SAFE Banking Act–Will it break open the flood gates for the cannabis & hemp industries?

Lawmakers are again attempting to clear a legal path for the cannabis industry. New legislation, called the SAFE Banking Act, is making its way through Congress. If passed, it will give marijuana and hemp businesses some of the legitimacy they so desperately need to be competitive and successful.

What is the SAFE Banking Act?

H.R. 1595 is the Secure and Fair Enforcement (SAFE) Banking Act that may give the cannabis industry a seat at the table with Big Business. It’s a bipartisan bill initially sponsored by Colorado Representative Ed Perlmutter and Washington Representative Denny Heck. But it has the supportive sponsorship of more than one-third of the House of Representatives. At last count, the bipartisanship only included 13 Republicans.

Currently, banks may be criminally prosecuted for dealing with marijuana growers and dispensaries. This is because the federal Controlled Substances Act categorizes cannabis as an illegal Schedule 1 drug. Marijuana is legal in 33 states and the District of Colombia – predominantly for medical purposes. However, 10 states and D.C. also permit recreational use. These states license and regulate legal cannabis businesses. Yet, banks steer clear of these legitimate operations due to federal law.

This bill removes the legal restrictions that prevent banks from doing business with cannabis-related operations. Federal financial regulators would no longer be able to take adverse actions against financial institutions that provide services to cannabis-related businesses operating in compliance with their individual state laws. This includes terminating the bank’s share insurance or deposit insurance. With the backing of federal law, financial institutions will be able to provide legitimate banking services to businesses in the marijuana and hemp industry.

Is the SAFE Banking Act Law Yet?

The Act is not yet law. And in fact, there’s no guarantee that it ever will be. Skopos Labs – an automated predictive intelligence agency — estimates that it has a 29% chance of passing Congressional approval to become law.

The legislation started in committee in the U.S. House of Representatives. The House Financial Services Committee voted 45 to 15 in favor of the bill on March 28, 2019. Next steps will be consideration and a vote by the full House of Representatives. The Senate is expected to introduce a companion bill. Both chambers must vote in favor of the legislation, and the President will then need to sign it before the SAFE Banking Act can become law.

Some Representatives are skeptical of the bill. NC Representative Patrick McHenry has called for more investigation into the impact the law will have. Previous bills of a similar nature have failed. A 2014 appropriations bill included an amendment that addressed this issue, but H.R. 5016 met opposition in the Senate. In 2017, S. 1152 and H.R. 2215, also called SAFE Banking Acts, stalled in committee.

That this most recent legislation, H.R. 1595, has successfully moved out of committee is a positive step forward. Plus, a February hearing on the matter, the first of its kind, demonstrated a renewed interest in removing cannabis banking restrictions. Morgan Fox of the National Cannabis Industry Association expressed optimism about the future of the bill. He noted that the February congressional hearing was very positive.

Many organizations are vocally supportive of the law. They include:

• American Bankers Association (ABA)
• Credit Union National Association
• Independent Community Bankers of America
• Electronic Transactions Associations
• National Cannabis Industry Association (NCIA)
• Mid-Size Bank Coalition of America
• Real Estate Roundtable
• American Land Title
• American Property Casualty Insurance Association

Hopes are high in both the cannabis and the banking industries.

What the SAFE Banking Act Offers the Cannabis Industry

Cannabis cultivators and businesses have been operating on a cash-only basis. Even though, it’s a multi-billion-dollar industry. This leaves them vulnerable to theft and other dangerous crimes. Employing secure cash handling and storage measures is dangerous and costly.

Basic business practices that are available to other legitimate operations have been denied to the cannabis industry. These include POS systems, credit card processing, payroll services, and property rentals. Even paying taxes is burdensome without the use of traditional banking services. Some vital banking operations that will be available to the cannabis industry with passage of the new law include the following:

• Authorizing payments
• Processing transactions
• Billing
• Financial transfers
• Reconciliation
• Payment collection
• Clearing transactions
• Extension of credit
• Payment cards
• EFTs
• Check processing
• Deposit accounts

Financial institutions can establish relationships with legal cannabis growers, manufacturers, distributors and other related operators and third-party vendors. It will also open the door for multiple financial industries.

These changes will give businesses in the cannabis industry far more growth opportunities. Access to credit and loans will support expansion and competitiveness. Customers can use a variety of payment methods, which will undoubtedly increase sales. Payroll services will aid in attracting quality workers and employee satisfaction and retention. These positive factors have shown to help businesses be more successful. Additionally, with the dangers of cash-only operations removed, crime rates will decrease, and transparency will increase.

These changes will also help level the playing field on an international basis. Canada has leapfrogged over the U.S. in cannabis production and sales. This is largely due to legal restrictions in the U.S. that don’t exist in Canada. Listings, stock trading, marketing, and real estate transactions are a few of the areas that may also benefit from the SAFE Banking Act. Legal protections, legitimacy, lower risk, and transparency will all work together to make an investment in the cannabis industry attractive, lucrative, and smart business, overall.