As Prepared for Delivery on September 7, 2022
Good afternoon! It’s my pleasure to join you today, and I thank you all for having me. As it’s getting a little late in the day, I’ll keep my remarks brief so we have more time for questions and discussion.
This is my second time addressing the PBC Conference. Many of you who attended last summer’s conference may recall I spoke then, as a federal regulator, about the urgent need to reform banking laws as they pertain to marijuana-related businesses (MRB). Since then, I’ve spoken repeatedly on this issue to credit unions, financial services organizations, and industry groups.
In the interest of time, I’ll not repeat the arguments I’ve presented previously, but simply re-state my fundamental stance: It is essential that Congress take legislative action to clarify and harmonize the laws and regulations surrounding the state-legal cannabis industry and marijuana-related businesses, so the industry can take part in the legitimate financial services industry.
That was my message last year, and I wish that I could say that we’ve seen great progress toward reform. But unfortunately, I’m not sure that’s the case.
As I was preparing my remarks for today, I came across a pertinent news story from just a couple of weeks ago in Vermont. According to this report (opens new window), the Vermont State Employees Credit Union, one of the state’s largest credit unions, has stopped accepting new accounts from businesses in the cannabis industry.
With recreational cannabis use now legal in Vermont, the credit union had received a spike in applications from a large number of cannabis enterprises for accounts. But they were concerned they did not have the compliance mechanisms in place to service so many new accounts. The risk was simply too great. So, they stopped accepting new applications from the cannabis industry, at least for the moment.
Keep in mind, this is an institution that’s been providing financial services to cannabis businesses for some time, since Vermont legalized medical marijuana in Vermont almost two decades ago, in 2004. So they’re pretty far ahead in having addressed a lot of the challenges that many other states are struggling with now, in terms of determining how to manage financial services for cannabis businesses.
Yet to look at the situation in Vermont, it’s almost as if things are actually moving backward. Speaking as someone who has been out front working on this issue, I find that deeply disappointing.
To be clear, I do not blame the Vermont State Employees Credit Union for making this determination. As a federally regulated credit union, they have to comply with the law to ensure the safety and soundness of their own institution as well as the larger credit union system – and the banking laws as they pertain to cannabis and marijuana businesses are unsettled.
In addition, as a cooperative-credit institution, the credit union leaders have to weigh risks carefully as a fiduciary responsibility to their member-owners. And in fact, other Vermont financial institutions are struggling with the same issues. So if this credit union makes the considered judgment to decline working with cannabis businesses, I will not criticize them for that decision.
Because this is not about Vermont, and it’s not about a single credit union: it’s a story, in microcosm, about how inaction at the federal level has created uncertainty and instability for a growing legal industry. That situation is untenable.
I share this anecdote from Vermont not to discourage you, but as a concrete reminder of how much work we still have to do.
And yet, with all that said, I’m still quite optimistic about the prospects for the future. Because the reality is that we are seeing momentum on this issue, even if it’s moving more slowly than the cannabis industry, the financial services industry, and financial regulators would like.
Since I started speaking publicly on this issue, I’ve attended various conferences and symposia focused on cannabis banking, and I’m seeing more and more people from financial services, more federal and state regulators, more legislators and executive policymakers with a hands-on interest in this issue. An issue that even just a few years ago seemed marginal is moving to the center of public debate and attention. I imagine when we gather for this conference next year, it will be even larger.
Moreover, we’re seeing some extremely positive signs in the form of engagement from policymakers at every level. Last December, Treasury Secretary Janet Yellen told Congress that banking reform for marijuana-related businesses would allow for more efficient tax collection from this growing industry. Over the last few months, both the U.S. Council of Mayors and the National Council of State Legislatures issued resolutions calling on Congress to address the marijuana banking issue. So we’re seeing more policymakers stepping forward with a highly reasonable and pragmatic approach to the issue, on a bipartisan basis. Again, that’s a positive development.
I also point to the private sector solutions that are arising to address this very real need. In the credit union world, we have credit unions specializing in cannabis business. We have fintech start-ups working on this issue. We have financial services institutions partnering with tech providers to address the gap in banking services for cannabis businesses. It remains to be seen how that will play out, and not all of those experiments will succeed, but that’s the nature of innovation. Regardless, the fact that those private sector solutions are in progress is yet another reassuring sign.
If we look to state-level lawmaking and regulation, we see indicators of additional progress. I know that just in the last few months, legislatures in Pennsylvania, New York, Washington state, and Ohio have dealt with various issues related to normalizing financial services for cannabis businesses, and it’s likely that there are other proposals circulating in other states that I’m not aware of.
In general, we should applaud these state-level initiatives as a step in the right direction – they provide a necessary push to keep the issue moving forward. However, I emphasize that while these state-level solutions are necessary, they are simply not sufficient. A patchwork of state-level solutions won’t provide the clarity and consistency we need for regulatory purposes. I have a great deal of respect for state governments as “laboratories for democracy” where competing policy solutions can be implemented and tested. But in the case of cannabis banking, we do in fact need a federal solution. So what we need is for Congress to take action.
I’ll note that, in the federal executive branch, most financial regulators are preparing for when Congress does pass some form of legislation. At my agency, the NCUA, for example, we have an internal working group focused on cannabis issues, and they’re laying the groundwork for the future. We also plan to host an NCUA roundtable for examiners and industry leaders to share information and discuss key challenges related to doing business with MRBs, so we’re doing what we can.
I wish we could do more, but we’re limited in the actions we can take while we await Congressional action. I have suggested we establish an interagency working group among federal financial regulatory agencies so that the various regulators can have a clear channel for communicating and coordinating our actions. That would be a significant step forward in terms of harmonizing our efforts across the executive branch. So hopefully we can create some momentum on that front in the near future.
Here’s the fundamental thing I’ve been trying to get legislators to understand: this state of affairs is making it impossible for us to do our jobs. If you’re in the legal cannabis business, it’s making it hard to plan for the future, both short- and long-term, particularly for the smaller players. If you’re in the financial services industry, it’s making it hard to conduct transactions with this legal, and growing industry. And if you’re like me, on the regulatory side of things, the lack of clarity is making it hard for us to tell you all what you need to be doing.
Moreover, this state of affairs is making it impossible for this increasingly legal industry to thrive. Here we have a burgeoning legal industry—projected to generate some $32 billion in sales this year and to grow to more than $45 billion by 2025—that desperately needs access to capital and access to safe, affordable financial services. Instead, many players either have to conduct transactions in cash, which is both inconvenient and dangerous, or they have to pay a premium for services. So again, that situation is simply untenable, and the sooner Congress takes decisive action, the better.
We do have to face the reality of the legislative calendar. At this point, I would be surprised if Congress moved on this issue this year – it’s not impossible, but the available time grows short. We’re just a few weeks away from midterm elections, so we’re very likely looking at next year, at the earliest.
In the meantime, people often ask me if I have any suggestions as to what they should be doing. My advice is simple: keep doing what you’re doing. Keep making the case for reform; keep talking to policymakers, regulators, financial services industry leaders, and cannabis industry leaders. Keep building relationships, sharing information, and exchanging ideas.
What might be most important about gatherings like this is that they make it clear that you are not in this alone. We have a growing number of people focusing on this challenge, everyone is working toward the same goal, and momentum is on our side. And even if it’s taking longer than we might have hoped, let’s keep working toward the goal. Thank you very much – I’ll end my remarks with that, so that we might have time for questions and discussion.