As tensions continue to mount between the cannabis and financial industries, policy reform legislation is gaining traction in Congress—namely, the Secure And Fair Enforcement (SAFE) Banking Act.

The Senate Committee on Banking, Housing, and Urban Affairs held a hearing July 23 titled “Challenges for Cannabis and Banking: Outside Perspectives,” where stakeholders from the cannabis and financial industries testified on the need to pass the SAFE Banking Act, or S. 1200, which would allow cannabis businesses to access banking and lending services.

Watch video of the hearing here.

Sponsored by Sen. Jeff Merkley (D-OR), the SAFE Banking Act would bar federal banking regulators from penalizing banks that work with state-compliant cannabis-related businesses, taking action on loans made to those businesses or limiting a depository institution’s access to the Deposit Insurance Fund. The legislation would also protect ancillary businesses from being charged with money laundering and other financial crimes, and would require the Financial Institution Examination Council to develop guidance to assist credit unions and banks in serving the cannabis industry.

The legislation currently has 31 cosponsors in the Senate, and a House companion bill, H.R. 1595, was introduced in February by Reps. Ed Perlmutter (D-CO), Denny Heck (D-WA), Steve Stivers (R-OH) and Warren Davidson (R-OH). The House bill has 206 cosponsors and the House Financial Services Committee approved it in March with bipartisan support.

John Lord, CEO of LivWell Enlightened Health, a cannabis retailer with dispensary locations in Colorado and Oregon, and chairman of the board for the Cannabis Trade Federation (CTF), testified at the hearing, sharing his experience as a cannabis operator.

Read Lord’s full testimony here.

During the hearing, witnesses were asked to describe how banks handle cannabis-related accounts and cannabis-derived funds deposited by industry stakeholders such as attorneys, Lord told Cannabis Business Times. Testimony centered on how the SAFE Banking Act would create a “safe harbor” for financial institutions to help the cannabis industry access banking services, he said.

“As the CEO and owner of a vertically integrated cannabis business in Colorado, my testimony focused primarily on my own experience,” Lord said. “I discussed what it is like to manage a company that generates approximately $100 million in annual revenue, with all retail transactions being conducted in cash. I described the challenges and safety risks involved in running such a business under these conditions, including highlighting when I had no option but to transport $3 million in a gym bag to the Denver IRS office to pay my federal taxes.”

Lord outlined the need for social justice and social equity in the emerging cannabis industry, and how access to banking is necessary to help advance these efforts. “My testimony highlighted the barriers to entry in the industry that exist—and will continue to exist—for those disproportionately impacted by the war on drugs when banking is not available,” he said.

The hearing was historic, according to CTF CEO Neal Levine, in that it was the first time the Senate has debated an end to cannabis prohibition, although the conversation was very tightly focused on banking provisions.

“It was incredibly significant that the U.S. Congress is having hearings on key pieces of cannabis reform legislation as we work towards unwinding prohibition,” Levine told Cannabis Business Times.

And this type of reform is long overdue, he added. “We have reached the stage now [where] 33 states plus the District of Columbia and several U.S. territories have opted out of prohibition in some form. Eleven states, the District and two territories have opted out entirely. We have a situation where we’ve got over 200,000 people working in the cannabis industry every single day, and every single day they report to work, they can be arrested for a federal felony. As an industry, because of this dichotomy between this federal and state law, we get hit with 280E taxation, which means we’re taxed on our revenue, not our profits, and we have trouble even using the bank. … Plus, all the cascading impacts that has on our employees, where employees get denied mortgages and car loans … because of this dichotomy between federal and state law. It is time for Congress to act.”

Indeed, the cannabis industry has faced longstanding tension with financial institutions. Cannabis businesses largely cannot accept credit card payments, and an all-cash model presents an obvious danger to public safety.

“There’s a danger to our customers because people know that people are coming in there with a lot of cash, walking in to potentially buy their product,” Levine said. “There are stories like the one that John told, like he had no way to do an electronic transfer to pay his taxes, so he was forced to show up at the IRS office to pay taxes. They wouldn’t let him go in the back, and he had to stuff the bills into the teller window, three bills at a time. There are endless stories.”

In addition, all-cash businesses present challenges to the government, as well, when it comes to accurately collecting taxes.

“The entire system makes no sense and it’s all based on the federal government treating us like we’re an illegal drug cartel, when we’re operating legally under state and local law with a high degree of regulation, which is why I say Congress must act,” Levine said. “The situation has become completely untenable.”

Overall, Lord found the hearing productive. “I appreciated the persuasive testimony of the two Senate sponsors of the SAFE Banking Act, which included my Colorado senator, Cory Gardner, as they outlined the crucial need for this legislation and set the table for the second panel’s testimony to provide personal experiences to support their statements,” he said. “During the second panel, the committee heard not only from me, but also from bank and credit union representatives who underscored the need to change federal law so that financial institutions can more effectively serve cannabis businesses.”

The SAFE Banking Act is expected to receive a vote on the House Floor this fall, and Lord and Levine see the Senate committee hearing as a sign that the legislation may also gain traction in the that chamber during this legislative session.

“Leaving the hearing, my overall impression was that the committee members present understand the significant need to take action on the issue,” Lord said.

“Sometime in the fall, the SAFE Banking Act should pass out of the full House of Representatives, and this hearing was a key procedural step for the Senate to be able to markup the bill and move it,” Levine added. “There’s a lot of cannabis legislation out there that’s being introduced, but we’re very optimistic about the chances of SAFE Banking passing into law this Congress, and we’re also optimistic about the STATES Act itself possibly being able to pass through this Congress. In the STATES Act, we’ve got a bipartisan piece of legislation that would end the conflict between federal and state law that the president said he would sign. And the SAFE Banking Act and the STATES Act are two very complementary pieces of legislation.”