As early as September 23, 2019, the United States House of Representatives is expected to vote on the widely anticipated Secure and Fair Enforcement (SAFE) Banking Act. First introduced in both chambers of Congress in 2017, re-introduced in the House in March of 2019, and amended this past June, the SAFE Banking Act has garnered bipartisan support as a necessary solution to the dilemma created by conflicting federal and state cannabis law regimes, particularly as it relates to financial service providers.

According to a press release issued by the House Committee on Financial Services on March 26, 2019, committee chairwoman, Representative Maxine Waters (D-CA), remarked, the SAFE Banking Act "addresses an urgent public safety concern for legitimate businesses that currently have no recourse but to operate with just cash.” The Act joins the ranks of congressional efforts such as the Rohrabacher-Farr amendment to omnibus spending bills, Section 728 of the Consolidated Appropriations Act of 2019, the pending Blumenauer amendment, and proposed Strengthening the Tenth Amendment Through Entrusting States (STATES) Act—all of which seek to reconcile the federal government’s failure to enact comprehensive marijuana and, until recently, hemp policy despite widespread support on the state and local level. Status in the Senate is uncertain, as the chair of the Banking Committee has indicated an intent to poll those in Idaho, a state that has failed to legalize any form of cannabis, regarding the issue.

Today’s cannabis industry encompasses the growth, processing, distribution, and other ancillary services related to both hemp and marijuana. While hemp and marijuana are both derived from the plant Cannabis sativa L, they are legally distinguished on both a federal and state level by their THC content. As a result, marijuana remains a controlled substance under federal law, while hemp, boasting lower THC levels, is classified as an agricultural product within the purview of the United States Department of Agriculture (USDA). This federal distinction, however, has not prevented more than 40 states from legalizing marijuana for medical and/or recreational adult use. Unfortunately, the businesses that choose to take advantage of such progressive state marijuana laws must do so without the support of traditional financial institutions that businesses, particularly minority and women-owned, rely on to fund and protect their financial growth.

According to §4(a) of the bill’s text, the SAFE Banking Act will shield depository institutions that serve cannabis-related businesses from federal penalties in states and Indian country where “cultivation, production, manufacture, sale, transportation, display, dispensing, distribution, or purchase” of cannabis is legal. In particular, the Act will prohibit regulators from terminating or limiting deposit or share insurance of financial instruments because an institution’s client participates directly or indirectly in the cannabis industry. Regulators will also be prohibited from penalizing institutions for authorizing, processing, clearing, settling, billing, transferring, reconciling, or collecting payments for a legitimate cannabis-related business for payments made by any means, including a credit, debit, or other payment card, an account, check, or electronic funds transfer. Perhaps, most importantly, the Act will also require the Federal Financial Institutions Examination Council (FFIEC) to develop uniform guidance and examination procedures for depository institutions serving cannabis-related businesses.

For financial institutions and insurance providers operating in states where cannabis is legal, this creates an immense opportunity and incentive to assist industry participants as they strive to protect and invest their monetary assets without putting the institutions they rely on at risk of federal prosecution. However, because protections under the SAFE Banking Act only apply when legitimate cannabis-related businesses are involved, monitoring clients’ compliance with relevant state laws will be particularly important. In the absence of clear federal marijuana policy and official hemp regulations under the 2018 Farm Bill, in addition to constantly evolving state laws and regulations, this may prove especially challenging. As such, in anticipation of the Act’s passage, financial institutions should enlist the support of experienced legal counsel to ensure the necessary processes for monitoring clients’ compliance are in place. In addition, those seeking to benefit under the Act should still pay close attention to due diligence requirements promulgated by the Financial Crimes Enforcement Network (FinCEN), although many concerns should be alleviated by the Act’s prohibition on civil or criminal prosecution solely based on the provision of financial services or investing income derived from such services.

NOTE: Cannabis as defined under the Act only references marijuana. However, in practice, the bill’s passage should alleviate apprehension surrounding hemp, as many financial institutions and their affiliates have refrained from offering services to hemp businesses under the current financial legal framework, even in the wake of the 2018 Farm Bill and pending USDA regulations.

Read the bill’s text here.