Marijuana is estimated to be a $10 billion industry and rapidly growing. Almost all of it is conducted in cash. Although legal in thirty three states plus Washington, D.C., Puerto Rico and Guam, marijuana remains illegal at the federal level. Accordingly, financial institutions that handle proceeds from a transaction involving the distribution, manufacture or sale of marijuana would be handling illegal proceeds in violation of both federal money laundering statutes and banking regulations that prohibit such institutions from participating in any transaction or engaging in any relationship involving illegal proceeds.

Despite these federal laws, in 2014, Department of Treasury’s FinCEN issued a series of non-binding guidelines for financial institutions interested in providing banking services to marijuana related businesses (MRBs). In issuing those guidelines, FinCEN did not opine on or condone such transactions as legal. FinCEN also required banks providing such services to file suspicious activity reports (SARs) for transactions, including deposit transactions, involving MRBs. Based on FinCEN statistics, in 2018 over 500 financial institutions filed SARs related to marijuana transactions. These financial institutions were mostly community banks and credit unions. National, regional, state and large more local banks have stayed away from MRBs and any transactions involving marijuana. These institutions are not willing to risk loss of deposit insurance, accusations of money laundering or even loss of banking licenses and it is clear that the situation will not change without a change in federal law.

Six years ago, when only a handful of states had legalized marijuana, Congressman Ed Perlmutter (D-CO) first introduced legislation to provide a safe harbor for financial institutions wanting to service the industry. Until this session of Congress, such legislation was dead on arrival.

This year, with a Democratic controlled House, the Secure and Fair Enforcement Banking Act of 2019, known as the “SAFE Act,” is very much alive. In late March of this year, the House Financial Services Committee voted overwhelmingly to move the SAFE Act to the full House for a vote, and the first hearings on the Act were held in April.

The SAFE Act, if enacted into law, would not legalize marijuana. Rather, it would provide a safe harbor to enable depository institutions, FDIC-insured banks and credit unions, to serve state legal MRBs without violating money laundering and other federal laws. The SAFE Act also provides that proceeds from transactions involving MRBs are not be considered proceeds from illegal activities. This could facilitate a wide variety of financial services involving MRBs, such as stock trading, custodial and escrow accounts and both real estate and corporate financing.

And then there is the Senate. While both the marijuana and financial services industries are optimistic that the House will pass the SAFE Act, there is little optimism that the Republican controlled Senate will pass the SAFE Act. In late April, the Chair of the Senate Finance Committee, Sen. Mike Crapo (R-ID) would not commit to take up the legislation because “we want to see how we can resolve this difference between criminal law and our financial law.” Isn’t that what Congress is supposed to do?

In summary, while the SAFE Act and other legislation before Congress such as the STATES Act, which would prevent enforcement of the Controlled Substances Act against state legal marijuana transactions, provide glimmers of hope, it appears that there will be no change in the laws governing financial institutions’ ability to serve the marijuana industry until there is a change in control of the Senate.