Paving the way for banks and insurance companies to serve state-legal Marijuana growers, processors, transporters and sellers (“Marijuana-Related Businesses” or “MRBs”) without fear of federal reprisal, on September 25, 2019, the United House of Representatives passed the “Secure and Fair Enforcement Banking Act of 2019” (“SAFE Banking Act”).

A bipartisan bill seeking to align federal and state “banking services access” laws by prohibiting federal banking regulators from penalizing banks and credit unions servicing Marijuana-Related Businesses, the House overwhelmingly approved the SAFE Banking Act by a 321-103 vote.

Difficulties in Banking Cannabis Cash

Spanning 34 states and generating $10.8 billion domestically in 2018, banking, cash management, and insurance have been among legalized Marijuana‘s greatest obstacles.

While 633 banks and credit unions provide Marijuana-Related Businesses with accounts, it is a small fraction of nation’s 11,954 financial institutions, which, to offset onerous compliance costs, impose service fees reaching $10,000 per month per account.  Due to difficulty in obtaining financial and armored car services and because Marijuana is primarily, if not exclusively, a cash business, MRB’s face overwhelming safety, security, and operational issues. 

First, Marijuana-Related Businesses, their employees and their patients and vendors face the physical criminal risk of robbery and assault risk.  Second, the “lack of financial services” access both imposes additional disbursement and “accounting and record-keeping” requirements on the MRB and results in a massive productivity loss. 

Third, because they lack financial services and receive all monies in cash, Marijuana-Related Businesses are forced to use cash to pay employees, landlord, taxes (local, state and federal), utilities (electricity, water), and vendors, thereby passing on the criminal vulnerability, administrative burden, and productivity loss.  

Fourth, because insurance typically only covers up to $20,000 cash loss and MRB’s often have between $200,000 to $500,000 in cash on hand, theft can be a fatal blow to an enterprise. 

Fifth, even if it has a banking account, after writing a check to other Marijuana-Related Businesses, an MRB’s account may be flagged and shut down creating huge business interruption issues.  Further, following account closure MRB’s owners and employees often have their personal accounts shut down and experience difficulty in obtaining home loans or credit cards. 

SAFE Banking Act’s Protections

The SAFE Banking Act prohibits federal banking regulators from: 

  1. Terminating or limiting deposit insurance solely for providing financial services to a cannabis-related legitimate business or ancillary service provider;
  2. Prohibiting, penalizing, or discouraging a bank from providing financial services to a cannabis-related legitimate business or ancillary service provider;  
  3. Recommending, incentivizing, or encouraging a bank not to offer, downgrade or cancel financial services solely because of a cannabis-related legitimate business; or 
  4. Taking adverse action on a loan made to a cannabis-related legitimate business or its employee, owner, or operator or an owner or operator of real estate or equipment that is leased to a cannabis-related legitimate business.

The SAFE Banking Act also includes provisions aimed at making financial institutions more comfortable serving the now-legal hemp and hemp-derived Cannabidiol (“CBD”)  markets and incorporates the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) February 14, 2014 dated “Guidance” (“FinCEN Guidance”) listing an approved methodology for providing financial services to Marijuana-Related Businesses including filing of Suspicious Activity Reports.

Although Senate approval is expected to prove a higher hurdle because the legislation has the support of banking organizations including the American Bankers Association the SAFE Banking Act’s passage has never seemed more encouraging.