Watch Live: Congressional Committee Discusses Challenges For Marijuana Businesses

A congressional committee is holding a hearing on Thursday to address the unique financial challenges that small and minority-owned businesses face as the economy recovers from the COVID pandemic—with a particular focus on how those struggles have played out in the marijuana industry under federal prohibition.

The House Financial Services Subcommittee on Consumer Protection and Financial Institutions, chaired by Rep. Ed Perlmutter (D-CO), will hear testimony from the Minority Cannabis Business Association (MCBA) on the economic barriers federal policy has created within the burgeoning market.

A potential solution to at least some of these challenges could be passage of Perlmutter’s own bill, the Secure and Fair Enforcement (SAFE) Banking Act, which would protect financial institutions that work with state-legal cannabis businesses. That piece of legislation recently cleared the House for a sixth time, but it’s continued to face resistance in the Senate under both Democratic and GOP control.

Senate leadership has argued that comprehensive legalization must be enacted first, though Majority Leader Chuck Schumer (D-NY) has signaled that he’d be open to advancing SAFE Banking if certain amendments were made. It’s possible this hearing could help inform those changes.

Watch the House Financial Services Subcommittee hearing in the video below:

Perlmutter, for his part, has said that he’s amendable to building upon his bill to satisfy the Senate–but he also cautioned that making the measure too broad could compromise the bipartisan support it has enjoyed in the House. He also said recently that he’s “confident” that the Senate will finally take his bill up—something he’s committed to accomplishing before his retirement at the session’s end.

“Small businesses in the cannabis industry also face additional challenges when seeking credit or other financial services,” a committee memo on the hearing says. “For example, people of color operating in the cannabis industry must overcome barriers like trying to break into an industry that lacks diversity, especially among larger cannabis companies.”

“Additionally, most cannabis businesses are also unbanked or underbanked because most financial institutions are unwilling to open even basic bank accounts for cannabis businesses due to cannabis being federally illegal,” it continues. “This forces cannabis business owners to operate their state-regulated businesses primarily using cash, which has increasingly made them targets for burglaries, robberies, and other crimes.”

The SAFE Banking Act “would provide a safe harbor for financial institutions that choose to serve state-legal cannabis businesses and would require a GAO study and annual regulator reports to Congress to monitor that there is equal access to credit and to reduce barriers to marketplace entry for minority-owned and women-owned cannabis-related businesses,” the memo says.

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MCBA Executive Director Amber Littlejohn will be one of five witnesses to testify before the panel. In her written testimony, she said that “the outlook is dire” for “many minority businesses, including minority-owned cannabis businesses.”

“As the nascent cannabis industry takes shape, we see a common tale of small businesses struggling to enter and sustain themselves because of extraordinary barriers to entry and limited access to capital,” she said. “We see a common cycle of minority entrepreneurs seeking to shake the economic consequences of systemic inequities, only to suffer at the hands predatory investors and partners who seek to profit from injustice.”

Littlejohn listed four primary challenges that small marijuana businesses face under the current federal policy and economic climate.

“First, the COVID-19 pandemic and resulting economic uncertainty have been particularly difficult for small businesses, but especially for minority-owned and operated cannabis businesses, because minority-owned and operated cannabis businesses were shut out from the federal government’s pandemic relief programs,” she said.

Also, federal prohibition has resulted in a lack of access to capital for small and minority-owned marijuana businesses, and that’s translated into low representation of communities most impacted by criminalization within legal marijuana markets.

“In competitive markets, the pre-application and application costs for small cannabis businesses commonly exceed millions of dollars, especially in states that require hopeful licensees to secure a ‘green zone’ premise or show proof of capital in order to apply,” she said. “Obtaining adequate capital is quite difficult and often forces entrepreneurs to accept exploitive contracts from private investors.”

Additionally, Littlejohn addressed state-level policy attempts to promote minority participation in the legal market. She said while that may be the design of equity programs, they are largely “failing to adequately support small and minority-owned cannabis businesses.”

She also said that “small and minority-owned cannabis businesses cannot access the traditional financial services they need to survive, let alone thrive.”

“Until small and minority-owned and operated cannabis businesses can access financial services on a fair, competitive basis, they will continue to be left behind as other sectors of our economy recover. Thus, they will continue to fall behind much larger competitors who do not face these challenges to a similar extent,” the MCBA testimony says.

Littlejohn concluded by calling for congressional reform, which should include passage of the SAFE Banking Act this session.

She also said the protections included in the marijuana banking bill could also be helpfully extended to non-bank community development financial institutions (CDFIs) and minority depository institutions (MDIs) under the Federal Deposit Insurance Corporation (FDIC).

“Supporting small minority cannabis businesses is not just moral imperative, it makes good economic sense. Despite their struggles, cannabis social equity businesses contribute $1.2 in social good for every $1 invested into social equity programs,” Littlejohn said.

“Without some relief from Congress, minority cannabis businesses will not make it to the day we see federal legalization. Some did not make it to the end of this week,” she said. “If we believe the cannabis industry should have a place for small businesses, especially those who bore the brunt of enforcement while building the culture, the market, and the political force behind an industry from which others profit, we have to help minority cannabis businesses now.”

Meanwhile, some Republicans are scratching their heads about how Democrats have so far failed to pass the modest banking reform with majorities in both chambers and control of the White House, too. For example, Rep. Rand Paul (R-KY) criticized his Democratic colleagues over the issue in December.

In the interim, federal financial regulator Rodney Hood—a board member and former chairman of the federal National Credit Union Administration (NCUA)—recently said that marijuana legalization is not a question of “if” but “when,” and he’s again offering advice on how to navigate the federal-state conflict that has left many banks reluctant to work with cannabis businesses.

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Image element courtesy of Tim Evanson.