SAFE Banking for the Cannabis Industry: An Overview
The proposed Secure and Fair Enforcement (“SAFE”) Banking Act of 2019 addresses the cannabis industry’s pressing desire to join the banking world. (American Bankers Association, GovInfo).
Currently, most banks deny modern luxuries such as checking accounts, savings accounts, payroll services, insurance policies, credit cards, debit cards, and online banking to participants in the cannabis industry. Id. This freeze-out stems from laws that hold banks liable for money laundering when processing money from an illegal enterprise. Id. Under federal law, any cannabis related business still constitutes an illegal enterprise. Id. This banking situation is no longer a viable option. Id.
In 2019, the cannabis industry is projected to generate approximately $12.9 billion in sales with close to 70% of the multibillion-dollar market operating in unbanked cash. (Murphy – Acreage Holdings, GovInfo). Foremost, conducting business transactions with sizable sums of cash makes facilities and personnel targets for theft and robbery. Id.
Beyond the inherent safety risks, using cash invites compliance discrepancies because it does not create a digital record. (American Bankers Association, GovInfo). With the current system, it is impossible to verify company books are accurate, taxes are paid in full, and suspicious bank accounts are reported. Id. In essence, the SAFE Banking Act presents a solution for the state-compliant, federally illegal cannabis industry by offering protection for financial institutions wishing to serve the market. (SAFE Banking Act of 2019, Congress).
The Act grants a “safe harbor” for financial institutions to provide banking services for businesses that deal directly and indirectly with cannabis, hemp, and cannabidiol (“CBD”). Id. A “safe harbor” does not require a bank to take on these clients, rather, it disallows federal regulators to “prohibit, penalize, or otherwise discourage” banks from engaging with clients in the cannabis industry. Id. If the SAFE Banking Act passes into law, the industry can finally transition from the current cash system to proper bank accounts, eliminating most of the present safety risks and mitigating compliance concerns.
Additionally, if the SAFE Banking Act is enacted, federal banking agencies will retain the power to order the termination of truly nefarious customer accounts. Id. Orders to terminate must be for valid reasons and cannot be simply based on a risk to reputation. Id. Valid reasons include the belief that a customer is a threat to national security, involved in terrorist financing, or associated with a transnational criminal organization. Id. The valid reasons restriction on account termination will protect cannabis related entities from losing banking services because of stigmas surrounding the industry.
Diversity initiatives are also a focus in the SAFE Banking Act. Id. The Act mandates the production of annual reports containing information, data, and recommendations regarding key areas affecting minorities and women within the cannabis industry. Id.
Most recently, the SAFE Banking Act passed the House of Representatives on a vote of 321-103 on September 25th, 2019. (Smith, MJBizDaily). While House passage is a promising sign, the Act must still navigate through the Senate and receive the Presidential signature to have any effect. As of August 2020, no further actions had been taken in regard to the SAFE Banking Act.