Passage of the SAFE Banking Act would permit banks (and other depository institutions) to offer banking services to “cannabis-related legitimate businesses,” which are defined as cannabis companies that are complying with applicable state laws, without risking consequences or triggering the requirement to file a suspicious activity report (“SAR”). Cannabis, and more specifically marijuana, remains a Schedule 1 drug, which means that its production and sale is illegal under federal law for any purpose. However, 33 states and the District of Columbia have legalized the use and sale of marijuana for certain medicinal purposes and of those, 10 states and the District of Columbia have legalized marijuana for adult use recreational purposes. The proposed Secure and Fair Enforcement Banking Act, known as the SAFE Banking Act would permit banks to provide banking services and take deposits from cannabis companies, provided that they are in compliance with state law in the states in which they operate.
For years, growers and dispensers of cannabis and cannabis containing products have had difficulty locating financial institutions to accept their receipts and make business loans. Today such loans and other banking services are available through some state chartered banks and credit unions and often come at a high cost. Federally insured banks have largely declined to offer such services to these businesses. They also are under an obligation to file a SAR if they have reason to believe that some or all of a customer’s deposits derive from an illegal activity which would include the growing or dispensing of marijuana and certain other cannabis derived products (as well as those whose services benefit growers or dispensers of marijuana), even if the customer is operating legally under applicable state law.
The SAFE Banking Act contains the following pertinent provisions:
Section 2: Section 2 prohibits Federal banking regulators from taking the following actions:
- terminating or limiting FDIC (Federal Deposit Insurance Corporation)/FCUA (Federal Credit Union Act) insurance, or taking other adverse action against a depository institution under section 8 of the FDIC Act solely because the depository institution has or currently provides financial services to a cannabis-related legitimate business/service provider;
- prohibiting or penalizing a bank from providing services to a legitimate cannabis-related business or service provider;
- recommending, incentivizing, or encouraging a depository institution not to offer financial services to an account holder solely based on its status as a current or future cannabis-related legitimate business or service provider (or owner, operator, or employee thereof);
- taking any adverse or corrective supervisory action on a loan made to a current or future cannabis related legitimate business or service provider (or owner, operator, or employee thereof); or lessors of equipment and real estate to cannabis-related legitimate businesses or service providers;
- prohibiting, penalizing, or discouraging a depository institution or entity performing services for the depository institution from authorizing, processing, clearing, settling, billing etc. for a cannabis-related business, where such payment is made by any means.
Note that the Bill defines a “cannabis-related legitimate business” as a manufacturer, producer or any person of company that, pursuant to a law established by a state or political subdivision, participates in any business or organized activity that involves handling cannabis or cannabis products, including cultivating, producing, manufacturing, selling, transporting, displaying, dispensing, distributing, or purchasing cannabis or cannabis products.
Section 3: Section 3 clarifies that proceeds from a transaction conducted by a cannabis related legitimate business or services provider shall not be considered as proceeds from an unlawful activity solely because the transaction was conducted by a cannabis-related legitimate business.
Section 4: Section 4 provides that a depository institution that provides financial services to a cannabis-related legitimate business (and its officers, directors, and employees) may not be held liable pursuant to any federal law or regulation solely because it provides those services or investing any income derived from those services. Further, a depository institution that takes a legal interest in collateral for a loan or other financial service provided to a cannabis-related legitimate business will not be subject to criminal, civil, or administrative forfeiture for making such loan or providing such financial service.
The SAFE Banking Act was sponsored by Representative Ed Perlmutter (DCO), and has 143 cosponsors including 12 Republicans. Companion marijuana banking legislation has not yet been filed in the Senate but is expected soon. The House Committee on Financial Services is expected to mark up the SAFE Banking Act today. Stay tuned for regular updates on this latest development at the intersection of banking law and cannabis law.
Client Alert 2019-073
