Yesterday, the House of Representatives passed H.R. 1595, the Secure and Fair Enforcement Banking Act (SAFE Act), by a vote of 321-103, with 90 Republicans voting in favor of the bill. Some have hailed the bill as a panacea for banking cannabis related businesses (CRBs). While this post is not intended to be a comprehensive analysis of the SAFE Act, it is important to note what the Act does and does not do.

Among other things, the SAFE Act:

  • Provides a safe harbor to enable depository institutions (banks and savings associations) to provide financial services (as defined in the Dodd-Frank Act) to CRBs;
  • Prohibits Federal bank regulators from terminating or limiting the deposit insurance of a depository institution;
  • Prohibits Federal bank regulators from recommending or encouraging depository institutions not to provide financial services to CRBs;
  • Protects depository institutions from forfeiture of collateral for loans provided to CRBs; and
  • Provides protections to ancillary businesses serving CRBs in that, for purposes of the Money Laundering Control Act, proceeds from a transaction conducted by a CRB are not considered proceeds of an unlawful activity solely because the transaction was conducted by a CRB.

BUT,

The SAFE Act does not:

  • Legalize marijuana;
  • Eliminate the requirement for depository institutions to file Suspicious Activity Reports; and
  • Extend the safe harbor protections of the Act to prohibit prosecution of a depository institution by the Department of Justice.

The SAFE Act now moves to the Senate where it faces a very uncertain future. Despite some support in the Senate, there are a number of other cannabis-related bills that are competing for attention. Among them are the STATES Act, which would amend the Controlled Substances Act, and the MORE Act, introduced by Representative Nadler and Senator Harris, which would provide for comprehensive reform of federal marijuana laws. The SAFE Act faces potential opposition from Senator McConnell who is a proponent of hemp and opponent of cannabis. In fact, in comparing cannabis and hemp, he has been quoted as stating: “It [hemp] is a different plant. It has an illicit cousin which I choose not to embrace.”

What if the SAFE Act were to be enacted into law? Would it be the panacea for banking CRBs?

Probably not. Financial institutions, particularly national and large regional financial institutions, may not want the reputational risk of serving what would still be an illegal industry under Federal law. Further, the SAFE Act does not clarify the status of hemp. Although legalized at the Federal level, many states have not yet updated their own laws or issued regulations governing hemp. Finally, banks would still have to comply with Bank Secrecy Act requirements, as well as FinCEN guidelines, and regulations would have to be written under the SAFE Act.

On the positive side, enactment of the SAFE Act would definitely be a step toward reforming cannabis laws. It might encourage more community banks and even larger banks to join the over 600 depository institutions already providing financial services to CRBs. In addition, passage of the SAFE Act could aid in removal of the taint of money laundering from proceeds of transactions with CRBs, thereby encouraging more service providers and vendors to engage with the cannabis industry.