The SAFE Banking Act: High hopes for the cannabis industry
Despite its progress, the SAFE Banking Act still requires the approval of the U.S. Senate and President to become law.
To understand the dilemma faced by state-approved cannabis businesses that are fortunate to generate millions of dollars in revenue, one might imagine the difficulty these businesses face operating without the financial services offered by federally regulated financial institutions. For instance, such businesses lack access to loans, credit cards, lines of credits, bank accounts and secured armored trucks for transporting cash receipts.
This situation is common for a “cannabis-related legitimate business or service provider” (CRLB) operating in New Jersey and other states, because the federal government classifies marijuana as a Schedule 1 controlled substance, creating a conflict in authority. Schedule 1 classification defines marijuana as having (i) a high potential for abuse, (ii) no currently accepted medical use, and (iii) no accepted safety standards for its use under medical supervision. Concerned about compliance requirements, federally regulated financial institutions have been reluctant to offer financial services to CRLBs.
However, on Sept. 25, 2019, the House of Representatives passed the Secure and Fair Enforcement Banking Act, commonly known as the SAFE Banking Act. The SAFE Banking Act, if made into law, would provide protection from federal interference for financial institutions that choose to provide financial services to CRLBs. Specifically, the SAFE Banking Act would provide a safe harbor for banks by mitigating the legal risks associated with providing banking services to state-legalized cannabis businesses.
Among various protections, the SAFE Banking Act:
(1) Precludes a “federal bank regulator” (as defined by the SAFE Banking Act) from the following:
- Terminating or limiting the deposit insurance of a depository institution;
- Taking any adverse action against a depository institution;
- Penalizing, prohibiting or discouraging a depository or other financial institution from providing financial services to a CRLB that is in compliance with state law;
- Taking any adverse supervisory action on a loan made to a CRLB or an owner or operator of real estate or equipment leased to a CRLB solely because the matter involves a CRLB;
(2) Clarifies that proceeds from a transaction conducted by a CRLB are not proceeds from an unlawful transaction under federal law due to the fact that the transaction was conducted by a CRLB; and
(3) Protects the depository institution, its officers, directors and employees from liability under federal law solely for providing financial services or investing any income attributed to financial services provided to such CRLB.
For purposes of the SAFE Banking Act, the following definitions should be noted:
- “Financial service” means: (i) a financial product or service as defined in the Dodd-Frank Wall Street Reform and Consumer Protection Act; (ii) the business of insurance; (iii) effectuating or facilitating payments or funds; (iv) acting as a money transmitting business which makes use of a depository institution; and (v) acting as a legitimate armored car service.
- “Cannabis-related legitimate business” encompasses any business that involves the handling, cultivating, producing, manufacturing, selling, transporting, displaying, dispensing, distributing, or purchasing of cannabis as is authorized under state law.
- “Service provider” includes any business that sells goods or services to a cannabis-related legitimate business, including sale or lease of real or any other property, legal or other licensed services, or any other ancillary service
The SAFE Banking Act passage by the U.S. House of Representatives on Sept. 25 marks the first time a standalone reform bill has been approved by a chamber of Congress, according to the Cannabis Trade Federation. Further, the passage is not only historical — it is also practical. Previously, protections have existed for CRLBs via amendments to larger-scale bills such as the Rohrabacher-Blumenauer amendment, which needs to be re-approved with each successive fiscal year. If the SAFE Banking Act becomes law, Congress would no longer need to re-address and re-approve annual amendments in each fiscal year.
Despite this progress, the SAFE Banking Act still requires the approval of the U.S. Senate and the President of the United States to become law.
Some proponents of cannabis reform believe that to persuade Senate Republicans to vote in favor of cannabis banking reform, concessions such as similar protections for hemp and cannabidiol (CBD) companies are needed.
For more information, refer to bill H.R. 1595 of the 116th Congress (2019-2020).
Lisa Gora is an attorney at Wilentz, Goldman & Spitzer in Woodbridge, focused on corporate, health and cannabis law. She also serves as secretary of the NJSBA’s Cannabis Law Committee. Anthony M. Osbourne is an attorney at the firm, focused on corporate finance, banking and cannabis law.
This piece first appeared on sister site law.com.
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