On September 25, 2019, the U.S. House of Representatives overwhelmingly passed the Secure and Fair Enforcement (SAFE) Banking Act of 2019. The purpose of the SAFE Act is to increase banking access for cannabis businesses by providing financial institutions with protection from regulatory and criminal scrutiny solely because they provide services to legitimate cannabis businesses.

Specifically, the SAFE Act prevents federal banking regulators from:

• Terminating or limiting deposit insurance available to a depository institution, solely because it provides services to “cannabis-related legitimate businesses"
• Recommend, incentivize or encourage a depository institution not to offer services to “cannabis-related legitimate business” or an employee, owner or operator of a “cannabis-related legitimate business,” solely because the services relate to a “cannabis-related legitimate business"
• Take any adverse or corrective supervisory action concerning a loan made to a “cannabis-related legitimate business,” solely because the business is a “cannabis-related legitimate business"
• Prohibit or penalize a depository institution for, or discourage it from, engaging in a financial service for a “cannabis-related legitimate business” or service provider

The SAFE Act also includes:

• Protection for financial institutions providing services to hemp and CBD businesses
• A requirement that federal banking regulators issue uniform guidance and best practices to financial institutions concerning providing services to “cannabis-related legitimate businesses

Is the SAFE Act Enough?

While the SAFE Act goes a long way to provide financial institutions comfort that regulatory action will not be taken against them solely because they provide services to the cannabis industry, it does not eliminate all the hurdles standing in the way of those financial institutions providing services to the industry. 

Most notably, the safe harbor provisions in the SAFE Act only shield financial institutions from regulatory scrutiny related to providing services to “cannabis-related legitimate businesses.” The SAFE Act defines “cannabis-related legitimate businesses” as a “manufacturer, producer, or any person or company” that engages in cannabis-related activity “pursuant to a law established by a State or a political subdivision of a State, as determined by such State or political subdivision.” In other words, to be eligible for the safe harbor protections, financial institutions will still need to conduct appropriate initial and ongoing due diligence of the cannabis-related business customer to ensure that they are operating in compliance with relevant state marijuana laws. Because a financial institution’s ability to obtain the benefits of the safe harbor provisions depends on whether the cannabis-related business is in compliance with applicable state marijuana laws, the cost of conducting the due diligence to confirm that status and the risk that the cannabis-related business may fall out of compliance at some point and, thus, strip the financial institution of the safe harbor protections, may deter certain financial institutions from providing services to cannabis-related businesses. Nevertheless, it is at least a step in the right direction.

What’s Next?

Now that the House of Representatives has passed the SAFE Act, it is up to the Senate to act. It faces a very uncertain future in the Republican-controlled Senate. The Senate may amend portions of the bill, pass it in the same form as the House, or do nothing. Only time will tell what the SAFE Act’s fate will be. In the meantime, financial institutions must continue to develop and implement thorough policies and procedures to address which, if any, services will be provided to the cannabis industry and take appropriate steps to monitor and manage the risks associated with those activities.