Despite increased lobbying efforts from a variety of stakeholders, from state treasurers to financial institution trade organizations, it remains doubtful that the US Senate will approve the Secure and Fair Enforcement Act, also referred to as the SAFE Banking Act, anytime soon. The US House of Representatives has repeatedly passed versions of the SAFE Banking Act. While the SAFE Banking Act isn’t a panacea for the myriad issues relating to cannabis banking and finance, it would be a helpful step in the right direction for the cannabis and banking industries.
The SAFE Banking Act is intended to alleviate several concerns regarding transacting with cannabis related businesses. The SAFE Banking Act would provide banks with certain key protections:
- Prohibit federal banking regulators from restricting, penalizing, or discouraging a financial institution from providing banking services to a legitimate cannabis-related business;
- Establish that transactions involving proceeds from legitimate cannabis-related businesses are not considered proceeds of unlawful activities;
- Establish 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;
- Prohibit 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 Suspicious Activity Reports (SARs) and requiring the federal Financial Crimes Enforcement Network (FinCEN) to issue guidance on transactions related to cannabis-related businesses that is consistent with the purpose and intent of the SAFE Banking Act and does not significantly inhibit the provision of financial services to said businesses.
Despite these protections, financial institutions would remain subject to prescriptive regulatory requirements when banking cannabis-related customers, including updated guidance from FinCEN and new guidance and examination procedures from the Federal Financial Institutions Examination Council (FFIEC). As just one example, financial institutions would still need to stay informed regarding state cannabis laws to determine whether a customer qualifies as a legitimate cannabis business. This could prove quite difficult, as state cannabis laws are complex and continually evolving.
Aside from traditional opponents of marijuana reform, the SAFE Banking Act is opposed by some in the Senate who believe it does not go far enough to end federal cannabis prohibition, and who note that the bill would not fix important challenges faced by the industry, such as stock exchange limitations and IRS Code 280E. There are others in the Senate who oppose the SAFE Banking Act due to its lack of social equity considerations.
Other updates:
The US House of Representatives recently voted 220-204 to pass the Marijuana Opportunity Reinvestment and Expungement (MORE) Act, which would de-schedule cannabis under the federal Controlled Substances Act, effectively ending federal prohibition and opening the industry to more traditional banking services and capital opportunities. This is the second time the House has approved the MORE Act. The MORE Act is not expected to pass the Senate.
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