The Banking Dilemma in Cannabis: How SAFE Banking Act can Transform and Legitimize the Cannabis Industry

In the wake of the 2020 elections, a “green wave” of pro-cannabis legislation renewed hope that the industry might finally secure its place among mainstream businesses. After all, every cannabis-related legalization measure on the ballot throughout the country passed, and the number of states legalizing adult-use cannabis increased from 11 to 15. Industry leaders were optimistic that the expansion of legalized cannabis at the state level would increase pressure on the federal government to reconcile the conflict between federal and state cannabis laws – a conflict which has created a policy gap, with legal uncertainties for both plant-touching and non-plant touching cannabis-related businesses (CRBs) and those businesses that provide support services to CRBs.

However, as 2021 wore on, it became apparent that comprehensive cannabis reform would not be forthcoming, as the leaders who can see it through remain as divided on that issue as they are with just about every other issue facing the nation. Consequently, as 2021 comes to an end without the possibility of any comprehensive cannabis legal reform passing, it may be time to make cannabis reform a game of inches rather than zero-sum by finally enacting the SAFE Banking Act (the Act).


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Current Federal Marijuana Law

The Controlled Substances Act (CSA) regulates drugs – whether medical or recreational, legal or illicitly distributed – that are deemed to pose a risk of abuse or dependency. The CSA does not apply to all drugs, but rather to substances that have been designated for control by Congress or through administrative proceedings. 

The Drug Enforcement Administration (DEA), the federal agency responsible for implementing and enforcing the CSA, executes on trafficking provisions, and state legislation that decriminalizes or legalizes cannabis has no effect on federal law. Because cannabis remains a Schedule I drug, cannabis-related businesses that cultivate and sell cannabis or cannabis-derived products – even though they’re operating legally under state law – are violating the CSA.

The Department of Justice (DOJ) has consistently reaffirmed that growing, possessing, and trafficking cannabis are illegal activities under federal law. But since states began legalizing cannabis, the DOJ has clarified federal policy and issued guidance directing prosecution through several memos, starting with the Ogden Memo in 2009. The most well known of the series, the 2013 Cole Memo, narrowed the scope on enforcement, as it focused prosecutorial resources on eight priorities. While the memos have generally made it so cannabis businesses have more flexibility and safety to operate, this doesn’t take away from the fact that the cultivation and sale of cannabis that is legal under state law still violates federal law.


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Furthermore, it’s federally illegal to conduct a financial transaction with proceeds of “specified unlawful activity.” Specifically, 18 U.S.C. §1956 outlaws four kinds of money laundering, while 18 U.S.C. §1957 makes it illegal to deposit or spend more than $10,000 of the proceeds from a predicate offense – the sale of cannabis is a predicate offense under both §§1956 and 1957. 

Money laundering risks relating to cannabis are not limited to direct transactions. When a financial institution provides services to a CRB, it is not directly involved in the sale, possession, or distribution of their customer’s cannabis products. However, when a financial institution acquires proceeds with the knowledge that they were derived from the sale of cannabis in violation of federal law, federal authorities can potentially confiscate the proceeds. For example, if a lender provides debt financing to a validly licensed cannabis business and knows the payments were from the sale of cannabis, then the principal and interest payments earned on the loan could be subject to forfeiture. Additionally, there is a risk of civil forfeiture of assets used in violation of the CSA or other federal crimes under applicable asset forfeiture laws.  

Proposed Federal Marijuana Legislation & the SAFE Banking Act

The simplest way to close the cannabis policy gap would be to deschedule cannabis under the CSA so that it’s no longer illegal under federal law. Once federally legal, states can continue to implement cannabis-related policies that best suit their citizens, while also ensuring the industry can participate in interstate commerce.

But just descheduling does not address or remedy the inequities of our failed drug policy, which has disproportionately affected communities of color. It’s essential to work to help right these wrongs by providing new opportunities for disadvantaged groups – this will ensure the long-term success of the industry.


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While Democratic senators have put forth legislation containing comprehensive social equity-focused provisions; unfortunately, they don’t have the necessary votes to pass the bill, nor do they have support from President Biden. Republicans recently proposed a competing bill that would legalize and tax cannabis, but it lacks comprehensive social equity provisions. And without these provisions, Republicans will unlikely be able to garner the votes needed to pass their legislation. While politicians remain at an impasse, the industry continues to move forward with the most public support it has ever had – 68% of Americans now support legalization.

If wisdom prevails and the Senate includes the SAFE Banking Act as part of the National Defense Authorization Act (which must be voted on before the end of the year), then the cannabis industry and the businesses that provide support services for it will obtain relief from some of the major challenges the cannabis policy gap creates, including obtaining ready access to the banking system. For too long, lawmakers have ignored how the lack of financial services affect not only cannabis industry participants, but also ancillary businesses and society as a whole. With safe access to banking, more entrepreneurs can enter the cannabis space and the whole industry can be much more transparent and efficient. And it’s transparency that will create the comfort and trust needed to transition this industry from illicit to legitimate. 

The threat of prosecution and/or being penalized merely for providing financial services to a cannabis company automatically makes it a high-risk endeavor. In order to operate in the space, financial service companies must meet their CSA obligations through implementing stringent cannabis-specific policies and procedures. These banks, credit unions, and insurance companies must maintain their cannabis programs by employing third-party service providers, extra staff, and new regulatory technology solutions that create efficiencies and minimize human error – all of which costs a lot of money. The increased costs are typically passed, at least in part, to CRB customers. Fees associated with cannabis financial services are much higher than other commercial products, but the alternative of not having any financial services available is far more costly. 

In 2020, Americans spent almost $18 billion on cannabis and cannabis products. In Q1 of 2020 there were 715 banks and credit unions working with cannabis companies. Imagine how unsafe communities would be if this money was all cash on the street. Also consider how much smaller the industry would be (with significantly lower tax revenues and way fewer jobs) if CRBs were forced to operate only in cash. Now think about how much bigger the industry could grow if it had easier access to financial services, including lending and capital.

The SAFE Banking Act not only provides relief from the threat of penalty or prosecution simply for providing financial services to the cannabis industry, but it also contains provisions that will relieve some of the onerous compliance burdens that currently exist under the 2014 FinCEN Guidance, including cannabis suspicious activity reports (SARs) filing requirements. The Act mandates that the Federal Financial Institutions Examination Council create uniform cannabis banking exam criteria that will level the playing field for those financial institutions serving CRBs. As compliance requirements lessen, costs associated with cannabis financial services will decrease.

Although the SAFE Banking Act does not explicitly contain social equity components, it does mandate annual diversity-and-inclusion reports that provide data on the availability of access to financial services for minority-owned and women-owned CRBs, and regulatory and legislative recommendations for expanding access for these groups. Additionally, the Act requires the Comptroller General to study and report on marketplace entry barriers for minority-owned and women-owned CRBs, and provide recommendations for removing them. These provisions help address and find remedies for past failures and prevent new obstacles from arising.

Supporters of the banking reform legislation include, among others, a group of bipartisan attorneys, the Attorney General, state treasurers, a majority of the members of the House, and most recently a group of bipartisan governors. Perhaps their support will convince the Senate to pass the SAFE Banking Act. If life is a game of inches, and those inches make a difference between winning and losing, then the cannabis industry will take this inch while waiting for an opportunity to gain another.

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