The 151-year-old Scotts Miracle-Gro Co. doesn't sell weed. It sells plant food and other gardening products, including its flagship Miracle-Gro brand fertilizer in iconic green and yellow packaging. But over the past few years, Scotts has started tapping into the growing demand for cultivating cannabis, which 33 states have legalized in some form. The hydroponics division it’s built as part of that effort has become big business for Scotts despite the federal ban on marijuana sales.
"We just help people grow plants," said Jim King, executive vice president at the Marysville, Ohio-based company. "We're more or less agnostic about what plants they grow."
One of the biggest problems for cannabis businesses -- and for some companies that serve them -- is access to the banking system. Although cannabis is legal in many states, banks are mostly regulated at the federal level. As a result, lenders of all sizes have distanced themselves from taking in cannabis-tainted deposits or making loans to the industry because of potential federal penalties. The struggles of cannabis-related businesses who lack access to the usual array of financial services including ordinary bank accounts have gotten significant attention – particularly the reliance of these businesses on cash transactions, which has made them a target for crime.
But it’s the struggles of so-called ancillary businesses like Scotts that are finally getting the attention of lawmakers in Washington — the companies and service providers who don’t “touch the plant,” as industry lingo goes, but provide services that cannabis companies need.
Republicans in Congress resisted addressing the issue for years but that changed this year after lobbying by Scotts and others. In particular, Scotts won over Rep. Steve Stivers (R-Ohio), who opposes the legalization of recreational marijuana, but felt compelled to act after hearing about businesses struggling with access to banking services. Scotts is a major local company headquartered near his district.
That led Stivers this year to co-sponsor the reintroduction of cannabis banking legislation that Rep. Ed Perlmutter (D-Colo.) had been offering in Congress since 2013. He became a key player in delivering GOP support, which defied expectations: Ninety-one Republicans backed the legislation when the House passed it in a 321-103 vote in September, a showing that has boosted its odds of eventually passing in the GOP-led Senate.
Scotts and its allies illustrate that businesses outside the cannabis industry have emerged as key drivers of marijuana policy in Washington. Even in states like Ohio, which hasn’t legalized recreational marijuana, it’s growing increasingly difficult to wall off cannabis from other parts of the economy. Whether they like it or not, lawmakers are gradually becoming aware that federal limits on cannabis businesses are stifling local businesses in their own districts as the cannabis industry grows and becomes more enmeshed in the rest of the economy.
"That's what got me involved in the end," Stivers said. "We’re starting to hear from landlords, hardware stores down the street and a whole bunch of other folks."
Big and small businesses alike have been affected.
Andrew DeWeese, an Oregon lawyer who advises cannabis businesses, believes it was his association with the marijuana industry that led JPMorgan Chase to cancel his account a few years ago, forcing him to find another bank. Saphira Galoob, a lobbyist who represents cannabis companies in Washington, D.C., said she was turned down by three major banks when she was opening her firm. The Cannabis Science Conference, whose events focus on the science, manufacturing and testing of the plant, has had payment processors Square and Stripe shut down its accounts, founder and CEO Josh Crossney said.
“The excuse that they kind of give is although you're not plant-touching you're still benefiting or helping the industry in some way," Crossney said. "For me, it doesn't really make sense."
As a result, the problem has attracted lobbying firepower from major trade associations outside the cannabis industry.
The American Bankers Assn. has made cannabis banking legislation a top lobbying priority. The International Council of Shopping Centers has also urged lawmakers to pass the House bill, which it said would protect commercial landlords and brokers that lease space to cannabis retailers. The National Association of Realtors likewise lobbied Congress to enact the bill, citing the state-legal cannabis industry’s growing use of real estate such as farmland, warehouses and storefronts.
"Our economy is so interconnected that it is practically impossible to draw a line of what is cannabis-related money and what isn't," said Rachel Pross, chief risk officer at Maps Credit Union in Salem, Ore. "You could very easily argue that Walmart is an ancillary business because Walmart is selling office supplies and light bulbs and various groceries to licensed cannabis businesses in states where cannabis is legal in some form."
BANKS WARN THAT they have little choice but to crack down on certain customers if they're bringing in revenue from the cannabis industry. Banks face an array of federal regulators, rely on federally backed deposit insurance and have to comply with federal anti-money laundering rules that require them to police customers for illicit activity.
