U.S. senators recently called for the passage of the SAFE Banking Act during the American Bankers Association’s Washington Summit. Even if that happens, however, the banking regulatory compliance firm RiskScout says detailed regulations will probably not be unveiled for at least the following year.
The SAFE Banking Act would prohibit federal regulators from disciplining depository institutions that provide banking services to government-licensed, cannabis-related businesses and the businesses that serve them such as plumbers or landlords. Currently, businesses that legally grow, market or sell cannabis are legally shut out of the banking system and rely mainly on cash transactions.
U.S. Rep. Ed Perlmutter, D-Colo., who first introduced a similar version of the SAFE Banking Act in July 2013, noted that support for the legislation has increased from a minimal level to passing with the support of 321 House members last May. The SAFE Banking Act has passed the House six times, most recently last month, but never the Senate. Perlmutter noted partisan differences have complicated the chances of passing the bill: Senate Banking Committee Chair Sherrod Brown, D-Ohio, believes the act is too limited and should include sentencing reforms, a stumbling block for some Republicans.
Supporters of the SAFE Banking Act noted that violent incidents remain prevalent due to the cash circulating in cannabis purchases: In one two-week period in Oakland, Calif, there were 25 robberies of cannabis dispensaries. Sen. Jon Tester, D-Montana, said he supports the bill because of those safety challenges and the need to provide bankers clarity on how to handle such transactions. He predicted the measure would pass the Senate if it was brought to the vote.
Debates over the SAFE Banking Act come as revenue from cannabis banking continues to jump: According to RiskScout, THC-cannabis revenue is expected to reach $30.5 billion this year. The industry is expected to grow at a more than 20 percent annual clip over the coming years. According to RiskScout, more than 90 percent of U.S. adults said marijuana should be legal both for medical and recreational use, and more than 70 percent live in states where it is legal. Consumers also gave cannabis banking high marks: 65 percent support allowing cannabis businesses to access checking accounts and business loans in states where cannabis is legal. Only 15 percent oppose the option.
RiskScout Director of Compliance Kristin Parker said in a recent blog post that even if the SAFE Banking Act passes or THC cannabis is fully legalized, it will likely take 18 months for banks to receive complete guidance from the Financial Crimes Enforcement Network. Any guidance will likely be modeled after the 2018 Farm Bill, she said, which left each state to pass their own version of hemp legalization, so long as it followed the U.S. Department of Agriculture hemp guidelines. “This will mean that each state will have slightly different rules, including which businesses require licensing, what products will be allowed to be produced and sold, and so on,” Parker said.
To her, the cannabis industry will likely be cash-intensive for several years as financial institutions and payment processors work through early hiccups. “This will require institutions to continue their vigilance in understanding and verifying the source of funds for cash-related transactions,” Parker said.