It is undeniable that, not only is the cannabis industry here to stay, but it is growing exponentially. To date, 47 states, 4 U.S. territories, and the District of Columbia have legalized cannabis in some form – whether they decriminalize production, allow uses limited to cannabidiol (“CBD”) or hemp, or is as expansive as permitting THC-containing cannabis for medical use, adult-use or both. Yet, in comparison to other industries, legitimate licensed cannabis-related businesses remain hobbled by the difficulties they face in accessing traditional banking and financial services – largely due to the fact that “marijuana” is still considered illegal on the federal level under the Controlled Substances Act (“CSA”). Currently, financial institutions (including federally-insured banks) are hesitant, and oftentimes unwilling, to work with cannabis-related businesses due to fear of reprisal from federal banking regulators.
Due to the federal illegality of cannabis, financial institutions are forced to navigate a labyrinth of anti-money laundering laws. For instance, under the Bank Secrecy Act (“BSA”), financial institutions are subject to various recordkeeping and reporting requirements, and must file a Suspicious Activity Report (“SAR”) to the Financial Crimes Enforcement Network (“FinCEN”) whenever there is a suspected case of money laundering, fraud or use of funds stemming from illegal activities – like a cannabis operation. The regulations under the BSA, CSA and other federal statutes also subject financial institutions to enforcement actions and severe civil monetary fines.
Thus, bereft of proper banking and financial services, cannabis-touching companies are restricted in their ability to raise capital, retain favorable loan arrangements, protect their earnings, and generally grow their businesses. These handicaps are especially constraining in those jurisdictions where cannabis is legal. What these companies need to continue to flourish is simple: a stamp of approval on the federal level for cannabis-related banking activities.
Enter the Secure and Fair Enforcement (“SAFE”) Banking Act of 2021, the successor to the failed SAFE Banking Act of 2019. Capitalizing on the current domino effect seen amongst the states to legalize cannabis use and regulate the market in the past two years, a more liberal administration (with Democrats controlling both the White House and Congress), and growing bi-partisan support, proponents of the SAFE Banking Act of 2021 have reason to believe this iteration of banking regulations will pass. Indeed, on April 20, 2021, the U.S. House of Representatives passed the SAFE Banking Act of 2021 by a vote of 321-101. The bill is currently sitting within the Senate’s Committee on Banking, Housing and Urban Affairs awaiting consideration.
Should the SAFE Banking Act of 2021 pass, it will alleviate many of the financial institutions’ concerns regarding transacting with cannabis-related businesses by providing a number of protective measures, including:
- Prohibiting federal banking regulators from restricting, penalizing, or discouraging a financial institution or depository institution from providing banking services to a legitimate cannabis-related business;
- Establishing that transactions involving proceeds from legitimate cannabis-related businesses are not considered proceeds of unlawful activities and thus, not within the purview of anti-money laundering regulations;
- Establishing that depository institutions are not, under federal law, liable or subject to asset forfeiture for providing loans or other financial services to legitimate cannabis-related businesses;
- Prohibiting a federal banking regulator from requesting or ordering a depository institution to terminate its customer relationship with a protected cannabis-related business unless the agency has a legitimate reason not based on reputational risk; and
- Amending the reporting requirements for the SAR’s and requiring FinCEN to issue guidance on transactions related to cannabis-related businesses that is “consistent with the purpose and intent of the SAFE Banking Act of 2021 and does not significantly inhibit the provision of financial services” to said businesses.
The Act also extends protection to legitimate hemp-related businesses, including CBD businesses. It also requires federal bank regulators to issue annual reports to Congress with: (1) data on availability of access to financial services for minority-owned and women-owned legitimate cannabis-related businesses; and (2) recommendations to further help such businesses access financial services.
In short, the Safe Banking Act of 2021 paves a path forward for both cannabis-related businesses and financial institutions by negating the stigma surrounding cannabis and legitimizing such businesses. In doing so, cannabis companies will have ready access to crucial banking and financial services; thereby, reducing their need to be a cash-only business. Federally-backed financial institutions will finally have the green light to work with cannabis companies without fear of incrimination, federal prosecution and regulatory penalties.
Though the SAFE Banking Act of 2021 has received much bi-partisan support, there are those who continue to oppose its passage. Even so, many within the Senate are optimistic that the bill will pass, especially with overwhelming support from organizations and businesses, including the American Bankers Association, the American Financial Services Association, and the Credit Union National Association. The time is ripe for cannabis banking reform and one hopes the nation’s legislators see that. For now, as the bill is currently still under review in the Senate, we must wait.