From cash only to the US banking system: US House of Representatives passes SAFE Banking Act of 2019

On September 25, 2019, the US House of Representatives passed the Secure and Fair Enforcement Banking Act of 2019 (or the SAFE Banking Act), with a landslide vote of 321 to 103. The bill, which was first introduced by Congressman Ed Perlmutter on March 7, 2019, generally prohibits US banking regulators from penalizing banks for providing financial services to legitimate cannabis-related businesses and other cannabis-related service providers. The purpose behind the Act is to grant US cannabis companies operating and abiding lawfully under state laws access to the banking system. Allowing state-authorized cannabis companies access to financial institutions is something that is critically important for such companies to grow and to operate effectively and efficiently.

Although 33 states and the District of Columbia have legalized cannabis for medical and/or recreational use, the doors of many financial institutions remain closed to the cannabis industry because cannabis remains illegal at the federal level. Indeed, cannabis remains classified as a Schedule I substance under the Controlled Substances Act, 21 U.S.C. § 801, et seq. As banks are subject to federal regulation, they are understandably concerned about the risk of prosecution. As financial institutions have been generally unwilling to undertake that prosecution risk, lawfully operating cannabis companies have been essentially forced to become cash-only businesses, something that is impractical and dangerous.

The House's historic bipartisan vote on the SAFE Banking Act is a significant step towards explicitly permitting banks to do business with state-legal cannabis companies. Specifically, Section 4 of the bill provides that a depository institution shall not, under federal law, be held liable or subject to forfeiture solely for providing a loan or other financial services to a legitimate cannabis-related business. Moreover, the bill prohibits federal banking regulators from:

1. Terminating or limiting the deposit insurance or share insurance of a depository institution solely because the institution provides financial services to a legitimate cannabis-related business;
2. Prohibiting or otherwise discouraging a depository institution from offering financial services to such a business; 
3. Recommending, incentivizing, or encouraging a depository institution not to offer financial services to an account holder solely because the account holder is affiliated with such a business;
4. Taking any adverse or corrective supervisory action on a loan made to a cannabis-related legitimate business or individual solely because it is a cannabis-related business or service provider or the person either owns such a business or owns real estate or equipment leased or sold to such a business; or
5. Penalizing a depository institution for processing or collecting payments for such a business.

In addition, Section 3 of the bill exempts proceeds from legitimate cannabis-related business transactions from federal money laundering laws.

The SAFE Banking Act still must be addressed in the Senate so the legislation's safeguards for banks are not yet in effect. The bill is likely to face an uphill battle in the Senate. But even if the SAFE Banking Act becomes law, nothing in the Act requires a financial institution to conduct business with cannabis-related companies, and several financial institutions have publicly stated that they will not transact with US cannabis companies even if the SAFE Banking Act is passed, unless and until cannabis is legal on a federal level.