Yes, the liberalization of cannabis banks – SAFE Banking Act – would indeed make the United States more competitive

As the war continues following Russia’s invasion of Ukraine, interest from policymakers and the media has grown in the America COMPETES Act, legislation that would allegedly help the United States better compete with powers such as Russia and China. My colleagues at the Competitive Enterprise Institute (CEI) and I mostly rejected this bill, which passed the Democratic-controlled House in a largely partisan vote about two weeks before the Russian invasion. Iain Murray, Wayne Crews and others at CEI pointed out that many of the bill’s provisions will not achieve its stated goal of increasing American competitiveness, but rather undermine that goal.

However, during debate in the House before the bill passed, a provision added to the bill would actually increase US competitiveness by reducing red tape that impedes exports of a growing US industry. . Ironically, even though this provision enjoys broad bipartisan support, it became Senate Minority Leader Mitch McConnell’s (R-KY) punchline when outlining everything that was supposedly wrong with the bill.

“China has been steadily building its military and economic power, and the Democrats’ response is to help Americans get high,” McConnell exclaimed in the Senate. But the provision did no such thing. It simply clarifies federal law to allow banks and credit unions to provide financial services to marijuana businesses in accordance with the laws of the states in which they operate.

The provision stems from the Secure and Fair Enforcement (SAFE) Banking Act, which passed the House in 2021 as stand-alone Bill 321-101, gaining the support of nearly all Democrats and 106 House Republicans. . And as my colleague Matthew Adams points out here, bipartisan support for the bill’s approach is further demonstrated by the fact that former President Donald Trump, former Attorney General Bill Barr and former Treasury Secretary Steven Mnuchin all expressed support for the liberalization of marijuana banks.

Yet bipartisan Senate leadership appears to be the problem — from Minority Leader McConnell pooping the law to Senate Majority Leader Chuck Schumer (D-NY) holding him hostage to a more comprehensive approach that would combine banking liberalization with efforts to tackle the problem. the injustices of the war on drugs. The criminal justice problems stemming from the war on drugs, including long prison sentences for non-violent offenses, are real. But unnecessarily prolonging the unbanking of legal marijuana businesses only further perpetuates the injustices of the War on Drugs.

Passing the SAFE Banking Act would have multiple benefits. Today, banks and credit unions are reluctant to offer basic financial services to legal marijuana businesses – from holding deposits to issuing credit and debit cards – because marijuana production is still illegal under federal law, even if permitted by state law. Thus, financial institutions fear being charged with money laundering or otherwise violating federal law if they serve businesses engaged in any type of trade involving marijuana.

Because pot businesses often cannot put their money in banks or use credit and debit cards, they are forced to do business in cash and hold large amounts of cash. This in turn attracts crime. As described by Politics, “In the absence of bank accounts, producers and retailers are forced to hold large reserves of cash on hand, a magnet for thieves and thieves.” The resulting crime had tragic consequences, such as the shooting of a citizen last year who tried to stop an attempted break-in at a marijuana dispensary in Colorado Springs, CO.

The SAFE Banking Act drew broad grassroots support and received plaudits from longtime marijuana legalization advocates such as NORML, free market groups such as CEI and Americans for Prosperity, and trade groups financial institution such as the Independent Community Bankers of America and the Credit Union National Association. . The groups all tout the clear benefits of reducing violent crime as well as giving banks and credit unions legal certainty when dealing with legitimate businesses.

But the legislation has benefits even beyond these. Namely that it would in fact increase American competitiveness, the stated objective of the COMPETES law to which it is now attached. In McConnell’s Senate tirade, he scoffed at the idea that providing legal clarity for marijuana banks could in any way help American companies become more competitive. “Needless to say, this is not a winning strategy for global competition between great powers,” he said.

In truth, however, tearing down the federal red tape that hampers marijuana businesses would indeed make the US economy more competitive through greater economic/employment opportunities, while giving us a head start in important markets. and growing marijuana exports. According to an article by Kaiser Health News, the global marijuana trade reached approximately $14.9 billion for 2019.

The Kaiser Health News article notes that “after 20 years of experience, legal growers of marijuana in the United States have a reputation for creating the best product in the world, scientifically grown and strictly regulated for quality and safety” . Given the global trend towards the legalization of marijuana – it is now legal in at least 30 countries for medical purposes – the article claims that global markets would welcome high-quality American pot. “Culture would be in high demand internationally — perhaps the centerpiece of a new American industry — were it not for the regulatory conundrum in which growers operate,” the article said.

This “regulatory conundrum” is a patchwork of conflicting federal and state laws, including banking rules. Marijuana can actually be legally exported from the United States if the DEA issues a permit, but federal rules that prevent interstate commerce as well as banking for marijuana businesses effectively prevent the coordination needed for an export market.

Ironically, the article reports, “Canada has become the leading exporter in the burgeoning global marijuana trade” despite its colder climate being far less suited to harvesting pot than the warm states of the United States. In fact, according to Newsweek, “a Canadian cannabis company has become the first international entity to obtain a license to import and sell its products in Ukraine.

The lack of clarity in federal banking rules also poses problems for legal hemp, much of which is grown in McConnell’s state of Kentucky. Even though hemp is grown primarily for industrial purposes, banks are still hesitant to offer financial services to hemp companies simply because of the possibility that some of the harvest could be used for marijuana and violate federal law.

It should be noted that at the 18and century, a nation became a world power by becoming the main exporter of hemp to Britain and much of Europe. This country, ironically, was Tsarist Russia.

At the time, hemp was used for the production of ropes, sailcloth, clothing, paper and linens. According to renowned historian Kent Masterson Brown, the plant at that time was recognized by the government particularly for its useful application for military purposes, particularly naval purposes, due to the plant’s natural resistance to mold and mildew. the rotting. Given that there could be a shortage of raw materials given the Russian-Ukrainian war and there had already been a shortage of cotton due to pre-war supply chain challenges, hemp could become invaluable again to fulfill these uses again.

In this new era of global competition, we cannot let the outdated drug war policies that Americans have overwhelmingly rejected keep American entrepreneurs from capturing a booming global export market.

John Berlau is a senior researcher at the Competitive Enterprise Institute and author of the book George Washington, Entrepreneur: How Our Founding Father’s Private Business Activities Changed America and the World

Christian Johannessen, research associate of the Competitive Enterprise Institute, contributed to this column. Thanks also to my IEC colleagues, Michelle Minton and Ryan Nabil, for sharing their valuable insights on the issues at hand.