On September 25, 2019, the U.S. House of Representatives passed the Secure and Fair Enforcement Banking Act (SAFE Act). The bill represents the House’s first successful stand-alone vote on cannabis legislation, a significant victory for the industry.

“Thousands of employees, businesses and communities across this country have been forced to deal in piles of cash because of the conflict between state and federal law. After six years of working on this bill, the SAFE Banking Act will go a long way in getting cash off our streets and providing certainty so financial institutions can work with cannabis businesses and employees,” said sponsor Rep. Ed Perlmutter (D-CO-07). “I appreciate the partnership of Reps. Heck, Stivers and Davidson and the input and support from several others including Chairwoman Waters for their help passing this bill in the House. I look forward to working with Senate Banking Committee Chairman Crapo, Ranking Member Brown, and the entire Senate as they take up this important issue.”

Access to Banking for Cannabis Industry

Under current law, financial institutions providing banking services to legitimate and licensed cannabis businesses under state laws may potentially face criminal prosecution under several federal statutes, such as "aiding and abetting" a federal crime and money laundering. Therefore, legal cannabis businesses have great difficulty securing banking services and are often forced to deal exclusively in cash.

The SAFE Banking Act (HR 1595) aims to increase cannabis operators’ access to financial institutions. Under the legislation, a federal banking regulator is prohibited from:

• Terminating or limiting the deposit insurance or share insurance of a depository institution solely because the institution provides financial services to a legitimate marijuana-related business;
• Prohibiting or otherwise discouraging a depository institution from offering financial services to such a business; 
• Recommending, incentivizing, or encouraging a depository institution not to offer financial services to an account holder solely because the account holder is affiliated with such a business;
• Taking any adverse or corrective supervisory action on a loan made to a person solely because the person either owns such a business or owns real estate or equipment leased or sold to such a business; and
• Penalizing a depository institution for processing or collecting payments for such a business.

The final version of the bill approved by the House strengthened the safe harbor for insurance coverage provided to cannabis-related businesses; prohibited bank regulators from directing a bank to close an account for reputational reasons; and extended the safe harbor to legitimate hemp-related businesses and requires guidance from the Federal banking regulators for financial institutions that choose to serve hemp businesses.

In addition, the SAFE Banking Act mandates that the Government Accountability Office (GAO) conduct a study and regulators submit annual reports to Congress to monitor that there is equal access to credit and to reduce barriers to marketplace entry for potential and existing minority-owned and women-owned cannabis-related legitimate businesses.

What’s Next?

While the House approval of the SAFE Act is historic, the bill still faces an uphill battle in the U.S. Senate. The legislation currently has 33 cosponsors, as well as the endorsement of major financial sector lobbying groups, including the American Bankers Association, the Independent Community Bankers of America, and the Credit Union National Association.  Many Republicans are still opposed to relaxing the country’s marijuana laws. However, Senate Banking Committee Chairman Mike Crapo (R-ID) recently announced that although he does not support legalization, he is open to considering legislation that addresses the growing conflict between state and federal law. He also stated that he plans to take up cannabis banking legislation sometime this fall. The final version of the House bill also contains protections for hemp businesses, which could help garner support from Senate Majority Leader Mitch McConnell, (R-Ky.), who hails from the country’s largest U.S. hemp producer.

If you have any questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Dan McKillop, at 201-806-3364.

This article is a part of a series pertaining to cannabis legalization in New Jersey and the United States at large. Prior articles in this series are below:

• What Can Cannabis Businesses Learn from Curaleaf?
• Federal Legislation Aims to Help Small Businesses in Cannabis Industry
• Expansion of New Jersey’s Medical Cannabis Industry Is Now Official

Disclaimer: Possession, use, distribution, and/or sale of cannabis is a Federal crime and is subject to related Federal policy. Legal advice provided by Scarinci Hollenbeck, LLC is designed to counsel clients regarding the validity, scope, meaning, and application of existing and/or proposed cannabis law. Scarinci Hollenbeck, LLC will not provide assistance in circumventing Federal or state cannabis law or policy, and advice provided by our office should not be construed as such.