WASHINGTON — Two senators are proposing legislation that would give cannabis-related businesses in states that legalized the substance access to banking.

Sens. Elizabeth Warren, D-Mass., and Cory Gardner, R-Colo., announced a bill Thursday to exempt persons complying with state marijuana laws from the federal pot prohibition under the Controlled Substances Act.

The legislation would enable business operating in states that have legalized pot to access the financial system, thereby removing a considerable hurdle for a fast-growing industry. Some banks have been wary to offer services due to the federal prohibition.

Cannisters of medical marijuana.
Some banks have been wary to offer services to pot businesses even in states where the substance is legal due to the federal prohibition. Bloomberg News

“These archaic laws don’t just hurt individual people,” Warren said at a press conference. “They hurt businesses who are in the marijuana business from getting access to banking services. That forces a multibillion-dollar industry to operate all in cash. That’s bad for business and bad for safety.”

Gardner noted that cities and states where pot is legal can collect taxes from pot businesses, "but if you are in the business, if you work for the business, you can’t get a bank loan or set up a bank account because of the concern over the conflict between state and federal law.”

The bill, known as the Strengthening the Tenth Amendment Through Entrusting States Act, or STATES Act, has also garnered support in the House from Reps. Earl Blumenauer, D-Ore., and David Joyce, R-Ohio.

Isaac Boltansky, an analyst at Compass Point Research & Trading, said he does not see a path for the bill to pass in the current Congress. But, he said, “We view its structure and substance as a clear signal that the broader policy trajectory is bending towards a clarification of federal cannabis policy.”

Banks are often cautious to provide services to cannabis-related businesses due to potential legal ramifications and conflicts between federal and state laws.

“The conflict between state and federal law on cannabis-related businesses has created significant legal and compliance concerns for financial institutions that could provide needed banking services to these companies,” Rebeca Romero Rainey, president and CEO of the Independent Community Bankers of America, said in a statement Wednesday. “This uncertainty has forced cannabis-related businesses to operate mostly in cash, which presents a significant public safety risk.”

Rainey was referring to bipartisan legislation introduced in 2017 by Sen. Jeff Merkley, D-Ore., that would prohibit federal banking regulators from terminating or limiting the deposit insurance to legitimate marijuana-related businesses or discouraging depository institutions from offering financial services to an account holder solely because of affiliation with such businesses.

The bill by Warren and Gardner would only apply to states with legal pot laws on the books, leaving out businesses operating in states that have not legalized the substance for medical or recreational purposes.

Camden Fine, the ICBA's former chief executive, lauded Warren and Gardner for their legislation.

“At its heart, this ... is a pro-states'-rights bill that remedies a business relationship problem that has vexed community banks across 46 states,” said Fine, now president and CEO of Calvert Advisors. “I strongly urge community banks nationwide to get behind the STATES Act to bring a common-sense, states'-rights approach to solving a serious and growing problem for community banks."

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Neil Haggerty

Neil Haggerty is the Congress reporter for American Banker. He previously was a financial regulation reporter at MLex Market Insight.