Banks are bracing to play defense when Democrats take back the House next year, but there's one major issue on which the finance industry and liberals are likely to join forces: marijuana.
Energized by the results of the midterm elections, an unusual alliance of lobbyists and lawmakers is planning to push legislation that would lift restrictions on banks seeking to serve pot businesses that are now legal in a growing number of states.
In what could be a turning point, senior House Republicans who had resisted taking up the legislation will be gone, as is Jeff Sessions, who as attorney general tried to crack down on the legalization of marijuana. Even some of President Donald Trump's appointees are talking about the need for legal clarity. And Canada's move to allow recreational marijuana will be another pressure point.
Rep. Ed Perlmutter, the Colorado Democrat who has taken the lead on legislation H.R. 2215 (115) in the House, said there was "a real opportunity" to move a bill aligning federal and state marijuana laws for banks and credit unions.
"I don't think there's any doubt about it," said Rep. Denny Heck (D-Wash.), who is co-sponsoring Perlmutter's bill.
The increasing momentum behind marijuana banking legislation is the latest sign that the politics of pot are rapidly changing in the nation's capital, as voters across the country back legalization.
"We now have I think close to a majority of the nation's population that lives in states where some form of access to marijuana is legal," Heck said. "The businesses that either grow it or process it or retail it are operating under this terrible cloud because banks and credit unions aren't quite sure what the federal regulators will do to them if they provide those services."
Before this month's election, some Democrats were already drawing up plans to tackle the issue if they won back the House. Rep. Earl Blumenauer (D-Ore.) released a memo containing a committee-by-committee breakdown and timeline outlining how to move ahead with legislation that would feed into a package of cannabis reform bills.
"There's no question: cannabis prohibition will end," Blumenauer wrote. "Democrats should lead the way. If we fail to act swiftly, I fear as the 2020 election approaches, Donald Trump will claim credit for our work in an effort to shore up support — especially from young voters."
While a comprehensive approach to pot might be a heavy lift, there is some hope among supporters of marijuana banking legislation that it's narrow enough to get traction in the next Congress.
Compass Point analyst Isaac Boltansky puts the odds of cannabis legalization at 25 percent but pegs the likelihood of banking-related legislation passing at 75 percent.
"I doubt we will see the green-sky scenario of federal legalization, given the divided Congress and the inherent incrementalism of this issue," he said. "But a banking fix is clearly in striking distance for the next Congress."
Banks have been gearing up for this moment. The Independent Community Bankers of America and the Credit Union National Association for the first time recently endorsed bills to ease rules for cannabis banking.
The finance industry is pushing for legislation that would protect its members from regulatory blowback for banking customers up and down the cannabis supply chain, including businesses that aren't directly involved in the sale of marijuana.
"If you're serving an electrician that does work at any stage of the supply line, there may be some risk to the financial institution in serving that," said Credit Union National Association chief advocacy officer Ryan Donovan.
The American Bankers Association, which represents large and small banks, "is really starting to assist with this," Perlmutter said.
Perlmutter and Heck are members of the House Financial Services Committee, which writes rules for the banking industry. While outgoing Chairman Jeb Hensarling (R-Texas) stopped the issue from moving ahead during his six years leading the panel, Democrats expect Rep. Maxine Waters (D-Calif.) — the likely next chairwoman — to be more open.
Perlmutter said Waters has been supportive of his efforts and "we should be in pretty good shape." Heck said he was optimistic she would take the legislation seriously. Their bill's co-sponsors include 82 Democrats, though Waters is not one of them.
Waters said in a Wall Street Journal interview published this week that "it's inevitable we are going to have to talk about" the issue. Recreational marijuana became legal in California this year.
The Perlmutter bill is co-sponsored by 13 Republicans, though some GOP members of the Financial Services Committee are apprehensive.
Rep. Blaine Luetkemeyer (R-Mo.), a senior committee member, said the effort was "an example of the cart before the horse."
"I understand there are more and more states wanting to go to medical marijuana, which is fine," Luetkemeyer said. "I don't have a problem with that personally. I do have a problem with the fact we've got to make the drug legal before you can make the activity of selling it legal. That's how we have to fix this."
Bank lobbyists are staying out of the broader legalization debate. But Donovan of the credit union association said "the horse is out of the barn."
"There are businesses engaged in this," he said. "There are communities that are impacted by these businesses. One of the impacts is a public safety concern coming out of the fact that they don't have access to mainstream financial services."
One of the arguments made in favor of the legislation is that businesses have been forced to hold large amounts of cash because they can't put it in bank accounts, putting them at risk of theft and violence.
When it comes to the Trump administration's position, Sessions' exit could be significant.
He withdrew Justice Department guidelines drafted under President Barack Obama that curtailed the prosecution of businesses selling marijuana where it had been legalized at the state level.
"It depends on who succeeds him," Heck said. "Clearly, Attorney General Sessions was stuck back in some kind of 'Reefer Madness' world. And it's a little hard for me to believe that his successor will be in that same space."
While Trump has "sent mixed signals," Heck added, "most of the signals he has sent are a lot more tolerant than his original pick for attorney general."
It was the Sessions-led crackdown this year that spurred Colorado Republican Sen. Cory Gardner to introduce legislation with Sen. Elizabeth Warren (D-Mass.) that would shield cannabis businesses from federal restrictions if they complied with state or tribal laws on marijuana.
After its introduction, Trump said he "probably will end up supporting" it.
The president's other appointees have talked about the need for a pot banking bill.
Comptroller of the Currency Joseph Otting, a top bank regulator, said last month that a legislative solution was necessary for banks that want to serve marijuana businesses and that he was "hopeful there's enough momentum in that direction." He said forcing the businesses to operate in cash was "generally not healthy."
His comments followed those from Federal Reserve Chairman Jerome Powell, another Trump appointee, who said "it would be great if that could be clarified."
"It's so complex for banks right now to be able to bank marijuana," Otting said. "We need to come up with a solution."
Content originally published by Politico on November 21, 2018.