Fair Lending for Cannabis Banking Justice

(PDF) 55 U. Mich. J. L. Reform Caveat

Benjamin T. Seymour*

I.  Introduction

In the past year, New Jersey, New York, Virginia, New Mexico, and Connecticut joined the growing group of states that have legalized recreational marijuana,1 bringing the share of the U.S. population living in such states to a staggering forty-three percent.2 Unsurprisingly, the legal cannabis industry has grown accordingly, reaching $17.5 billion in sales in 2019 with significant profits expected in these new markets.3

Despite billions in revenue, the legal cannabis industry remains overwhelmingly unbanked.4 Because handling the proceeds of marijuana sales constitutes money laundering under federal law,5 banks have refused to offer services to cannabis businesses, for fear of regulatory and criminal sanctions.6 Instead, the lawful cannabis industry runs almost entirely on cash.7 The costs of marijuana businesses’ reliance on cash are sizable. Theft is a perennial threat, so cannabis dispensaries must invest heavily in security equipment, armed transports, and safes.8 For state regulators, the ubiquity of cash makes monitoring and taxing marijuana businesses acutely challenging.9

Academics, executive policy-makers, and legislators alike have proposed solutions to the cannabis industry’s banking problem.10 With Democrats in control of Congress, marijuana banking reform finally seems feasible.11 Yet, racial justice advocates have raised concerns that federal marijuana reform will fail to address the enormous costs that the War on Drugs inflicted on communities of color.12 Allowing investors and businesses to profit off the new cannabis economy without ensuring some of that wealth goes to those most impacted by decades of disparately enforced prohibition would squander an opportunity to repair prior wrongs and salve the ills of mass incarceration.13

This Comment offers a fair lending solution to promote racial equity in cannabis banking reform: amend the Equal Credit Opportunity Act to ensure individuals previously arrested, charged, or convicted for selling, cultivating, or possessing marijuana will not therefore be precluded from loans to start legal cannabis businesses.14 Given disparities in the criminal enforcement of marijuana laws, this amendment would provide racial justice benefits, while also encouraging entrepreneurship. As a market-based social justice effort, this amendment offers a bipartisan approach to one of the most vexing and contentious issues in marijuana banking reform.

Part II of this Comment briefly surveys the federal statutes that have led to an under-banked cannabis industry and discusses the costs of cash for marijuana businesses. It then examines prior reforms proposed by academics, executive-branch officials, and legislators. Part III explores the racial equity concerns that these proposals fail to address, while Part IV offers a fair lending approach for justice in marijuana banking reform.

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