"That's just the environment we're operating in," said Gordon Zimmerman, CEO of Citizens Bank in Oregon, one of the first states to legalize recreational cannabis. "At the end of the day, it's illegal under federal law."
Some financial institutions have decided to enter the space, for a price. The board of Maps Credit Union voted in 2014 to serve the cannabis industry and was later willing to expand to ancillary cannabis-related businesses. The credit union makes it work thanks to a "very large" compliance department dedicated to cannabis, the cost of which is offset by fees charged to cannabis clients.
"Common ones we see are accountants and attorneys that are serving the cannabis sector," said Pross, chief risk officer at the credit union. "We've even been approached by small utility companies that are receiving payments from cannabis retailers, and particularly cannabis producers or the growers. ... There are marketing firms and graphic design firms who are working on logos and various marketing collateral for cannabis entities, and they're having trouble with their banking relationships."
Some state legislatures, notably California, have tried to tackle the problem on their own. Lawmakers in Sacramento lead by state Sen. Bob Hertzberg (D-Van Nuys) and State Treasurer Fiona Ma introduced legislation that would establish a system of limited banks solely to serve cannabis. That bill failed to advance through the California Legislature this year, but Hertzberg plans to take up the legislation again in January and believes it could still take effect in early 2020.
“It seems to me that we have an ethical obligation to provide a legal way to make this stuff work,” Hertzberg said. “Even if a few credit unions are doing it here and there, why don't we set the framework? You can't go out and pass a law by the people on the one hand and then just say, ‘OK, it's the Wild West, go figure it out.’”
California lawmakers, surprised by the sudden movement on the issue in Washington, are now watching to see whether federal lawmakers solve the problem for them.
Scotts doesn't believe it's at immediate risk of losing its bank accounts. But banking complications have crimped its ability to market to cannabis businesses in the U.S. While it can sell directly to growers in Canada, where recreational marijuana is legal, it can't in the U.S. Instead, the company has to use a "two-step" model in which it instead sells products to retailers or certified resellers, unlike other products it can sell directly to consumers.
"We've been very transparent with our banks and legal counsel here about how we operate and making sure we're operating on the right side of the line, every day, all day," King said. "Our banks have made it very clear to us that they would not view those kind of direct transactions in the United States in a positive way and so we have stayed away from doing that."
King said Scotts' bigger goal is to make policymakers aware of the growing scope of the industry and to advocate for "a level playing field for potential customers of ours of all sizes to be able to participate in this space."
Scotts stepped up its lobbying efforts after President Donald Trump was elected. Trump's first attorney general, Jeff Sessions, made clear before his termination last year that he would take a harder line than the Obama administration when it came to marijuana businesses.
"We weren't sure what the rules were going to be in this space," King said.
Scotts’ lobbying on cannabis isn’t confined to banking. It’s also urging Congress to take up a bill by Sens. Elizabeth Warren (D-Mass.) and Cory Gardner (R-Colo.) that would provide broad protections to businesses operating in states where cannabis has been legalized. Both Massachusetts and Colorado have fully legalized cannabis use by adults.
It's unclear whether Congress will pass the Warren-Gardner bill but there are growing signs that the Republican-led Senate will follow the House in advancing cannabis banking legislation. Senate Banking Committee Chairman Mike Crapo (R-Idaho), who earlier this year cast doubt on whether he would take up a cannabis banking bill, shifted gears in recent weeks and now says he intends to hold a vote by the end of this year.
"The impact on the ability of small and large businesses to operate justifies our attention," said Crapo, whose state hasn't legalized cannabis in any form.
Stivers said it was “really unfair and kind of B.S.” that businesses would be at risk of losing their bank accounts for selling to the cannabis industry. Being shut out of the banking system, he said, “is like basically shutting somebody’s doors almost.”
It’s the kind of sentiment that he and the cannabis banking bill’s authors leveraged by adding broader legal protections to the legislation that would shield banks that serve other politically undesirable businesses such as gun retailers or payday lenders – a measure that helped deliver even more GOP votes.
As a result, opponents of cannabis legalization were able to cast the bill as being about fairness to businessowners, not a step toward legalizing marijuana nationally.
“I originally was thinking of it as a marijuana bill,” Stivers said. “Now, I think of it more as a banking bill.”
Zachary Warmbrodt is a financial services reporter for POLITICO Pro. Alexander Nieves covers cannabis policy for POLITICO California.
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