Cannabis Business Banking: the SAFE Banking Act

The Secure and Fair Enforcement (SAFE) Banking Act is a federal proposal for sanity in legal marijuana financial management. Imagine if you had a business where your customers could not use a credit card, all transactions are in cash, you lock up your cash in a safe at the end of the day and hope you don’t get robbed, or bring it to the US Federal Reserve, and hope you don’t get mugged. Where you ask your landlord, employees, the phone and electric companies to take payment in cash because that is the only monetary medium available to you. That absurdity only exists in two places: dystopian fiction and the legal state regulated cannabis business in the United States.

The SAFE Banking Act

The puzzling and dichotomous federal and state laws governing cannabis converge no more apparently than in the inability of most legal state cannabis businesses to secure modern and cost efficient banking services. Since cannabis remains an illegal Schedule 1 substance under the US Controlled Substances Act, banks are fearful that government regulators will impose fines or other sanctions in the event that they open accounts to handle cannabis derived funds. Such funds, because they are federally illegal, are subject to anti-money laundering laws and bank examinations.

US banking regulators, doing their job, are not required to recognize that the deposited funds are part of a well-regulated business, only that they were derived from activates that are illegal under federal law and therefore either contraband or laundered money. The duality of state legality and federal recalcitrance is hard to reconcile and therefore some kind of relief is needed. One measure could be the delisting and legalization of cannabis at the federal level. That would fix everything, but despite the recent introduction of the Cannabis Administration and Opportunity Act, that is a bridge too far under current conditions.

So why not just apply some common sense and tell the banks, it’s okay to handle money, open accounts and supply credit cards to cannabis businesses that are compliant with the very stringent state rules that govern them. Such a law would not make cannabis federally legal but would recognize that well regulated businesses can have bank accounts. That would be consistent with the handful of prior and existing federal nods to state regulated cannabis businesses, like the Department of Justice’s Cole Memorandum and the Blumenauer/Farr amendment to the federal Budget Act. Say hello then to the SAFE Banking Act.

The SAFE Banking Act has been trying to become a law since 2017 and was most recently passed by the US House of Representatives, for the sixth time, in February 2022; then it stalled in the Senate where most good ideas go to die anyway.

The following summary is from Chef Sponsor Rep. Ed Perlmutter’s (D-OH) website:

The SAFE Banking Act seeks to harmonize federal and state law by prohibiting federal regulators from taking punitive measures against depository institutions that provide banking services to legitimate cannabis-related businesses and ancillary businesses (e.g. electricians, plumbers, landlords, etc.) that serve them.

The bill establishes a safe harbor for any depository institution that chooses to provide banking services to a cannabis-related legitimate businesses which holds and maintains a license from a state or local government to engage in manufacturing, growing, or processing, as well as any business that handles, sells, transports, displays or distributes cannabis or cannabis products.

Under current law, financial institutions providing banking services to legitimate and licensed cannabis businesses under state laws are subject to criminal prosecution under several federal statutes such as “aiding and abetting” a federal crime and money laundering. Therefore, businesses that legally grow, market or sell cannabis in states that have legalized its sale are generally locked out of the banking system, making it difficult for them to maintain a checking account; access credit; accept credit and debit cards; meet payroll; or pay tax revenue. 

As summarized by the Congressional Research Service:

This bill generally prohibits a federal banking regulator from penalizing a depository institution for providing banking services to a legitimate cannabis related business. Prohibited penalties include terminating or limiting the deposit insurance or share insurance of a depository institution solely because the institution provides financial services to a legitimate cannabis-related business and prohibiting or otherwise discouraging a depository institution from offering financial services to such a business.

Additionally, proceeds from a transaction involving activities of a legitimate cannabis-related business are not considered proceeds from unlawful activity. Proceeds from unlawful activity are subject to anti-money laundering laws.

Furthermore, a depository institution is not, under federal law, liable or subject to asset forfeiture for providing a loan or other financial services to a legitimate cannabis-related business.

The bill also provides tha ta federal banking agency may not request or order a depository institution to terminate a customer account unless (1) the agency has a valid reason for doing so, and (2) that reason is not based solely on reputation risk. Valid reasons for terminating an account include threats to national security and involvement in terrorist financing, including state sponsorship of terrorism.

Finally, the bill decreases the cap on teh surplus of funds of the Federal Reserve banks. (Amounts exceeding this cap are deposited in the general fund of the Treasury.)

The Bill includes the following definitions:
CANNABIS-RELATED LEGITIMATE BUSINESS.—The term “cannabis-related legitimate business” means a manufacturer, producer, or any person or company that—

(A) engages in any activity described in subparagraph (B) pursuant to a law established by a State or a political subdivision of a State, as determined by such State or political subdivision; and

(B) participates in any business or organized activity that involves handling cannabis or cannabis products, including cultivating, producing, manufacturing, selling, transporting, displaying, dispensing, distributing, or purchasing cannabis or cannabis products.

DEPOSITORY INSTITUTION.—The term “depository institution” means—

(A) a depository institution as defined in section 3(c) of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)

(B) a Federal credit union as defined in section 101 of the Federal Credit Union Act (12 U.S.C. 1752); or

(C) a State credit union as defined in section 101 of the Federal Credit Union Act (12 U.S.C. 1752).

All of the above aside, the Controller of the Currency has allowed banks to handle cannabis derived funds so long as they achieve a very complicated set of compliance rules to be certain that the funds are not derived from illegal money laundering activities. Complaisance is very expensive though and most banks don’t think it is worth the risk and have simply refused account holders if they’re in the cannabis business.

It is one thing to allow cannabis legal activities within some 37 states. It is another thing to say that they can’t operate as a real business because they can’t have ordinary business banking and credit card activities. The SAFE Banking Act reverses those arcane rules and while not going as far as the recently introduced CAOA that would legalize cannabis under federal law, the SAFE Banking Act will prohibit banks from denying this state-legal cannabis businesses from opening accounts and prevent federal regulators from punishing banks solely for the reason that they operate and handle cannabis derived funds. What a relief.

Support for the SAFE Banking Act
As of February 2022, 180 bipartisan Members of Congress and 42 bipartisan Senators are cosponsors of this legislation and the following Governors from 21 states and territories.

The SAFE Banking Act’s Chief House Sponsor is Representative Ed Perlmutter (D-OH). He is committed to seeing SAFE Banking Act pass this year.

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