Will the SAFE Banking Act break through the new Congress?

Sen. Steve Daines (R-Mont.)
Sen. Jeff Merkley (D-Ore.)

The Secure and Fair Enforcement Banking Act was reintroduced in the U.S. Senate following previous introduction by the House of Representatives. The legislation, which would open the traditional banking system to cannabis-related businesses, has been a legislative pursuit since Colorado first legalized cannabis in 2012. Supporters of the bill applauded on March 19 when the House passed the Act, though similar legislation, passed by the House in 2019, did not advance in the Senate.

Sens. Jeff Merkley (D-Ore.) and Steve Daines (R-Mont.) introduced the bill, which would establish a cannabis-banking safe harbor for banks in states where cannabis is legal.

Banks that service the marijuana industry currently face a conflict between state and federal law, in which cannabis is still classified as a Schedule One illegal drug. This has led to legal uncertainty for banks and cannabis businesses, forcing most operations to be cash-based.

In the states that have legalized the medical and recreational use of marijuana, passage of the SAFE Banking Act would mean federal regulators would not be allowed to threaten or limit a bank’s deposit insurance, downgrade a loan, prohibit or discourage the provision of banking services, or take any other prejudicial action on banks solely for serving a cannabis-related business.

“The SAFE [Banking] Act is kind of a small step in the right direction,” said Jenifer Waller, president of the Colorado Bankers Association. It doesn’t address what to do with funds that cross state lines, but it does address bankers’ immediate uneasiness about the threat of prosecution, as even the banks that are legally servicing the cannabis industry are doing so in violation of federal law.

Before the FinCEN guidance, which is the main framework cannabis bankers currently follow, there was the Cole Memorandum, which was rescinded in 2018 by Jeff Sessions, the attorney general at the time. “That left a void, and banks were left without guidance,” said Adam Maier, a Minneapolis-based banking attorney for Stinson LLP. “But in general, banks still operate under the Cole Memo, even if it’s not the safe harbor that it once was.”

The SAFE Banking Act will give banks comfort with jumping in and servicing the industry, Waller said, and for those that are already doing so, “I think it gives them more protection.”

And while congressional legislation would offer a sense of protection and could ease compliance officers’ minds, Zane Gilmer, a Denver-based attorney at Stinson LLP, doesn’t consider himself bullish on the Act. 

The difficulty with the SAFE Act is that it protects financial institutions as long as the cannabis business is considered a legitimate cannabis business, “which is roughly defined in the SAFE Act as being in compliance with state law,” Gilmer said. “And state laws on marijuana related activity vary greatly.”

The Act is also murky about the bank’s obligations to ensure their customers’ compliance with state law. Is it just verifying that the business has a license to sell marijuana? Or does the bank have to monitor and report that the business is also complying with the tangential state laws, e.g., plant count? Is it selling to people over the age of 21, if it’s recreational, or 18, if it’s medical? “Those are the questions that, frankly, keep most of the banks and credit unions out of the space right now, Gilmer said. “It’s all part of the due diligence and the risk analysis that institutions have to deal with.”

But despite its limitations in overall impact, said Tony Repanich, president of Shield Compliance, it’s an important move toward certainty. “Today, examiners operate under FinCEN guidance, but there’s quite a bit of examiner discretion,” he said. 

“What that rulemaking will do is it will direct those federal regulators to develop actual guidelines and rules for examination,” Repanich said. “With the uncertainty removed, [bankers are] willing to step into the market.”