Permitting Revamp and Pot Banking Left Out of Must-pass Defense Bill

The agreement on a must-pass defense bill congressional lawmakers revealed late Tuesday will likely mean a sizable and costly increase in the administrative workload for states and local governments. Though it has nothing to do with the nation’s military, included are new requirements on how states and localities share financial information with the public.

But perhaps more significant for states, cities and counties around the country was what was not included in the National Defense Authorization Act. 

In order to reach a deal on a bill that can pass the House and the Senate in the coming days, negotiators left out a permitting reform proposal by West Virginia Democratic Sen. Joe Manchin, that would have, among other things, restricted how states can consider the effects of projects like pipelines and power plants on the environment, under Section 401 of the Clean Water Act. 

Also left out were provisions to allow cannabis companies in states that have legalized marijuana to open bank accounts. State and local government associations have long called for that change, saying that barring the companies from opening accounts increases the risk of crime and tax fraud because the businesses are handling large amounts of cash.

After Maryland and Missouri voters approved ballot measures in November, the recreational use of marijuana by adults is now legal in 21 states, two territories and Washington, D.C. However, with marijuana still illegal at the federal level, banks are at risk of being prosecuted for violating laws like "aiding and abetting" a federal crime or money laundering statutes if they do business with cannabis firms, leaving them wary of engaging with the sector.         

The cannabis banking provisions, pushed by Rep. Ed Perlmutter, a Colorado Democrat, as well as Senate Majority Leader Charles Schumer of New York, would have prohibited federal regulators from prosecuting banks that provide services to marijuana-related businesses that are licensed by state or local governments to manufacture, grow, or produce cannabis products.

Speaking at a meeting of the House Rules Committee on Wednesday morning, Perlmutter, who is retiring at the end of the year, said he couldn’t sleep Tuesday night after being told by Democratic House Speaker Nancy Pelosi, of California, “I have bad news for you," once negotiators struck a deal over the defense bill.

Perlmutter raised the possibility of trying to have the proposal included in either a year-long or temporary spending bill Congress has to pass this month to avert a government shutdown.

“People are getting killed,” Perlmutter said, referring to the public safety hazards created by all of the cash changing hands in the marijuana industry.

A resolution that the U.S. Conference of Mayors passed in June supporting the banking law change noted that one of every two cannabis dispensaries have been robbed or burglarized, according to the Credit Union National Association, with thefts ranging on average from $20,000 to $50,000.

“Preventing legal cannabis businesses from accessing financial institutions creates a reliance on cash-only models that involve the transportation of large sums of paper money through cities, increasing the risks of theft crimes and tax evasion,” Michael Gleeson, the National League of Cities’ legislative director for finance, administration and intergovernmental relations, said in a statement to Route Fifty 

Rep. Adam Smith, a Washington Democrat who chairs the House Armed Services Committee and led negotiations over the defense bill, also lamented not being able to include a “crucially-important piece of legislation" in leaving out the cannabis banking provisions.

Smith, though, also left open the possibility of Congress tying the measure to a spending bill or passing it in the Senate as standalone legislation. Smith said the proposal, which has already cleared the House, has the support of 59 senators, and only needs one more to reach the Senate’s 60-vote requirement to bring measures to the floor. 

Khadijah Tribble, chief executive officer of the U.S. Cannabis Council, said in a statement that the group is disappointed the banking provisions were not included in the defense bill. But Tribble added: ”We remain optimistic that we’ll see cannabis reforms appear in another legislative vehicle in the coming weeks.”

David Culver, vice president for government relations at Canopy Growth, a cannabis company headquartered in Ontario, Canada, told Route Fifty in a statement that the banking provisions would help minority-owned businesses.

“Smaller and often minority-owned businesses that traditionally rely on loans will have the access to capital they need to get started. The cannabis industry will no longer need to be an all-cash business, making dispensaries and the places they operate in safer,” he said. 

Permitting Plan Sputters Yet Again

Manchin, meanwhile, continued to urge the Senate on Wednesday to include his energy infrastructure permitting proposal in the defense bill when it comes up for a vote. 

“Failing to pass the bipartisan, comprehensive permitting reform that our country desperately needs is not an acceptable option,” Manchin wrote on Twitter. “As our energy security becomes more threatened every day, Americans are demanding Congress put politics aside and act on common sense solutions to solve the issues facing us.”

The defense bill was the second time in the past three months Manchin has tried to get his proposal included in must-pass legislation but failed, even though Democratic leaders had promised to bring the bill up for a vote in return for him supporting the Biden administration’s sweeping climate and tax package, the Inflation Reduction Act.

Manchin also tried to embed the permitting overhaul in a temporary spending bill Congress passed in September. But it was opposed then by senators from both parties.

This time around, Republicans, including Senate Minority Leader Mitch McConnell, opposed Manchin’s proposal, along with the cannabis banking legislation. McConnell derided the provisions as a “grab bag of miscellaneous pet priorities, like making our financial system more sympathetic to illegal drugs or permitting reform in name only that’s already failed to pass.”

Progressive Democrats also lined up against wrapping Manchin’s permitting plan into the NDAA. They will likely also oppose attaching it to a spending bill later this month. “We can advance permitting for clean energy without taking a hatchet to environmental protections for frontline communities,” House Natural Resources Committee Chairman Raul Grijalva, an Arizona Democrat, said on Twitter during the negotiations over the defense bill.

Environmental groups, including the League of Conservation Voters, had also opposed including the proposal in the defense bill and celebrated on Wednesday.  

“Hopefully now attention can shift to working with communities to collaboratively build the infrastructure we need for a clean energy future rather than continuing to try to literally bulldoze through them,” John Reuter, the League of Conservation Voters’ vice president for state and local strategies said in a text.

One of the controversial provisions in Manchin’s proposal would be to enshrine into law a Trump administration rule restricting how states can consider the effects of projects like pipelines and power plants on the environment, under Section 401 of the Clean Water Act. 

That rule prevents states from considering broad environmental impacts, like how a project would contribute to climate change, instead limiting them to looking at how discharges from the projects would affect bodies of water.

It would also derail the Environmental Protection Agency from going ahead with a rule it proposed in June, under the Biden administration, to return the broader authority states had to review projects under Section 401, prior to the Trump-era changes. That updated rule from EPA is expected to be made final in the spring.

Environmental groups also worried that a two-year time constraint Manchin wanted to create for federal agencies to issue permits under the National Environmental Policy Act would have resulted in less scrutiny for energy projects. 

However, clean energy industry advocates have supported Manchin’s effort, saying it would allow wind, solar and other projects to be built faster. Public utilities have also called for streamlining the permitting process to build transmission lines from wind and other electricity plants to customers. Increasing the supply of clean power will be important to meet rising demand as more people plug in electric vehicles.  

Another flashpoint with Manchin’s plan is that it would require federal approval of the Mountain Valley Pipeline, a controversial natural gas project in West Virginia and Virginia.