SAFE Banking Act, Protecting Financial Partners of Cannabis Businesses, Likely to Become Law

Harris Beach PLLC

A bill to protect financial institutions that offer services to state-legal marijuana-related businesses was recently reintroduced by a bipartisan group of over 100 members of the House. The Secure and Fair Enforcement (SAFE) Act passed through the Democrat-controlled House in 2019, but stalled in the then-Republican controlled Senate. Many speculate that because Democrats are now in control of the House and the Senate, 2021 could be the year that the SAFE Banking Act finally passes. Bipartisan support, in conjunction with endorsements by the American Bankers Association and others, only strengthen the prospects of the bill passing in both houses of Congress.

The SAFE Banking Act (H.R. 1996) would ensure that financial institutions could take on cannabis-related business clients without facing federal penalties. Up until this point, the banking industry has largely been reluctant to bring in clients from the cannabis sector because of its classification as a Schedule 1 drug, forcing many marijuana-related businesses to deal primarily in cash. Fear of sanctions has kept many banks and other financial institutions from working with players in the industry, thereby forcing marijuana-related businesses to operate strictly on a cash basis. As a result, this makes them targets of crime and creates further complications for financial regulators.

The bill creates a safe harbor for depository institutions, including banks and credit unions, such that they will not be subject to federal forfeiture action and will not be held liable for providing financial services to a marijuana-related business. The SAFE Banking Act offers protections by prohibiting federal banking regulators from:

  • terminating or limiting deposit insurance solely for providing financial services to a cannabis-related legitimate business or ancillary service provider;
  • prohibiting, penalizing, or discouraging a bank from providing financial services to a cannabis-related legitimate business or ancillary service provider;
  • recommending, incentivizing, or encouraging a bank not to offer, downgrade or cancel financial services solely because cannabis-related legitimate business; or
  • 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.

Similarly, New York state has already taken strides toward a more progressive approach regarding banking as it relates to the cannabis industry. In July 2018, Governor Cuomo directed the New York State Department of Financial Services (NYSDFS) to issue guidance concerning New York state-chartered banks and credit unions and their relationship to regulated medical marijuana and industrial hemp business in New York. In a published memorandum, NYSDFS responded by encouraging New York state-chartered banks and credit unions "to consider establishing banking relationships with medical marijuana-related businesses that are operating in New York in full compliance with all applicable New York state laws and regulations, including the New York Compassionate Care Act, and the applicable regulations and requirements of the New York State Department of Health."

Additionally, the SAFE Banking Act also directs the Secretary of the Treasury to ensure Financial Crimes Enforcement Network (FinCEN) guidance is consistent with the purpose and intent of the bill. Despite the lack of legality at the federal level, the passage of the SAFE Banking Act could, at the very least, help clarify an otherwise murky legal landscape for the banking industry and its regulators.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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