Response to May 11, 2023 Cannabis Banking Testimony in front of the Senate Committee on Banking, Housing, and Urban Affairs

I am disappointed that, in what I can only assume was a well-intentioned move to show “both sides of the story,” Keith Sabet from an organization committed to whipping up anti-marijuana hysteria largely through tired “reefer madness” tropes and fear mongering was chosen to give testimony to the Senate Committee on Banking, Housing, and Urban Affairs today on the topic of “Examining Cannabis Banking Challenges of Small Businesses and Workers.” Out of the innumerable qualified physicians and researchers, both in the US and abroad, that are studying the medical, social, and political implications of cannabis legalization that could have brought some constructive value to the proceedings, it’s a slap in the face to this industry that someone so woefully unqualified to weigh in on this topic is a person that, presumably with a straight face, had the gall to compare the legal marijuana industry to a fictional story about making crystal meth for Mexican cartels:

“When you see marijuana on TV, you see fields or warehouses of what many assume is a harmless plant. They make it look innocuous. What they don't show you are the concentrates and extraction systems, because industrial-scale extraction looks like something straight out of the television show Breaking Bad.”

That in and of itself should be enough to disqualify a person from ever cosplaying as a cannabis industry expert again, but while it may be the most over-the-top incendiary comment it is not the most ill-informed comment??delivered in his prepared testimony. Largely seeking to support his argument with cherry-picked data, he asserts the following main points:

“1. Today’s marijuana is dangerous, and this bill would open the marijuana industry to major institutional investors who will create even more hazardous products.”

What does this have to do with cannabis banking?

“2. This bill would open the U.S. financial system to activity from transnational criminal organizations who intend to harm Americans.”

Transnational criminal organizations understand the fundamental economic principle of supply and demand. If people can’t get a product on the legal market, then criminal organizations see the opportunity and sweep in with their supply to meet that demand. According to Mr. Sabet’s theory, we should be seeing an increase of marijuana-related cartel activity as states legalize. Yet statistics released by?U.S. Customs and Border Protection?show that seizures of illicit marijuana by the US Border Patrol steadily decreased from a high of 582,000 pounds in 2020 to 155,000 pounds in 2022. Seizures of methamphetamine, that?Breaking Bad?stuff, remained relatively consistent, hovering around 180,000 pounds over those three years. What’s the difference? More states have legalized marijuana, or expanded their programs, over that period - notably including those on the border. What none of them have legalized is crystal meth.

“3. It purports to fix a fake problem. Today’s marijuana businesses are not dealing primarily with cash; there are hundreds of banks working with pot businesses, as outlined, for example, in a recent Bloomberg News piece entitled “Cannabis Banking Is Booming Despite Federal Uncertainty.”

Number three is perhaps the most laughably absurd assertion he dares make because it is specifically about banking - something he appears not to understand.?

The?Bloomberg?article he references simply doesn’t back up his claims that banking isn’t an issue for the industry as he would have you believe. Instead, it shows that there are more options available than there were a few years ago. For instance, the author writes:

“The number of credit unions and state-chartered banks venturing into the industry has been quietly accelerating.”

This is undeniably great news but I would suggest that this largely comes down to efforts we’ve made over the past few years to tackle the problem bank by bank, credit union by credit union. At Green Check Verified we didn’t start off with 100+ financial institution partners - it took years to build these programs. “Quiet acceleration” is not “the floodgates are open”.

Mr. Sabet also trots out the easily misunderstood?FinCEN?marijuana banking reports:

“This leads us to reason three—the fake excuse to support this bill. It is built around a lie that these businesses mainly deal only with cash. In fact, the U.S. Department of Treasury’s Financial Crimes Enforcement Network reported that nearly 800 banks worked with marijuana businesses in the fourth quarter of 2022, up from 54 in the first quarter of 2014.”

If you were to ask anyone in our cannabis banking niche, we all agree you can’t take those numbers at face value as this number counts any financial institution that’s filed any one of the three “marijuana SARs” including banks and credit unions that send them to FinCEN when they exit relationships because they explicitly will not bank marijuana businesses. It’s difficult to come up with the “true” number because many financial institutions banking cannabis do so discreetly, but the best estimate from folks in the industry is that the number is somewhere between 250 to 350 unique financial institutions across the country. The 800 includes financial institutions that explicitly don’t bank marijuana.

