Testimony on Capitol Hill on Tuesday highlighted the divide between federally regulated banks and state-regulated credit unions on how to finance cannabis-related businesses.
"The fundamental issue is, this is illegal from a federal perspective," Joanne Sherwood, president and CEO of Citywide Banks, told the Senate Committee on Banking, Housing and Urban Affairs on Tuesday during a first-of-its-kind hearing.
Citywide is based in Colorado, one of 33 states in which pot is legal in varying degrees. But Sherwood said the bank would need more clarity and regulatory guidance before becoming comfortable in the space.
The bank "is not willing to take the reputational risk or the exposure," Sherwood said when asked by Sen. Jon Tester, D-MT, why Citywide is not active in the sector.
Salem, Oregon-based Maps Credit Union, in contrast, has been opening accounts for pot-related businesses since 2014, Chief Risk Officer Rachel Pross told the panel. Pross said she feels guidance from the Financial Crimes Enforcement Network serves a "vital" role in the credit union's coverage of the industry.
"It provides the compliance framework and it’s frankly the rulebook that we abide by in order to do this safely, effective and transparently," Pross said.
Despite their differences, both executives expressed support for the bipartisan Secure and Fair Enforcement (SAFE) Banking Act, which would create protections for financial institutions that provide services to pot-related businesses.
But Sherwood said the bill is not the final piece of the regulatory puzzle.
"Unless the banking regulators clearly define the expectations and operating procedures going forward, it will not solve anything," she said. "In the absence of clear delineation from the banking regulators, we don’t feel it's sufficient."
Many banks' reluctance to finance pot-related businesses are forcing a number of entrepreneurs to operate as cash-only, leaving some open to a higher risk of theft.
"As the federal government wakes up to the reality that the cannabis issue is not going to go away, we must have action," Sen. Cory Gardner, R-CO, said before the panel.
