What if cannabis banking is DOA?

From: POLITICO's Morning Money - Thursday Sep 28,2023 12:01 pm
Presented by Consumer Credit Card Protection Coalition: Delivered daily by 8 a.m., Morning Money examines the latest news in finance politics and policy.
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POLITICO Morning Money

By Jasper Goodman and Zachary Warmbrodt

Presented by Consumer Credit Card Protection Coalition

Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our s each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro.

QUICK FIX

A bill that would help banks serve the cannabis industry is on its way to the Senate floor. But it faces huge political challenges on the right and the left. So what’s at stake?

If the bill stalls, will marijuana businesses — at least those legalized by the states — have to live without bank accounts?

Not necessarily. 

Hundreds of banks have already been serving marijuana businesses over the last several years, according to FinCEN data that indicates the total is more than 670 banks and credit unions. They range from community lenders to mid-sized institutions, including Valley Bank, which has $64 billion in assets and says it serves dispensaries, cultivators and testing labs. FinCEN, which enforces anti-money laundering rules, gave banks guidance on working with the industry in 2014.

“There’s absolutely no reason why somebody [in the cannabis industry] who wishes to have a bank account can’t have one,” said Nathaniel Gurien, founder of Fincann, a consulting firm that connects the cannabis industry to financial services providers.

But even if the bill becomes law — a big if, for reasons we outline further below — it may not be enough to attract a rush of new lenders, either — in particular the biggest banks.

Safe Harbor Financial CEO Sundie Seefried, whose firm helps banks with cannabis regulatory compliance, pointed to continuing anti-money laundering obligations under the Bank Secrecy Act.

“That’s what really is an elephant in the room,” Seefried said. She still wants Congress to pass the bill because it would codify protections for the cannabis industry and banks that work with it.

The biggest banks are unlikely to get into cannabis until the drug is legal at a federal level.

“With federal illegality, it’s a high-risk banking category with its own eccentricities and requirements,” Gurien said. The big banks are “going to look at it and say, ‘This is not a big enough sector for us to want to make the commitment institution-wide,’” he added.

For now, the banking and cannabis industries will keep fighting for legal clarity. It’s not just a business concern for bankers. A big driver of the legislation is that the current federal-state disconnect leaves marijuana shops as targets for theft if they can’t get bank accounts and are stuck transacting with piles of cash.

“This urgently needed, bipartisan legislation will resolve the ongoing conflict between state and federal law so that banks can serve state-authorized cannabis and cannabis-related businesses while enhancing public safety, tax collection and financial transparency,” American Bankers Association president and CEO Rob Nichols said. “The status quo is simply untenable for consumers, small businesses and banks operating in states where cannabis is legal.”

It’s Thursday — Send tips: Zach Warmbrodt, Sam Sutton.

 

A message from Consumer Credit Card Protection Coalition:

With a government shutdown on the line, why are some politicians more focused on defunding your data security than protecting hard working Americans? If Congress passes the Durbin-Marshall Credit Card bill, it would defund data security for credit card transactions, leaving millions of Americans exposed to more fraud and hacking just to fund big retailer bailouts. Learn more and tell Congress to stop the Durbin-Marshall credit card bill.

 
Driving the day

Revised second-quarter GDP is out at 8:30 a.m. … Chicago Fed President Austan Goolsbee gives a Peterson Institute speech on the economy at 9 a.m. … Fed Governor Lisa Cook delivers closing remarks to the Minorities in Banking Forum at 1 p.m. … Sen. Elizabeth Warren talks about the CFPB Supreme Court Case at the Center for American Progress at 1 p.m. … Fed Chair Jerome Powell takes questions during a teacher town hall at 4 p.m.

Gotta catch ‘em all, Gary — Wednesday’s quote of the day goes to SEC Chair Gary Gensler, in his response to a question from Rep. Ritchie Torres: “You could purchase a Pokémon card. I don't know what the context is. But if you’re just purchasing a Pokémon card at a retail store, that’s not a security.”

Shutdown update — It's looking like government funding will lapse Saturday at midnight, with House Speaker Kevin McCarthy lacking the votes for a stop-gap bill and a number of Republicans seeking changes to the latest Senate plan for a continuing resolution.

A warning from Sheila Bair — In POLITICO Magazine, the former FDIC chair writes that a Supreme Court battle over the CFPB’s ability to tap funding outside of congressional appropriations has “vast” implications for other government agencies that also have independent funding sources. Among them: the Federal Reserve, the FDIC and the Office of the Comptroller of the Currency.

