A handful of Arkansas banks are violating federal law each time they take deposits from medical marijuana companies, state lawmakers heard Tuesday.

Lawmakers grilled state and industry officials about the disconnect between state and federal cannabis laws.

Although Arkansans voted to legalize marijuana for medicinal use in 2016, the drug remains federally illegal, complicating matters for marijuana businesses and financial institutions.

In the federal government's eyes, any bank that allows marijuana companies -- or even entities affiliated with those companies -- to be customers is laundering unlawfully earned money.

Still, two or three banks in Arkansas have allowed marijuana businesses to hold accounts, relying on a federal government that has declined to enforce marijuana laws in states where the drug has been legalized.

There have been several congressional efforts to tweak the federal code to allow financial institutions to serve the cannabis industry, including a bill that cleared the U.S. House Financial Services Committee in March -- the Secure And Fair Enforcement (SAFE) Banking Act.

The bill still must pass in the full House before going to the Senate, but it has received support from banking leaders, the marijuana industry and Arkansas Attorney General Leslie Rutledge.

Sabrina Bergen, an American Bankers Association attorney, said at the Arkansas General Assembly's joint meeting of the House and Senate Insurance and Commerce committees Tuesday that opening bank access to the cannabis industry would benefit everyone.

"Providing a mechanism for the marijuana industry to access the regulated banking system would help communities reduce cash-motivated crimes, increase the efficiency of tax collection and improve the financial transparency of the marijuana industry," Bergen said. "It would also subject marijuana businesses to increased oversight of their financial activities."

Tuesday's meeting spotlighted the issue that has loomed over Arkansas' burgeoning medical marijuana industry. The federal law conflict extends beyond banking. Arkansas' licensed cannabis growers and sellers are violating federal law by doing the very thing that the state licensed them to do, and the state's registered patients commit a federal crime with each purchase or use of medical marijuana.

That conflict prompted several Obama administration directives that de-emphasized the enforcement of anti-marijuana laws in states -- there are now 33 -- where it has been legalized for medical use.

Banks that serve the medical marijuana industry rely on a 2014 Treasury Department memo that allows financial institutions to serve marijuana companies while still fulfilling their requirements under the Bank Secrecy Act.

That memo says that banks should do a deep background check on any prospective marijuana company, ensuring that it isn't breaking any state laws or violating any of the U.S. Department of Justice's marijuana enforcement priorities like black-market diversion or diversion into the hands of minors.

Dan Roda is the CEO of Abaca, an Arkansas-based company that helps connect banks with marijuana companies by providing software that verifies compliance with the 2014 Treasury Department memo. His company works with one bank in Arkansas, which he declined to name Tuesday, that provides depositing services to the state's cannabis companies. He said there are one or two other banks that provide those services to a small number of cannabis businesses.

"I want to change the perception that this industry is unbanked," Roda said, adding that about 70 percent of marijuana companies in the U.S. have access to bank accounts.

Roda said the current state of federal law has created a "frustrating gray area." State Sen. Jason Rapert, R-Conway, who is the Senate Insurance and Commerce Committee chairman, disagreed.

"It's not murky," Rapert said. "It's not even gray. It's illegal."

Rapert also raised the question of whether the state would be in violation of federal law when it begins collecting taxes on medical marijuana sales later this month.

Doralee Chandler, Arkansas Alcoholic Beverage Control Administration director, said Tuesday that Arkansas' two medical marijuana dispensaries had sold about $856,000 of the drug since the first one opened May 10. She said the first sales and privilege tax will be due June 20.

U.S. Rep. French Hill, R-Ark., wasn't available for comment Tuesday, but the former banker did vote for the SAFE Banking Act as a member of the House Financial Services Committee in March.

Asked whether U.S. Sen. John Boozman and Rep. Steve Womack, both R-Ark., supported the SAFE Banking Act or similar measures to open bank access to marijuana companies, spokesmen for both lawmakers said that neither was a co-sponsor of the SAFE Banking Act. Neither spokesman responded to a follow-up question about whether the lawmakers generally supported congressional action to give banks the ability to serve the cannabis industry.

Spokesmen for U.S. Reps. Bruce Westerman and Rick Crawford and Sen. Tom Cotton, also all R-Ark., didn't respond Tuesday to requests for comment on the matter.

Rapert said he was disappointed that federal bureaucrats had dictated the direction of the country's medical marijuana position. He complained that the federal government imposes its will on states that want to further restrict abortion, but it allows states to ease restrictions on marijuana despite federal laws to the contrary.

"Congress must either change the law, or the federal law must be enforced," Rapert said. "We are not a nation based on memos from bureaucrats."

Metro on 06/05/2019