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What Is the Federal Safe Banking Act; and How Can It Help?

Safe Banking Act will allow cannabis companies banking access
Written by Sarah Friedman

Banking in the cannabis industry sure ain’t easy; but the situation will be different upon passage of the Safe Banking Act.

There are tons of issues in weed markets, and one of the biggest is banking. No matter where a business is run, there are issues to do with banking that span the entire industry. Ongoing attempts within Congress could change this, via the Federal Safe Banking Act. What is this legislation, how can it help, and will it pass?

The issue with cannabis and banking

There are some issues in the world of weed, that vary by location. Like tax amounts, and regulatory requirements. While pretty much every legal location bars a person from using weed around kids, or schools, for example; different states charge different amounts for licensing, or have different demands in terms of building layout, security, or the like.

The issue with banking is related to the issue of federal vs state. It’s fine that a state changes its laws to allow a cannabis industry; but the federal government has yet to change its stance, or to fully respect state cannabis laws. That would be all fine and good, if not for the fact that all banks have some amount of federal regulation; and this means that they cannot work with cannabis companies, without risk of repercussions for breaking federal law.

If you’ve noticed, the weed industry doesn’t take credit cards. If you see cannabis products online, they’re usually black market; as major credit cards also cannot allow cannabis purchases, for the same reason. Usually, dispensaries have ATMs so you can pull out some cash to make your purchases. This isn’t the worst thing for consumers (though not helpful in a world that gets closer to cashless); but it adds a massive level of difficulty for those operating businesses.

Cannabis is currently a cash business
Cannabis is currently a cash business

When it comes to weed and the federal government, any company that has anything to do with the cannabis plant, whether officially ‘plant-touching,’ or not, is often treated similarly. Sometimes a line is drawn between those with direct contact, and those without, but not all the time. So it doesn’t have to be actually plant-touching, like growing crops or selling products. Even those that do things like rent out properties to cannabis companies, can find themselves being treated like a cannabis company. For this reason, well over half of cannabis-related businesses, do not use formal banking.

Because of this, non-standard insurance is a big thing in the cannabis industry. It’s one of the things I see most at business conventions; companies offering to insure cannabis companies. I can’t speak to how good any are; but stories abound of mistreatment by predatory operations looking to capitalize on the situation. But then, what are the options when you want to run a business, and can’t use a regular bank? After all, consider federal raids. Consider that agents essentially steal tons of legal products. And then consider that there’s literally no recourse for the operators involved.

Why is the US government doing this?

It should be enough that an individual state legalizes the plant and an industry around it. That should be enough, so long as its not violating the constitution. As of yet, there’s no argument that cannabis operations violate such law, and realistically; if there was an argument, it probably would’ve been used by now.

However, the US government is predictably childlike in its pursuit to keep things illegal. It’s not a whole lot better about gambling. Remember how gambling used to be pretty universally associated with the mob? Though it is technically legal under federal law, including online gambling, a 2006 law banned financial transactions with online gambling companies – which makes online gambling difficult. Gamblers often have a hard time getting their payments to their platforms.

Probably the better example goes right back to weed, though. This current banking situation is the same situation as what happened when states first started legalizing medical cannabis. The federal government used to arrest patients. Sick adults and children suffering from things like epilepsy, or cancer, or AIDS. It used to make headlines all the time for raiding medical dispensaries and confiscating people’s medicine; and it was the exact same concept.

The main difference between these actions, is that banking doesn’t get the same response of disgust, as arresting sick people or trying to take their medicine. The general public is less aware of the banking issue, because it doesn’t hit the ‘horrified’ button. People might have to take out cash at the ATM before making their purchase; but this fazes people less than arresting people trying not to die. Something about federal police targeting cancer patients didn’t sit well with the public. In fact, its hard to find the stories online anymore (though we all remember them), which indicates possible censorship.

Medical marijuana patients and dispensaries used to be targeted
Medical marijuana patients and dispensaries used to be targeted

That practice didn’t make the federal government look good at all. Nor did it work, as evidenced by the growing number of legal locations. In December of 2014, Obama signed a spending law that barred federal police from raiding medical dispensaries in legalized states. The following year, a California federal court upheld this when it said it was unlawful for DEA agents to use federal funding to do these raids. This didn’t stop all raids, but it did change the general trajectory; and that behavior isn’t seen anymore in the same way.

Federal Safe Banking Act

The most recent incarnations of the SAFE Banking Act – aka The Secure and Fair Enforcement Banking Act, were introduced through two different bills in Congress on April 26th of this year. One was introduced in the House – HR 2891; and one to the Senate – S. 1323. Should either of these bills go through (they’re mainly the same, just introduced separately to the two sides of Congress), it would ban federal regulators from doing the following things:

  1. Asking or telling a bank to cease working with a client. Federal regulators will have no more ability to give banks orders of this kind because of working with a plant-touching (or not plant-touching) cannabis business.
  2. Considering proceeds from plant-touching (or not plant-touching) cannabis businesses to be unlawful, dirty, or laundered in some way.
  3. Holding an institution liable for providing financial services to a plant-touching (or not plant-touching) cannabis business of any kind; including mortgages and loans.

Overall, the Safe Banking Act provides “protections for federally regulated financial institutions that serve state-sanctioned marijuana businesses.” In further explanation, “Currently, many financial institutions do not provide services to state-sanctioned marijuana businesses due to the federal classification of marijuana as a Schedule I controlled substance.”

If you noticed from how I brought it up, this isn’t exactly a new topic, nor the first time such bills were introduced. As of yet, none made it through. The original of this law was put forth in 2019 in the House of Representatives, although similar legislation had been proposed every year since 2013. The 2019 version made it to a House vote, and passed on September 25th, 2019. It too had a companion bill in the Senate. In the end, they both died before the House bill could pass the Senate, or for the Senate bill to pass either side.

The bill was reintroduced in 2021 in both sides of Congress again. The Senate version, dubbed the ‘SAFE Banking Plus’ act had added provisions regarding expungement. There was positivity around this bill, and a thought that it could make it through. It did not, and new bills were reintroduced again in 2023.

The Safe Banking Act was reintroduced this year in Congress
The Safe Banking Act was reintroduced this year in Congress

Will either of them make it this year? It’s hard to say. They were introduced on April 26th. On the 26th, the Senate bill was referred to the Committee on Banking, Housing, and Urban Affairs. It has undergone hearings in this committee, but there is no final answer, or further advancement. In the House, HR 2891 was referred to the Committee on Financial Services, the Judiciary Committee, and the Veterans’ Affairs Committee. On May 5th, the Veterans’ Affairs Committee referred it to the Subcommittee on Economic Opportunity.

In all honestly, this might not be the year. But the reality is, if its not this year, it’ll be the next. Much like a federal recreational legalization, its on the horizon with states changing policy left and right, even if its held off a little longer. The trajectory is pretty obvious, and within the next couple years, the ban on banking for legal cannabis companies, should be at an end.

Conclusion

The Federal Safe Banking Act will change how the cannabis business operates, when it does get through. For now, apart from states like Missouri passing measures to attempt to ease issues within state, the industry at large will have to wait a little longer.

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About the author

Sarah Friedman

I look stuff up and and write stuff down, in order to make sense of the world around. And I travel a lot too.