Further, according to the?FDIC?there are (as of May 11, 2023) 4,677 federally insured financial institutions in addition to the 4,738 credit unions regulated by the?NCUA. Even if we are to believe the 800 number, that would mean that less than 10% of all American financial institutions bank cannabis. But I guess “800” suits his argument better than “less than 10%”.

He follows this up with:

“Our own investigation revealed that many marijuana dispensaries accept credit and debit cards as payment, debunking the myth that they are forced to operate as cash-only businesses.”

That’s an anecdote but let’s see that data. Were these legal dispensaries? Where were these dispensaries located? There’s nothing about any of his other testimony that suggests he even knows the difference between credit and debit cards. While I dismiss the idea that legal dispensaries are accepting credit cards en masse through fraudulent means, no one would have to resort to cashless ATM and pin debit workarounds if access to financial services wasn’t an issue in the first place.

He goes on to make a bafflingly oversimplified criticism of social equity programs:?

“Moreover, despite assurances to the contrary, the marijuana industry has little interest in advancing racial equity. Following more than a decade of commercialization, only 2% of business owners in the industry are Black. We have also seen how the industry targets vulnerable communities, including low-income communities and communities of color. The industry is disproportionately concentrating dispensaries in these communities, which results in the disproportionate concentration of marijuana’s health-related harms and the continuation of pre-existing disparities. Legalization and commercialization will continue to fail to live up to their lofty goals of achieving racial equity.”

I wonder how many discussions he’s had with anyone eligible for social equity licenses. In our many regular interactions, we repeatedly hear that among the reasons they can’t participate in the industry is that they cannot get access to financial services. They cannot get access to the loans they need to build out facilities, purchase inventory, and make the investments necessary to fulfill incredibly strict regulatory requirements related to massive expenses related to vaults, security systems, etc. They can’t get access to the critical Small Business Administration programs available to their neighbors. The multi-state operators are able to dominate the industry because they can enter a market with a fully-stocked war chest filled by private investors and fueled by previous commercial success. They don’t need to resort to institutional lending. Access to banking isn’t a magic wand that “fixes” the issue that “only 2% of business owners in the industry are black” but it’s disingenuous to suggest that providing this community with access to banking would somehow harm efforts to achieve social equity in the cannabis industry.

Mr. Sabet continued,?“More broadly, supporters of legalization assured the general public that this policy experiment would result in the displacement of the illicit market––consumers would purchase from dispensaries, not dealers on the corner, they argued. However, as we have seen in states across the country, the opposite has occurred. The expansion of the illicit market has coincided with the legalization of marijuana, to the detriment of public health and safety.”

I would argue that many of the issues we have in our industry come down to the fact that we do not have the consistency that comes with federal legalization, that this state-by-state patchwork of mismatched puzzle pieces is one of the reasons we have so many problems.?

Let’s look at a roughly comparable country that has actually legalized on the federal level: Canada. If his arguments carry any weight, we would presumably see his prophecies come to life in real time, but to the surprise of no-one with any familiarity with the industry, federal legalization - while not without hiccups - has not resulted in the bedlam Mr. Sabet would have us believe. For instance, in a?study?of consumer behavior conducted by the Canadian government - not a cannabis industry trade publication or anti-marijuana advocacy group - researchers found that the percentage of cannabis consumers surveyed that purchased marijuana from an illicit source (“illegal storefront,” “illegal online source,” or “dealer”) declined from 2019 to 2020. The decrease in the use of “illegal storefronts” and “dealers” was statistically significant (7% to 3% and 6% to 3% respectively). On the other hand, those who reported purchasing marijuana from a “legal storefront” went up from 24% to 41%.

Later in his testimony, there is further misrepresentation of the cannabis industry regarding how many states have legalized:

“We often hear that supposedly “47 states have legalized some form of cannabis” and we have to do something to accommodate those states. First of all, many of those states only created programs for compassionate distribution of non-intoxicating CBD, which was also federally legalized when produced from hemp in the 2018 Farm Bill. It is disingenuous to lump in those states when they now have a pathway to full compliance with federal law. I disagree that we should be fully legalizing and commercializing high-potency marijuana, but if the other witnesses want to do it, they should follow the path of the Farm Bill and have that debate.”

I’m not sure why he is conflating the legalization of marijuana with the legalization of hemp in 2018, but he appears to suggest that the number 47 is somehow “fake” because it includes CBD-only states but he chooses not to include the number that have explicitly legalized marijuana. I find it laughable that he invokes the word “disingenuous” in a screed that could easily serve as the very definition of the term.

