Cannabis advocates, entrepreneurs, and investors must be resilient, eternal optimists for many reasons – one of them being the annual resurrection of banking reform legislation that passes in the House only to be shot down in the Senate.

Cannabis has been state-legal since California began allowing medical use in 1996, and a majority of states followed suit by 2016. However, over 25 years later, there is still a lack of meaningful reform even though more than two-thirds of Americans support legalization and 97.7% of the population lives somewhere that allows recreational or medicinal use of cannabis (including hemp and CBD). At this point, it appears the issue is not IF cannabis reform legislation should be passed – rather, the issue is HOW it should be drafted.

If you’re a fan of politics and the cannabis industry, you’ve likely heard of several pieces of proposed legislation with an alphabet soup of names. Why are there so many bills? Why can’t any of them seem to pass? Would the president even sign one of these bills into law if it made it to his desk?

We’ve taken the time to answer these questions for the top three proposed bills swirling around Washington, D.C., focusing this digest on the SAFE Banking Act, MORE Act and CAOA.

 

What is the SAFE Banking Act?

First introduced in 2013 by Rep. Ed Perlmutter (D-CO), the Secure and Fair Enforcement (SAFE) Banking Act would make significant changes to how financial institutions can serve the cannabis industry if they so choose. Under this proposed legislation, banks and financial institutions that are operating within a state’s legal and regulatory framework would be protected from federal or state prosecution and penalties. Passage of the act would subject account holders to strict Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements to ensure the financial system remains secure.

Why is the SAFE Banking Act needed?

In the absence of the SAFE Banking Act, the cannabis industry is cash-heavy, which poses public safety, fraud and transparency risks. By passing this legislation, cannabis operators would have greater access to financial services, which include services like banking, more loan options, and commercial insurance. It’s also possible retail dispensaries will finally have access to traditional merchant services for credit and debit card processing, though it’s important to note that SAFE Banking simply opens the door to compliant credit card processing, but it does not compel Visa, Mastercard, American Express or Discover card networks to accept transactions from the cannabis industry.

According to Rep. Perlmutter, the SAFE Banking Act would “strengthen the security of our financial system and keep bad actors like cartels out. Most importantly, it will reduce the risk of violent crime in our communities.”

What is the status of the SAFE Banking Act?

Although this bill has enjoyed bipartisan support and has passed the House six times in the last nine years, it has failed to pass in the Senate. The opposition coalition to SAFE Banking is formed from strange bedfellows. Extremely progressive Democrats are holding out for more comprehensive reform, and extremely conservative Republicans are skeptical of the industry and have several concerns about cannabis in general.

Recently, the SAFE Banking Act was included in the National Defense Authorization Act (NDAA) for Fiscal Year 2022, but it was stripped from the NDAA in December 2021. In early February 2022, the House of Representatives approved the SAFE Banking Act that was attached as an amendment to the America COMPETES Act.

Abaca’s prediction for the SAFE Banking Act

Of all the pieces of proposed cannabis reform, the legal team at Abaca believes this act is the most likely to pass. Perhaps due to the fact that it is not quite as comprehensive as other proposals and it is touted as being pro-business, it appeals to lawmakers across both sides of the aisle. For these same reasons, we believe President Joe Biden would sign this bill if it made its way to his desk. However, if President Biden vetoed the SAFE Banking Act, there is not enough support to overturn the decision. Additionally, passage of SAFE Banking would be a wonderful feather in Rep. Perlmutter’s cap in light of his recent announcement that he will not be seeking re-election.

 

What is the MORE Act?

The Marijuana Opportunity Reinvestment and Expungement (MORE) Act decriminalizes cannabis by removing it from the list of scheduled substances in the Controlled Substances Act and eliminates criminal penalties for anyone who manufactures, distributes, or possesses cannabis. It also would institute a 5% tax on cannabis products to fund criminal and social justice reform programs. Additionally, states would be able to make their own decisions on whether or not to legalize it locally.

Why is the MORE Act needed?

The War on Drugs has had a profoundly negative societal impact, with minorities and vulnerable populations being most adversely affected. Proponents view the MORE Act as the most effective and equitable solution to begin undoing the harms caused by federal prohibition of cannabis. Its passage would facilitate programs aimed at addressing over-incarceration and racial disparities and institute re-entry programs and expungement of criminal records associated with cannabis. It also establishes social equity grants that give groups historically shut out of business assistance and disproportionately affected by the War on Drugs the help they need to get started in the legal cannabis industry.

What is the status of the MORE Act?

In 2019, matching bills were introduced in the House by Rep. Jerry Nadler (D-NY) and in the Senate by then Sen. Kamala Harris (D-CA). The House version passed but the Senate version died in committee. It was re-introduced to the House in 2021, where it has been sitting in committee. Unlike the SAFE Banking Act, support for the MORE Act is primarily divided along partisan lines, with most Democrats being in favor and most Republicans opposed. Proponents view the MORE Act as a necessary step in improving social equity and combating systemic racial injustice. Opponents voice concerns about workplace safety and health effects if cannabis is decriminalized federally.

Abaca’s prediction for the MORE Act

The current political appetite is not strong enough to get something as robust as the MORE Act passed this year. And, if the MORE Act were approved by Congress, President Joe Biden has signaled he would not sign something into law that decriminalizes cannabis even though his now vice president was a primary sponsor of the initial MORE Act.

 

What is the CAOA?

Boasting support from some of the most prominent names in the Senate, the Cannabis Administration and Opportunity Act (CAOA) is one of the newest cannabis reform proposals. It is by far the most comprehensive reform legislation and expands on the social equity and racial justice components of the MORE Act. There are provisions for business assistance, significant community investment, and tax redistribution for those most affected by the War on Drugs. A grant program would focus on six specific areas to combat the societal impact of over-incarceration: job training, re-entry services, legal aid, literacy programs, youth recreation and mentoring, and health education. Also, the CAOA outlines a plan for resentencing and expungement of records for anyone convicted of nonviolent cannabis-related federal offenses.

Why is the CAOA needed?

The CAOA seeks to ameliorate the harm caused by federal prohibition of cannabis, whose consequences have been disproportionately felt by low-income and minority communities. Because cannabis is still federally illegal, cannabis consumers risk being denied government benefits even in states that have legalized use in some form. Additionally, those with criminal records have a difficult time finding employment and adequate housing after incarceration. Proponents of this bill argue that the current system perpetuates a cycle of poverty, incarceration and systemic barriers to enter into business, so sweeping reform is needed. Finally, federally legalizing cannabis would allow operators to be treated like any other business, so they would finally be eligible for tax deductions and would be able to access all types of banking services.

What is the status of the CAOA?

Senators Chuck Schumer (D-NY) and Cory Booker (D-NJ) are still finalizing the language for this bill. Recently, Sen. Schumer announced he plans to formally introduce the bill in April.

Abaca’s prediction for the CAOA

We do not foresee the CAOA gathering enough votes to be passed. In addition to a lack of support from a majority of lawmakers, cannabis industry associations are hesitant to endorse this piece of proposed legislation.

 

Note: All information and commentary contained in this article is accurate as of February 21, 2022. Abaca continually monitors all legislation that impacts the cannabis banking industry and will periodically provide updates as significant developments arise.

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