Marijuana banking reform would help hemp operators too, but when will it pass?

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Long-needed banking legislation for marijuana companies that could also help hemp operators has again emerged in the U.S. Congress, but it’s far from certain the reforms will pass anytime soon.

While the U.S. Drug Enforcement Administration appears it will reclassify marijuana from a Schedule I drug to Schedule III, theoretically easing banking and other restrictions, lawmakers say they plan to plow ahead with the Secure and Fair Enforcement Regulation (SAFER) Banking Act (HR 2891).

The House of Representatives is floating the SAFER Act, which also has support in the Senate, after similar earlier legislative efforts failed.

Complex path

“While this rescheduling announcement is a historic step forward, I remain strongly committed to continuing to work on legislation like the SAFER Banking Act,” Senate Majority Leader Sen. Chuck Schumer of New York said in a recent statement.

But the marijuana banking measure would need to follow a complex path by being tucked into cryptocurrency-related legislation that would then be further bundled into a Federal Aviation Administration (FAA) spending bill. The FAA bill must be renewed by this Friday, May 10.

House Financial Services Committee members Rep. Patrick McHenry of North Carolina and California Democrat Rep. Maxine Waters are expected to emerge with a compromise on the cryptocurrency bill.

Politics too

In addition to time pressure, simple politics could also delay the SAFER Act. When a similar measure failed last year, analysts predicted most lawmakers would punt on marijuana banking reform until after the 2024 general election.

Also, some cannabis banking and risk management consultants say provisions in the marijuana legislation are superfluous because banks have adapted to serve the industry since state-level marijuana legalization emerged. They say the provisions have grown obsolete, and their enactment could actually increase compliance burdens for banks with marijuana clients. That discussion could also derail any action before the November elections.

Hemp banking is legal

Because industrial hemp is delisted from Schedule 1 of the U.S. Controlled Substances Act, it is a legal commercial product and stakeholder companies can have regular banking relationships. But many banks remain reluctant to deal with the industry due to a lack of understanding of the business and false equivalencies between hemp, which is non-psychoactive, and marijuana, which contains the “high”- producing compound delta-9 THC.

Attempts to provide banking services to marijuana operators, which both Republican and Democrat lawmakers generally support, have been around since 2017. In 2022, representatives in the House passed their version seven times but the Senate never voted. Last year, the process reversed, with the Senate signing off on a bill and the House of Representatives setting it aside.

Protecting banks

Both House and Senate versions of the bill have focused on providing protections for financial institutions that serve state-sanctioned marijuana businesses. This means the banks wouldn’t be penalized by federal regulators for offering services to these businesses.

The 2018 Farm Bill cleared a path for banking by legalizing industrial hemp across the country but didn’t explicitly address banking services for hemp companies. Further clarity on hemp came when the U.S. Treasury Department’s Financial Crimes Enforcement Network removed a requirement that banks file reports on their hemp business customers in 2019, and the following year issued guidance on how banks could perform customer due diligence for hemp businesses.

Still, hemp operators often struggle to get basic services and only one major bank operator has reached out to the hemp industry to provide them with a safe haven.

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