As selective as he is with his data, he is equally as selective - and pernicious - with his vocabulary. He uses as many dog whistle words as possible like “pot” and “drug” when he could have as easily used “cannabis” and “controlled substance”:

“On the other extreme are states like California, where anyone can qualify for a medical marijuana card under the thinnest of pretexts, and it essentially functions as recreational marijuana for anyone willing to go through the minor inconvenience of a pot doctor's recommendation via a 5-minute Skype session.”

“Pot doctor”? Really?

He follows the standard playbook of anti-cannabis advocates and leans into predictable “think of the children” scare tactics.?

“And then there are the states that have legalized and commercialized recreational marijuana. These states are doing an abysmal job of regulating the drug, with rampant underground markets, out-of-state diversion, the highest rates of youth use in the nation, skyrocketing use for 18–24-year-olds (when the brain is still developing), and as much as a doubling in fatalities due to marijuana impaired driving. We should not be expanding that failed experiment to other states.”

This is another trick but it’s easy to find data to refute it. The?Centers for Disease Control?found that marijuana use among high school students decreased linearly between 2009 and 2021, from a high of 23.4% in 2013 to 15.5% in 2021. There was also a decrease in lifetime marijuana use, falling from a high of 40.7% in 2013 to 27.8% in 2021. If we are truly to “think of the children” the data suggests to me that legalizing marijuana is a step in the right direction.

He then goes into the most patently offensive, emotionally manipulative part of his testimony:?

“We at SAM deal every day with families who have lost loved ones to addiction, and marijuana is a major part, if not the defining feature, of all of their stories.”

The defining feature? Correlation is not causation. It dishonors the memory of every one of those lost loved ones that may have tried to mitigate mental and physical suffering through the use of marijuana at the same time that they consumed other chemical compounds or engaged in risky behaviors. Or persons that ingested marijuana that had been laced with fentanyl or artificial cannabinoids that they bought on the illicit market. The answer to this is not to bury our heads in the sand but to legalize and regulate cannabis so that all products are tested and there is a mechanism for executing recalls of products found to be tainted in some way. The answer is to fund mental health services. It is absolutely disgusting - and unsupported by any evidence I’ve ever seen - to suggest that marijuana kills people.

No nonsensical diatribe would be complete without the laziest anti-marijuana argument (and easiest to debunk):

“As I am sure you know, marijuana remains a Schedule 1 substance, meaning it has a high potential for abuse and no accepted medical benefit.”

Yes, it is a Schedule I (not “1”) Controlled Substance because the Nixon administration made that decision to score political points, not because it was an honest assessment of the clinical efficacy of marijuana. Yet the Food and Drug Administration has acknowledged that a synthetic form of?Delta-9 THC, Marinol/Dronabinol, is absolutely effective in the treatment of “AIDS-related anorexia associated with weight loss” and “chemotherapy-induced emesis” (i.e. loss of appetite).?

From the Marinol/Dronabinol data sheet:?“Dronabinol, the active ingredient in MARINOL? Capsules, is synthetic delta-9-tetrahydrocannabinol (delta-9-THC). Delta-9-tetrahydrocannabinol is also a naturally occurring component of Cannabis sativa L. (Marijuana).”

To be clear, Marinol/Dronabinol is not a Schedule I Controlled Substance - it’s in?Schedule III. That means that the?DEA?considers it a drug with “a moderate to low potential for physical and psychological dependence”. It keeps company with pharmaceuticals like Tylenol with codeine. In fact, a healthcare provider can prescribe Marinol/Dronabinol today and it is even available on?Amazon’s?online pharmacy.

The list goes on.?

It is beyond disappointing that mischaracterization and misinformation was portrayed as fact in such an important venue, to senior lawmakers and anyone with access to C-SPAN. This is particularly galling when you’re reminded that this hearing was about banking cannabis and not the time to weigh in on whether marijuana should be legalized. As much as Mr. Sabet may not like “pot”, he hijacked a hearing about something he does not understand with seemingly little regard to the damage caused when these inaccuracies and non-truths are repeated by legislators and when he’s quoted in the media.?

Some of the prepared testimony and Q&A at the hearing is an example of how truly misunderstood the cannabis industry and cannabis itself continues to be. It was a missed opportunity for advancing financial services necessary to support?legal?cannabis operators.?