What has long been a major handicap to the cannabis industry may finally be coming to an end. As federal law currently stands, financial institutions in states where marijuana is still illegal cannot provide services to cannabis-related businesses. For these banks, proceeds from cannabis-related transactions are considered proceeds from unlawful transactions, which allows the government to seize those proceeds and prosecute the banks for money laundering. However, recent legislative developments suggest that this policy may soon change.
Last month, the U.S. House of Representatives passed a bill that would pave the way for banks to do business with cannabis companies without fear of prosecution or insurance limitations. The Secure and Fair Enforcement (SAFE) Banking Act, a piece of federal legislation championed by U.S. House member Ed Perlmutter, seeks to prohibit federal banking regulators from penalizing institutions that provide banking services to legitimate cannabis-related businesses. The bill passed in the House by a margin of 321-101. It now will head to the Senate, where its chances of ratification are less certain.
Due to a lack of banking options, even lawful cannabis businesses and service providers often deal in large amounts of cash. According to the stated purpose of the proposed SAFE Banking Act, this makes them a target for robberies and, therefore, a threat to public safety. The Act aims to reduce the risk to the public and to these businesses by allowing them access to financial services.
The cannabis industry has long grappled with its inability to use traditional banks. The lack of credit cards, loans, and deposit accounts has made the industry vulnerable to violent criminals and has made it more difficult for the industry to grow. Because potential entrants into the cannabis sector may find it difficult to obtain the credit to start their business, some have been shut out of the industry altogether. This means that those who have been able to break into the industry largely either are wealthy or have the right political connections, or both.
The cannabis market has become a global industry. Countries like Mexico and Canada are already at the forefront of production and innovation. The U.S. has fallen behind due to federal law and the uncertainty surrounding cannabis and banking. Even lawful jobs with legitimate cannabis-related businesses within the industry will continue to be limited and unstable. Without a change in federal law, the domestic cannabis industry may not be able to compete with industries in other countries who have hit the ground running with the support of their legislation and policies.
The SAFE Act received support across party lines in the House. Proponents cited the changing attitudes Americans have concerning cannabis, which has fostered an increased need for fair and secure financing within the industry. Supporters also want to protect those legitimate businesses from the inherent risks of operating an all-cash business, and address public safety concerns that arise in areas where these businesses operate.
Opponents, namely Republicans, point to a number of issues that they believe the proposed legislation fails to address. Senator Mike Crapo articulated these fears: “Significant concerns remain that the SAFE Banking Act does not address the high-level potency of marijuana, marketing tactics to children, lack of research on marijuana’s effects and the need to prevent bad actors and cartels from using the banks to disguise ill-gotten cash to launder money into the financial system.”
The SAFE Banking Act is slated to go up for ratification in the Senate at some point later this year. While Democrats technically hold a majority in the Senate, the outlook for the bill remains murky, as similar bills have passed in the House but stalled out when they reached the Senate floor.