Solving the Cash-Only Issue at the Root

Ed Perlmutter, a Democratic congressman who represents a district just to the north and west of Denver, has introduced HR 2076, addressing the federal barriers to banking for state-legal marijuana businesses. Though the text of the bill describes its purpose as the creation of “protections for depository institutions that provide financial services to marijuana-related businesses,” but there is some reason to believe that its approach is far to0 narrow to be effective.

The House referred the bill to the Committee on Financial Services, where Perlmutter serves, and to the Committee on the Judiciary.


Paraphrasing the Bill

HR 2076 is somewhat concisely worded, as legislation goes in the 21st century.  Only 8 pages, and the final two consist of definitions of terms.

The gist of it is that a federal banking regulator may not engage in certain punitive behaviors, such as terminating or limiting the deposit insurance of a bank “solely because [that institution] provides or has provided financial services to a marijuana-related legitimate business.”

Nor can regulators use the carrot to do the work of the stick. That is, under this bill they could not “recommend, incentivize, or encourage” banks to keep their distance from the owners or operators of marijuana-related legitimate businesses” either.

The bill sweeps broadly in its definition of banking regulators, too. The above prohibitions would extend to the “Board of Governors of the Federal Reserve System, the Bureau of Consumer Financial Protection, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the National Credit Union Administration, or any Federal agency or department that regulates banking or financial services, as determined by the Secretary of the Treasury.”


About Perlmutter

Perlmutter is not a novice, and this is not his first crack at this issue. He won his congressional seat in 2006, by running against a candidate, Rick O’Donnell, who had once supported the abolition of Social Security. He secured re-election in 2008 and 2010, even though the 7th district was seen by many as vulnerable to a GOP wave in 2010.

Thereafter the district lines were re-worked, somewhat to the disadvantage of a Democrat in the 7th district. Regardless, Perlmutter won again in 2012.

By 2014, though, Perlmutter possessed a secure seat, and his campaign against Republican Don Ytterberg held little suspense. It ended with the incumbent winning with 55 percent of the vote.

This is not the first time Perlmutter has introduced a bill on cannabis-and-banking. He co-sponsored such a bill last year with another Colorado Rep., Jared Polis, HR 2652. It got nowhere.

On April 9, 2015, again along with Polis, Perlmutter hosted a roundtable discussion involving the head of the Kansas City Federal Reserve, Esther George, and some of Colorado’s cannabis businesses leaders. “Reps. Polis and Perlmutter invited George to meet with local cannabis businesses to hear first-hand the challenges they face without access to banking,” according to a press release.


The Trouble with the Narrow-Gauge Approach

A forthcoming paper in the Case Western Reserve Law Review will discuss the issue of banks, marijuana and federalism, and it will offer some scholarly support for Perlmutter’s underlying concern, but it will also suggest that such a bill could fall far short of its goal.

The article, by Julie Anderson Hill of the University of Alabama’s Law School, is already available online. She begins it with the observation that any business even indirectly tainted by marijuana can run into banking difficulties in the present climate. In June 2014, Wells Fargo closed the account of Marijuana Venture, a business that didn’t grow, possess or sell the stuff but published a magazine aimed at those who did. The mere word “marijuana” in the name of the business seems to have provoked a knee-jerk bankers’ reaction.

Wells Fargo did change its position once this decision received unfavorable publicity, but it still does make the point for which Professor Anderson employs it.

The chief point of her article, though, is that there are many ways in which the federal government’s various departments and agencies could and probably would inhibit banks from involvement with marijuana even after a quick-fix approach. Her article doesn’t specifically mention Perlmutter’s bill, but it does observe, for example, that:

“The paperwork associated with anti–money laundering reporting may be enough to dissuade some institutions from banking some marijuana businesses. And then there is the problem of confirming that none of the institution’s customers deal with marijuana in a way that implicates the Department of Justice’s enforcement priorities. Among other things, a financial institution needs to ensure that its customers do not sell marijuana to minors and do not sell marijuana to customers that may transport it across state lines. Such due diligence efforts will be costly.”


Functional Banking

Functional marijuana banking, and a real alleviation of the public safety issues and other problems associated with an all-cash business, will require more than targeted federal legislation. It will require nothing less than a change in the regulatory culture, a general understanding that public service requires bringing the state-legal markets into the mainstream banking system.

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