than start with a measure viewed as primarily friendly to industry interests.

It’s also simply the case that the SAFE Banking Act has been refiled and, so far this Congress, no bills to end federal cannabis prohibition have yet been introduced. However, House Judiciary Chairman Jerrold Nadler (D-NY) recently said that he will be putting out his Marijuana Opportunity, Reinvestment and Expungement (MORE) Act soon. That bill, which would deschedule marijuana and promote equity in the industry, was approved by the House last year.

Another outstanding question about the banking reform legislation is how the Senate will approach it. Under Republican control last session, the House-approved bill did not receive a hearing in the chamber after being referred to the Senate Banking Committee. Now Democrats control the Senate and the House, and the newly installed Banking Committee Chairman Sherrod Brown (D-OH) has expressed openness to moving the measure under certain conditions.

Brown said last month that he’s “willing” to hold a hearing on the bipartisan bill, but he said it must be passed in tandem with sentencing reform legislation for drug offenses.

“I don’t think we move on legalization the way that Colorado and some other states want us to, unless we really look more seriously at who’s in prison for how long for those kinds of offenses and we don’t do one without the other,” he said.

He reiterated that point in an interview with The News Station this week, saying “we’re not moving on the bill until we deal with the social discrepancies and structural racism of these laws.”

Perlmutter said on Friday’s call that he’s discussed the SAFE Banking Act with Brown and is assured that “they plan to take it up,” but first it’s the responsibility of the House to approve it.

“Precisely how they amend it or change it, I don’t know,” he said. “They may narrow it, they may expand it, but that’s for the Senate, and then if there’s a difference, I’ll talk to my cosponsors, my team here, and we’ll see whether we all want to go to a conference or not and what we can accept and what we can’t.”

“I think this is going to get a full legislative review, and we’re going to get a good product, a good piece of legislation, and send it to the White House,” he said.

The bill as introduced has 107 initial cosponsors, with Reps. Steve Stivers (R-OH), Nydia Velazquez (D-NY) and Warren Davidson (R-OH) taking the lead alongside Perlmutter. By the end of the 116th Congress, the prior version of the bill garnered 206 cosponsors. The current bill includes support from 13 Republicans.

A new companion Senate version of the bill is expected to be filed next week. It will be carried by Sens. Jeff Merkley (D-OR) and Steve Daines (R-MT).

The SAFE Banking Act would ensure that financial institutions could take on cannabis business clients without facing federal penalties. Fear of sanctions has kept many banks and credit unions from working with the industry, forcing marijuana firms to operate on a cash basis that makes them targets of crime and creates complications for financial regulators.

The bill has been slightly revised this session to expand banking protections to explicitly include hemp and CBD businesses, and some technical changes were made to clarify language around insurance and safe harbor provisions. Separate legislation to address insurance issues in the cannabis market was also introduced in the Senate and House on Thursday.

One component Blumenauer said would not be addressed in the SAFE Banking Act—at least on the House side—concerns an Internal Revenue Service (IRS) code known as 280E, which precludes cannabis businesses from being able to claim standard federal tax deductions that are available to most industries.

“This will be addressed as part of what we’re doing with the MORE Act, where we are able to sweep away this vestige,” the congressman said. “We’re confident that this will be taken care of.”

“Part of the problem is that there will be a modest fiscal impact so it needs to be done in the context of broader reform and a modest federal tax on cannabis,” he added. “That’s what we envision with the MORE Act, and that will be coming forward.”

With respect to banking, as more states have legalized marijuana for recreational or medical use, financial institutions have relied on 2014 guidance from the Financial Crimes Enforcement Network (FinCEN) that requires them to submit suspicious activity reports if they elect to provide financial services to cannabis businesses. In the years since, the number of depositories taking on marijuana clients has gradually increased—until a more recent downward trend that now seems to be stabilizing.

The head of the Internal Revenue Service (IRS) told Congress last month that the federal agency would “prefer” for state-legal cannabis firms to be able to pay taxes electronically, as the current cash-based system under prohibition is onerous and presents risks to workers.

Former Treasury Secretary Steven Mnuchin similarly said in 2019 that he’d like to see Congress approve legislation resolving the cannabis banking issue, and he pointed to the fact that IRS has had to build “cash rooms” to deposit taxes from those businesses as an example of the problem.

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