State AGs, ABA Back Bill On Financial Services For Cannabis

Financial Services Law

Support continues to build for the Secure and Fair Enforcement (SAFE) Banking Act, with a coalition of 38 state and territorial Attorneys General as well as the American Bankers Association (ABA) writing to lawmakers to urge passage of the bill.

Both letters noted the continuing national growth of the cannabis industry, encouraging legislators to advance the measure in order to provide clarity to financial institutions concerned about working with cannabis businesses.

What happened

Reintroduced this legislative term by Rep. Ed Perlmutter (D-Colo.), the SAFE Banking Act would prohibit federal banking regulators from terminating deposit insurance, penalizing depository institutions from providing financial 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.

Significantly, under the bill, 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.

The financial services industry has struggled with how to address the banking needs of the growing and lucrative cannabis industry. While 33 states have legalized medical cannabis use, 17 states have legalized the medical use of cannabis extracts high in CBD and low in THC and 11 states have legalized recreational use, cannabis remains illegal under the federal Controlled Substances Act (CSA) and banks are prohibited from knowingly providing services to illegal enterprises.

The House Financial Services Committee advanced the SAFE Banking Act in March, but it was referred to the House Judiciary Subcommittee on Crime, Terrorism and Homeland Security for review.

Now the legislation has received the support of a bipartisan group of state and territorial Attorneys General, who wrote to Congressional leadership requesting that either the SAFE Banking Act or similar legislation be advanced in order to “provide a safe harbor for depository institutions that provide a financial product or service to a covered business in a state that has implemented laws and regulations that ensure accountability in the marijuana industry.”

Currently, the billions of dollars being spent on cannabis products are handled outside of the regulated banking system, a grey market that makes it difficult to track revenues for taxation and regulatory compliance purposes, contributes to a public safety threat with cash-intensive businesses, perpetuates an environment that supports black-market alternatives and prevents the proper tracking of the money across the nation, according to the letter.

“Importantly, this measure in no way constitutes an endorsement of any state or territory’s specific approach to the legalization of marijuana-related transactions, and the Act is in no way an endorsement for the legalization of medical or retail marijuana in those jurisdictions that choose not to pursue such an approach,” the AGs wrote. “But regardless of how individual policymakers feel about states permitting the use of medical or recreational marijuana, the reality of the situation requires federal rules that permit a sensible banking regime for legal businesses.”

The banking system “must be flexible enough to address the needs of businesses in the various states and territories,” the AGs told legislators, which “includes a banking system for marijuana-related businesses that is both responsive and effective in meeting the demands of our economy.”

In a similar missive, ABA president and CEO Rob Nichols wrote to Sens. Jeff Merkley (D-Ore.) and Cory Gardner (R-Colo.), expressing the organization’s support for the SAFE Banking Act. “This bipartisan legislation takes an important step toward enabling financial services for cannabis-related businesses,” he wrote.

The measure would direct the Financial Crimes Enforcement Network and the federal banking regulators through the Federal Financial Institutions Examination Council to issue guidance and exam procedures for banks doing business with cannabis-related legitimate businesses, including real estate owners, security firms, utilities, law firms, employees and investors in such companies.

“We believe such explicit, consistent direction from federal financial regulators will provide some needed clarity for banks and help them to better evaluate the risks and supervisory expectations for cannabis-related customers,” according to the letter. “Without greater clarity, that entire portion of economic activity—estimated by some to be in the tens of billions of dollars—in legal cannabis states will continue to be marginalized from the banking system.”

The SAFE Banking Act “is an important measure that helps clarify many issues for the banking industry, regulators, businesses and consumers,” Nichols concluded, encouraging the lawmakers to address the issue.

To read the AG’s letter, click here.

To read the ABA’s letter, click here.

Why it matters

While other options have been considered—a state-run cannabis bank in California, for example – momentum continues to build behind the federal legislation, with an ever-increasing number of sponsors, a current Attorney General apparently taking a more tolerant view of cannabis banking, overwhelming committee approval and the added support of the Attorneys General and the ABA. Obstacles remain to the eventual passage of the measure, however, with opposition from states that haven’t legalized cannabis, for example.