Burnt Out? SAFE Banking Act Faces Senate Opposition

Financial Services Law

Has the Secure and Fair Enforcement (SAFE) Banking Act hit a snag in Congress?

After making it farther than any prior legislation enabling financial services to be provided to legitimate marijuana businesses, the bill appears to be stalled in the Senate.

What happened

For several years, the financial services industry has struggled with how to address the needs of the growing—and lucrative—state-legal cannabis industry to obtain banking and financial services. A total of 33 states, including California, have legalized medical use of marijuana and 12 states allow recreational use of marijuana, but cannabis remains illegal under the federal Controlled Substances Act (CSA), thus banks and other financial institutions are prohibited from providing services to those businesses.

To alleviate the situation, in early 2019, Rep. Ed Perlmutter (D-Colo.) introduced the SAFE Banking Act, which would prohibit federal banking regulators from terminating deposit insurance, penalizing depository institutions from providing services, recommending or incentivizing a bank not to offer financial services or taking other corrective action against banks because they work with legitimate cannabis-related businesses.

Under the legislation, in a state that has legalized activities related to cannabis, a depository institution that provides financial services to state law-compliant cannabis-related businesses may not be held liable under any federal law or regulation solely for providing such financial services.

In September, the House overwhelmingly passed the bill—with the support of state attorneys general and the industry—in a 321-to-103 vote sending the measure to the Senate for consideration.

But the legislation, currently before the Senate Banking, Housing and Urban Affairs Committee, is opposed, at least in its current form, by Committee Chair Sen. Mike Crapo (R-Idaho).

“I remain firmly opposed to efforts to legalize marijuana on the federal level… I also do not support the SAFE Banking Act that passed in the House of Representatives,” Sen. Crapo said in a statement. “Significant concerns remain that the SAFE Banking Act does not address the high-level potency of marijuana, marketing tactics to children, lack of research on marijuana’s effects and the need to prevent bad actors and cartels from using the banks to disguise ill-gotten cash to launder money into the financial system.”

The lawmaker asked for feedback on these issues, proposing tweaks to the bill such as adding a potency threshold on THC content, directing the Financial Crimes Enforcement Network to promulgate rules pertaining to the provision of financial services for the marijuana industry and ancillary businesses (including Suspicious Activity Reports), and amending the measure to address interstate commerce problems by clarifying that financial institutions must comply with all applicable laws related to cannabis and cannabis products in each respective state in which they operate.

Proponents of the SAFE Banking Act were not dissuaded from their support, however.

“Every day that Congress continues to ignore reality, unintended negative consequences pile up for legitimate businesses—both in the cannabis industry and outside it,” said Sen. Cory Gardner (R-Colo.), a backer of the legislation whose state has legalized both medical and recreational marijuana. “The conflicting federal and state marijuana laws are an impediment to needed relief for those with serious medical issues and do nothing to help improve law enforcement or transparency in the industry.”

Members of the industry similarly expressed frustration, noting that many of the concerns highlighted by Sen. Crapo were addressed in the House.

“[The American Bankers Association], like many other stakeholders, has already provided the committee relevant information on several of the issues identified by the chairman including legacy cash, interstate commerce and ‘Operation Chokepoint,’” James Ballentine, executive vice president of congressional relations for the ABA, told American Banker. “We continue to believe that the SAFE Banking Act responsibly addresses the current legal limbo over cannabis banking, and a strong bipartisan majority in the House shares that view.”

To read the SAFE Banking Act, click here.

To read Sen. Crapo’s statement, click here.

Why it matters

Although Sen. Crapo’s opposition to the SAFE Banking Act is a further delay to the passage of this needed legislation, supporters of the bill continue to advocate for a solution to the continuing—and growing—problem of providing financial services to legitimate marijuana-related businesses. As states continue to pass legislation to legalize cannabis and some state regulators have affirmed that they will not bring enforcement actions based solely on financial institutions serving legitimate cannabis-related businesses, pressure to find an effective federal solution to the cannabis conundrum will continue.