Will the SAFE Act Provide Much Needed Safety in the Wild West of Cannabis Finance?

Every movement needs a leader, and it seems the cannabis industry has found one in U.S. Representative Ed Perlmutter of Colorado. He is the sponsor of the Secure and Fair Enforcement Banking Act of 2021 (“SAFE”), a legislative bill that would provide cannabis businesses with improved access to mainstream banking services. (Kyle Jaeger, Marijuana Moment). In April, the House approved SAFE by a vote of 321 to 101. (The Office of Representative Ed Perlmutter). SAFE now sits in purgatory while the U.S. Senate debates its merits. (Christopher Butler, Boston.com). This post examines the impact SAFE would have on the cannabis industry in the context of the industry’s current standing in the realm of public opinion and under current legal structures.

Many Americans are familiar with “cancel culture” – the phenomenon of public backlash, often fueled by social media campaigns, to culturally block a person, idea or concept from being accepted by mainstream society. (Aja Romano, Vox). Societal pressure can also be positive – a phenomenon that might cleverly be called “enablement culture.” If indeed enablement culture can be said to exist, then the cannabis industry is surely one of its hallmarks. An April 2021 survey revealed that over 90% of U.S. adults support some form of marijuana legalization, and that less than 10% of U.S. adults believe marijuana should be fully illegal. (Ted Van Green, Pew Research Center). This cultural attitude is new. 2013 is the first year that support among U.S. adults for legalized recreational marijuana exceeded 50% of the total adult population. (Claire Hansen, Horus Alas, & Elliot Davis, U.S. News). When common social norms exist in dissonance with formal laws, society becomes unproductive. (Clifton B. Parker, Stanford News). For example, France outlawed dueling in the 1600’s, yet during the 1700’s thousands of people still died from the common social practice because the law went unenforced. Id. Luckily participants in the cannabis industry are less violent than eighteenth century French duelers, but the comparison remains that laws are largely fruitless in the face of social disapproval. Because society has enabled the legalization of marijuana, laws in opposition to its legalization may be fighting a losing battle.  

Marijuana remains fully illegal in 12 U.S. states scattered across the country, including Georgia and Idaho. (Elisabeth Garber-Paul & Ryan Bort, Rolling Stone). At the federal level, marijuana is still considered illegal under the Controlled Substances Act (“CSA”). (Jennifer Le, JDSUPRA). On the other end of the spectrum, 19 U.S. states have legalized the recreational use of marijuana since 2012, when Colorado became the first. (Claire Hansen, Horus Alas, & Elliot Davis, U.S. News). The resulting conflict between state and federal law creates unique problems for cannabis industry banking practices. Id. The federal prohibition against marijuana forces financial institutions to apply anti-money laundering laws to the cannabis industry. Id. Financial institutions must file a suspicious activity report to the Financial Crimes Enforcement Network whenever there is a suspected case of money laundering. Id. Because the federal regulations surrounding these filing requirements are complicated, costly, and frequently changing, many financial institutions refuse to provide services to cannabis businesses. Id. Without access to traditional financing methods, many cannabis businesses struggle to secure loans, protect their earnings, and grow. Id.

If the current legal framework’s only effect on cannabis entrepreneurs was the inability to secure a loan, many unsure constituents might hesitate to contact the legislatures and demand action. The accompanying safety concerns that result from a lack of access to banks, however, might exert a stronger tug on the reluctant constituent’s heart-strings. Because cannabis businesses lack access to mainstream financial services, 70% of cannabis businesses operate as “cash-only.” (Anh Hatzopoulos, Forbes). Even if a cannabis business can reduce its reliance on cash by securing the financial services provided by a bank, it is common for banking providers to reverse their decision to work with cannabis businesses because of the regulatory risk. Id. The resulting lack of traditional banking options forced upon the cannabis industry by existing laws is often theft and crime. Because cannabis businesses often hold large amounts of cash, they are classified as “high-risk” businesses along with convenience stores and jewelry stores. (Tonny Gallo, Hoban Law Group). Up to 90% of all loss (including financial loss from stolen cash) in the cannabis industry can be attributed to employee theft. (Anh Hatzopoulos, Forbes).  The large financial toll from this theft is compounded by the necessity for cannabis businesses to invest in expensive security equipment and money counting technology. Id. The theft associated with large amounts of cash in dispensaries relates to other types of crimes. A recent study showed that property crime in the years following cannabis legalization rose by 18% on street segments with a cannabis dispensary. (Beth Harpaz, SUM). Instances of violent crime have also occurred. A Colorado man and father of three children was murdered while working as a security guard at an Arvada dispensary in 2016. (Tom McGhee & Kieran Nicholson, Denver Post).

It is against this backdrop that the appropriately named SAFE Act brings the promise of a safer, more cannabis friendly future. Under SAFE, marijuana’s federal classification as a Schedule I substance would not change. (Georgette Castner, Montgomery McCracken). Instead, the Act would prohibit a federal banking regulator from taking certain actions against financial institutions that provide services to cannabis businesses. Id. These prohibitions include the revocation of the following regulatory powers: the ability to (1) terminate a bank’s FDIC deposit insurance because it does business with the cannabis industry, (2) penalize banks for providing financial services to a marijuana related business, and (3) encourage banks not to provide services within the cannabis industry. Id. It is also important to note that if SAFE passes the U.S. Senate, its authority and benefits would only apply to cannabis businesses that are legal under state law. Id.

The million-dollar question remains: will the U.S. Senate approve SAFE? Proponents of SAFE argue that it will improve safety and support small businesses, while those opposed argue that cannabis poses health, safety and moral risks. (Hansen, Alas, & Davis, US News). Readers and observers should remain cautiously optimistic. SAFE has passed the House five times since 2019. (J. Hunter Robinson & Shelby D. Lomax, National Law Review). There is reason to believe, however, that this time may be different. U.S. Representative Ed Perlmutter, the hero in this story, strategically included SAFE as an amendment to the National Defense Authorization Act (“NDAA”). Id. Legislation that cannot succeed on its own often benefits when tied to a more popular bill, and NDAA typically has bipartisan support. (Troutman Pepper, JDSUPRA). The NDAA’s bipartisan support stems from its commitment to providing increased financial and other resources to members of the military. (Jack Reed, United States Senate).

Although it is difficult to accurately predict how the U.S. Senate will vote, the odds seem to be in the cannabis industry’s favor. If the U.S. House of Representatives is any indicator of existing bipartisan support, the majority vote which included 106 Republicans and 215 Democrats bodes well for cannabis businesses nationwide. (The Office of Representative Ed Perlmutter).  “Enablement culture,” acting through individuals and businesses demanding action from the government and increasing the popularity of marijuana, will be a significant factor in determining whether SAFE is enacted into law and whether further cannabis industry reform is to come. Society has seen the power of cancel culture, but the strength of enablement culture remains up for debate.