By: Ashley Niebur Sharp, VP State Advocacy & Legislative Counsel
As the Illinois General Assembly embarks on the last few weeks of session, a topic of frequent conversation is the legalization of adult-use cannabis. A major concern facing the cannabis industry involves the ability – and willingness – of financial institutions to offer banking services to businesses legally operating pursuant to state law. Since cannabis remains a Schedule I drug under the Controlled Substances Act, financial institutions have been reluctant to serve this industry because of federal money laundering concerns. While we take no position on whether recreational cannabis should be legalized, ICUL is supportive of proposed changes to state and federal law that would protect financial institutions serving the legal cannabis industry.
On the state level, SB 7 has been filed to create the Cannabis Regulation and Taxation Act which would legalize adult-use cannabis in the State of Illinois. Governor JB Pritzker has prioritized this issue, and taxation of legal cannabis is projected to result in $170 million in proposed revenue for fiscal year 2020, if the legislation is enacted into law.
SB 7 contains safe harbor language for financial institutions, exempting them from any criminal law of Illinois as it relates to cannabis-related conduct authorized under State law. The legislation also provides that a cannabis business establishment or proposed cannabis business establishment may provide information to a financial institution as outlined in the Act. Finally, the legislation requires the Department of Financial and Professional Regulation to evaluate and adopt rules that encourage financial institutions to provide financial services to cannabis business enterprises and encourage institutions to offer benefits within Disproportionately Impacted Areas.
Additionally, SB 2023 has been making its way through the legislative process. The legislation would provide for an even more robust state level safe harbor for financial institutions, providing in part that the Secretary of Financial and Professional Regulation shall not:
• Issue an order against a financial institution for unsafe or unsound banking practices solely because the entity provides financial services to a cannabis-related legitimate business;
• Prohibit, penalize, or otherwise discourage a financial institution from providing financial services to a cannabis-related legitimate business solely because the entity provides financial services to a cannabis-related legitimate business;
• Recommend, incentivize, or encourage a financial institution not to offer financial services to an account holder solely because the account holder is a manufacturer or producer or is the owner, operator, or employee of a cannabis-related legitimate business.
SB 2023 has passed the Senate unanimously and awaits action in the House. Additionally, HJR 32 was initiated by Illinois financial institution trade associations including ICUL to urge Congress to amend federal law to provide immunity from federal prosecution and regulatory protections for financial institutions legally providing services to cannabis-related businesses, licensees, and consumers pursuant to applicable state law.
As individual states continue to pursue passage of cannabis legalization bills, pressure is mounting at the federal level for legislation to address the issue of banking businesses legally operating pursuant to state law. The Cole Memorandum, issued in 2013, offered encouragement for financial institutions interested in offering programs and services to legally operating cannabis businesses. However, that Memo was rescinded in January 2018, resulting in growing concern for financial institutions as prosecutorial discretion was left up to U.S. District Attorneys across the nation. The Cole Memorandum was followed by the issuance of FinCEN guidance, which set forth guidance for financial institutions to consider as they evaluate whether to offer services to cannabis businesses.
More recently, the U.S. House Financial Services Committee voted overwhelmingly to move the SAFE Act to the full House for a vote. That legislation would provide a safe harbor for financial institutions to serve state legal cannabis businesses without violating money laundering and other federal laws. Under this legislation, money generated from cannabis related businesses will not be considered proceeds from illegal activities. Additionally, state attorneys general across the nation have recognized the growing significance of this issue and the majority of states have signed onto a letter urging congressional action to pass a cannabis banking bill on the federal level. The letter may be viewed here.
ICUL will continue to monitor this issue and serve as a resource for credit unions as they evaluate whether to offer services to cannabis related businesses. ICUL staff recently participated in the State Treasurer’s Office Cannabis Banking Seminar in Chicago and we will share information on future events that may be beneficial to credit unions as they consider this issue.