The House of Representatives voted Wednesday to let federally-insured banks work with cannabis shops and related companies in states that have legalized marijuana, marking the first ever federal vote on a stand-alone cannabis bill.

With backing from Southern California representatives and nearly half of House Republicans, the Democrat-controlled chamber approved a law that supporters argue will boost public safety, improve transparency and ease the financing crunch facing the multibillion-dolllar marijuana industry. The House passed the legislation on a 321-103 vote even though cannabis remains illegal under federal law.

The law, known as the SAFE Banking Act, still must be debated in the Republican-controlled Senate, where it could be amended. And it’s unclear if President Donald Trump would sign any version that reaches his desk.

But Democrats said they added provisions to the bill that they hope will bring some GOP senators around. Backers also hope that growing public support to legalize the recreational and medical uses of cannabis might sway senators up for re-election in 2020.

Opponents of the bill included some civil rights advocates. They argued that congress should pass comprehensive cannabis reform to help people in communities most harmed by enforcement of marijuana laws before passing legislation that helps the commercial market in a limited number of states where cannabis is legal.

But many advocates of marijuana policy reform praised the historic nature of Wednesday’s vote. Justin Strekal, political director for the advocacy group NORML, called it “an important indication that the federal tide is turning and that the era of Congressional inaction is over.”

Blocked from banking

Banking access continues to be a hurdle for the cannabis industry.

Though 11 states have legalized recreational marijuana, and 33 now allow the use of medicinal marijuana, the federal government still classifies cannabis as a Schedule I narcotic, on par with heroin. That means federally-insured banks and credit card companies won’t do business with state-registered growers, manufacturers and dispensaries out of fear they could be penalized for money laundering.

Some local banks and credit unions have quietly begun working with the industry in states where cannabis is legal. A report this summer from the U.S. Treasury’s Financial Crimes Enforcement Network shows some 633 financial institutions were actively banking marijuana-related businesses at the end of this year’s first quarter — up from just 407 at the start of 2018.

Most cannabis entrepreneurs say they have at least limited access to banking services. But without big banks on board, they can’t accept credit cards from customers and they struggle to access traditional business loans that could help their businesses grow.

That limited access to banking also forces cannabis shops to operate in cash, something that makes them targets for crime and hinders tax collection. The cash-and-carry nature of the cannabis industry also makes it ripe for money laundering — the very accusation that’s kept big banks away.

Federal fix advances

Those issues could change if the SAFE Banking Act (short for the Secure And Fair Enforcement Banking Act of 2019, and also known as House Resolution 1595) becomes law.

The bill, introduced two years ago by Rep. Ed Perlmutter, D-Colorado, doesn’t require banks to serve the marijuana industry. Instead, it says federal authorities can’t cut off deposit insurance or “take any other adverse action” against a bank just because it serves cannabis businesses and ancillary operations in states or American Indian territories that have legalized the industry.

Democrats from throughout Southern California, and GOP Rep. Duncan Hunter of San Diego, were among 206 co-sponsors on the bill. And Rep. Katie Porter, D-Irvine, introduced an amendment clarifying that new banks and credit unions also would be protected by the legislation.

“Californians spoke clearly when we voted to legalize adult use of marijuana, but existing federal regulations have created confusion for financial institutions and legal cannabis businesses in our state,” Porter said. “The small banks, investors, and entrepreneurs working in the legal cannabis industry deserve the level playing field the SAFE Banking Act provides.”

Major banking groups, including the American Bankers Association, wrote letters urging House members to approve the SAFE Banking Act.

“Although we do not take a position on the legalization of marijuana, our members are committed to serving the financial needs of their communities – including those that have voted to legalize cannabis,” they wrote.

However, some progressive legislators, such as Rep. Alexandria Ocasio-Cortez, D-New York, spoke against the idea of passing a bill that helps the industry before the House addresses broader issues related to social justice. A joint letter from the American Civil Liberties Union, Human Rights Watch and other advocacy groups urged House members not to approve the SAFE Banking Act for the same reason.

“The banking bill does not solve the underlying problems of marijuana prohibition – namely, that many people of color have been saddled with criminal records for a substance that is now legal in many states, and that communities have been shut out of the emerging and booming marijuana industry,” the advocacy groups wrote.

But others approved of the new bill for similar reasons.

Backers, including Steve Hawkins, executive director of the Marijuana Policy Project, and Aaron Smith, executive director of the National Cannabis Industry Association, argued that barriers to banking services disproportionately hurts women and communities of color. Without access to traditional business loans, they said cannabis entrepreneurs are forced to fund their own efforts or rely on a network of investors. And since women and minorities statistically have less preexisting wealth, they’re at a disadvantage under the current system, which means the emerging legal cannabis industry continues to be dominated by wealthy white men.

Bill heads to Senate

As the SAFE Banking Act heads to the Senate, it includes new provisions aimed at increasing its likelihood for passage. One of those is a clarification that says banks also could work with the hemp industry.

Hemp is marijuana’s mellow cousin. It doesn’t make consumers high, but it is used to make clothing, animal feed, building materials and more. Hemp was legalized nationally as part of the 2018 federal Farm Bill, and some hemp industries are starting to grow even in conservative states, such as Nevada and Kentucky. It’s why SAFE Banking Act supporters believe the hemp provision could make it easier to sell the idea to, among others, Senate Majority Leader Mitch McConnell of Kentucky.

A companion SAFE Banking Act bill was introduced in the Senate in April by Sen. Jeff Merkley, D-Oregon. It’s drawn support from 33 co-sponsors, including five Republicans. But, to date, it hasn’t gotten so much as a committee vote.

Senate Banking Chair Michael Crapo, R-Idaho, opposes marijuana legalization. But he told Politico he wants to craft his own marijuana banking bill, which he hopes to bring before his committee for a vote by the end of the year.

Nobody knows what will happen if one of those bills ultimately makes it to Trump’s desk, though Trump has spoken in the past about supporting states’ rights to regulating cannabis.

State fix on hold

While waiting on a federal fix, some California legislators have been pushing state solutions to the marijuana industry’s banking woes.

State Sen. Bob Hertzberg in December introduced Senate Bill 51, which would let California license private charter banks or credit unions to serve the cannabis industry. Those financial institutions would issue special checks that marijuana businesses could only use to pay taxes, pay rent, pay related California vendors, or buy bonds or warrants. And they would have to provide their own private insurance.

The bill — co-sponsored by California Treasurer Fiona Ma, who testified before congress in February about the need for marijuana banking reform — was set for a vote on the Assembly floor earlier this month. But Hertzberg recently opted to make SB 51 a two-year bill to give his team more time to talk with Gov. Gavin Newsom. The plan is to reintroduce the bill in early 2020.

However, if the SAFE Banking Act makes it through the Senate and is signed by Trump, the federal law might “totally supersede the need for any state-level cannabis banking legislation,” according to Hertzberg press secretary Katie Hanzlik.

A key question is whether financial institutions actually will take advantage of the new law. If banks continue to shy away from cannabis customers because marijuana remains federally illegal, California policymakers said they might still pursue state solutions in the coming legislative session.