SAFE Act 2021 Promises Greater Access to Financial Services for Cannabis Businesses

Date November 1, 2021
Categories
Article Authors
Kurt P. Seifert

It is no secret that marijuana is currently one of the world’s fastest-growing industries. Nearly $20 billion of legal cannabis was sold in 2020, and with every passing year, a new company reports massive growth and achieves the status of “industry titan.”

As more and more states have legalized marijuana, the industry has been legitimized. Still, a major issue has gone unanswered. Marijuana is still illegal federally according to existing legislation, the Controlled Substance Act, which, most notably, has kept cannabis businesses from having access to banks. Without banking and related financial services, businesses in the cannabis industry must follow far more difficult routes to raise capital, acquire loans, or engage in a wide range of investing or financing activities. Additionally, these businesses must incur huge costs to secure their abundance of cash, the sheer amount of unprotected funds creating exposure to crime and other kinds of losses.

To mitigate these issues, the solution being proposed in recent years has been the Secure and Fair Enforcement (SAFE) Banking Act. SAFE seeks to improve safe harbor and protections for financial and depository institutions to make banks more confident about doing business with cannabis businesses. The Act accomplishes this by:

• prohibiting federal regulators from punishing banks for working with cannabis industry clients,

• assuring banks that legitimate, legally operated cannabis businesses are not taking in unlawful income,

• removing the right for regulators to terminate customer relationships based on any notion other than that of criminal activity, and

• limiting the tedious, lengthy, and expensive reporting requirements that financial institutions must follow to do business with a cannabis client.

SAFE, formally submitted as H.R. 1595, was originally passed by the House of Representatives on September 25, 2019, but it ultimately died in committee, never making it through the Senate. However, due to the continued push for the legalization of cannabis products as well as the success the industry has had despite regulations, the Act was brought to Congress and passed by the House of Representatives yet again on April 19, 2021, this time as H.R. 1996. Changes in SAFE from 2019 to 2021 were minimal, mainly serving to clarify wording and intent. Changes in wording, like “depository” institutions being altered to “financial institutions,” are immaterial in terms of any meaningful SAFE provision. They serve only to focus and clarify.

New sections have been added to further explain gray areas, such as a new “Business of Insurance” paragraph, designed to explain that nothing in SAFE will override existing laws regulating insurance companies. Should an insurance company take on a cannabis client, they should do so with the same consideration as any other client, the Act declares. As well, they are under no additional pressure to engage cannabis clients should those clients not accommodate their existing standards.

Additionally, the wording has been added to explicitly state that the current “Bank Secrecy Act Expectations Regarding Marijuana-Related Business” guidance issued in 2014 must be updated within 180 days of the SAFE Act’s passing to ensure that guidance is consistent with the changes made in the new SAFE Act. The definition of “financial services,” a term frequently employed in the body of both versions of the act, has been updated to specify whether the customer receiving the product or service is a consumer or a commercial entity.

Many believe the SAFE Act has a much stronger chance of passing than in 2019 due in large part to the increasing number of states passing legalization legislation, a Democratic party-controlled federal administration, and ever-growing bipartisan support for legalization. As well, the SAFE Act is currently included in the 2022 Defense Authorization Act, which is being debated in Congress. While detractors predict the SAFE Act’s language will eventually be removed from the Defense Act before it is passed, the fact that it is currently included dramatically improves the odds of the SAFE Act eventually passing. As well, such large, tediously debated pieces of legislation on major issues typically allow for smaller, if consequential, acts like the SAFE Act to “slip through” in their passing.

On the topic of the SAFE Act’s inclusion in the 2022 Defense Authorization Act, Representative Ed Perlmutter stated on Twitter: “(The SAFE Act) will strengthen the security of our financial system (and) keep bad actors like the cartels out. Most importantly, it will reduce the risk of violent crime in our communities. It’s passed the House five times. We cannot wait any longer to address this public safety threat.”

Considering the current environment favoring the passage of SAFE, and the substantial societal pressure for cannabis legalization, it is undeniable that we will see changes to the legal status of many cannabis industry processes in the near future.

SOURCES:

https://www.congress.gov/bill/117th-congress/house-bill/1996/text

https://www.congress.gov/bill/116th-congress/house-bill/1595/text

https://news.cuna.org/articles/119892-safe-banking-act-successfully-added-to-house-ndaa

https://www.bloomberg.com/news/articles/2021-09-22/u-s-house-approves-bill-to-ease-banking-for-cannabis-companies

https://norml.org/blog/2021/09/20/norml-sends-letter-in-support-of-the-safe-banking-act-being-attached-to-the-ndaa/

https://www.jdsupra.com/legalnews/safe-banking-act-of-2021-where-are-we-5632341/

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