“Imagine … if the Fed’s budget could be held hostage to congressional dissatisfaction over interest rate policy, or if a member of Congress unhappy about a failed bank in his district could try to block the FDIC’s budget,” Bair writes. “Individual agency budgets could be put at risk by disgruntled politicians or lobbying interests.”

 

A NEW POLITICO PODCAST: POLITICO Tech is an authoritative insider briefing on the politics and policy of technology. From crypto and the metaverse to cybersecurity and AI, we explore the who, what and how of policy shaping future industries. We’re kicking off with a series exploring darknet marketplaces, the virtual platforms that enable actors from all corners of the online world to traffic illicit goods. As malware and cybercrime attacks become increasingly frequent, regulators and law enforcement agencies work different angles to shut these platforms down, but new, often more unassailable marketplaces pop up. SUBSCRIBE AND START LISTENING TODAY.

 
 

About that soft landing: Oil hits 2023 high — Oil prices surged Wednesday, hitting near-$100 per barrel levels not seen since November. The FT attributed it to data that revealed lower-than-expected U.S. crude stockpiles, underscoring concerns about global supply.

“It makes things harder,” former Dallas Fed President Rob Kaplan said in a WSJ story this week about the impact rising crude will have on the central bank. “Just because the agencies or analysts or economists will ‘x’ out oil, the middle-class family doesn’t get to ‘x’ it out.”

The FT also notes that U.S. stocks and government bonds are on track for their worst month of the year, as investors come to terms with the reality that the Fed will likely keep interest rates higher for longer.

The Menendez effect? — Gold bars are selling out at Costco, CNBC reports.

 

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Markets

SEC warns: Go public before a shutdown — Per Reuters, Gensler told House lawmakers Wednesday that a government funding lapse would reduce SEC staffing by more than 90 percent — down to what he described as “skeletal” levels. It would stop the agency from approving IPOs and impede its ability to respond to market turmoil.

Ken Griffin vs. Gary Gensler — Bloomberg scoops that hedge fund giant Citadel is planning to fight back if the SEC targets the firm as part of an industry-wide crackdown on traders who use unmonitored messaging services like WhatsApp.

On the Hill

Cannabis banking’s future is hazy after big vote — The Senate Banking Committee voted 14-9 Wednesday to approve legislation that would make it easier for lenders to serve marijuana businesses. But the bill is facing threats from the right and the left on the way to the Senate floor, per reporting from Eleanor Mueller and Natalie Fertig.

Republicans are still split over a provision that’s designed to make it harder for regulators to close bank accounts for reputational reasons. Rep. Blaine Luetkemeyer (R-Mo.), who argues that the current version of the bill wouldn’t do enough to stop regulators from closing the accounts of gun stores and energy producers, said that the legislation “will not make it through the House.”

Democrats are poised for their own fight over social justice concerns. Senate Majority Leader Chuck Schumer has said he will pair the cannabis banking bill with legislation that would create federal grants for expunging state-level cannabis records. Senate Banking Democrats on Wednesday blocked an amendment from Sen. Raphael Warnock (D-Ga.) that would prohibit banks from denying services to individuals convicted of marijuana violations.

"I don't think this legislation leaves the Senate anyway," Sen. Mike Rounds (R-S.D.), who voted against the bill in committee, told Eleanor. "I just don't think this thing has any legs at all."

 

Enter the “room where it happens”, where global power players shape policy and politics, with Power Play. POLITICO’s brand-new podcast will host conversations with the leaders and power players shaping the biggest ideas and driving the global conversations, moderated by award-winning journalist Anne McElvoy. Sign up today to be notified of the first episodes in September – click here.

 
 
Crypto

Binance exits Russia — CoinDesk reports that the embattled crypto exchange sold the entirety of its Russia business to CommEX, a new digital asset trading platform, as it looks to fully exit the market over compliance concerns.

Binance has reportedly faced U.S. government scrutiny over whether it let Russians evade sanctions.

 

A message from Consumer Credit Card Protection Coalition:

It’s never the right time to defund data security, but that’s exactly what the Durbin-Marshall Credit Card bill would do to millions of credit card transactions if it became law. With fraud and cyber crime at all time highs and the threat of a government shutdown, now is not the time for Congress to defund data security. Instead, Washington should prioritize protecting our private financial information, not make it easier for cyber criminals to hack into your wallet.

Learn more and tell Congress to say no to defunding data security by rejecting the Durbin-Marshall credit card bill.

 
 

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