Cannabis Banking Bill Moves Forward

Manatt on Washington

Legislation on cannabis banking continues to make its way through the House of Representatives, with one bill garnering approval by the Financial Services Committee.

Although passage of the measure would certainly be favorable to the banking industry, it does not provide a full solution to the problem.

What happened

Lawmakers are continuing to make headway on the effort to provide banking services to the cannabis industry. While marijuana remains illegal under the federal Controlled Substances Act (CSA), 33 states have authorized medical marijuana use and ten have legalized recreational marijuana.

Due to the underlying concerns about violating federal laws, banks have understandably hesitated from diving into the growing—and lucrative—business of providing financial services to the cannabis industry. But with an apparently more cannabis-friendly Attorney General heading up the Department of Justice (DOJ) and Democratic control of the House of Representatives, legislators are pushing for a solution.

One proposal is the Secure and Fair Enforcement (SAFE) Banking Act, which 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. Under the bill, financial institutions still would be required to file Suspicious Activity Reports and comply with other Financial Crimes Enforcement Network (FinCEN) requirements.

Significantly, under H.R. 1595, in a state that has legalized activities related to marijuana, a depository institution that provides financial services to cannabis-related businesses that are complying with state law may not be held liable under any federal law or regulation solely for providing such financial services, and the proceeds of these cannabis transactions would not be deemed proceeds of unlawful activity under federal law.

After a hearing, the House Financial Services Committee voted in favor of the bill by a vote of 45 to 15. All of the committee’s Democrats voted for the measure, as did 11 Republicans.

The SAFE Act remains in the House Judiciary Committee, which has yet to take up the bill, but it continues to gain bipartisan co-sponsors. More than 130 lawmakers have signed on in support of the measure, including 12 Republicans. Backers hope that H.R. 1595 will make it to the House floor by the summer.

Another option for lawmakers is the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act proposed by Sens. Elizabeth Warren (D-Mass.) and Cory Gardner (R-Colo.), which would amend the CSA to create an exception for persons involved in a variety of capacities relating to marijuana, including its manufacture, production, distribution, possession and delivery, as long as they act in compliance with state law. In turn, banks could offer financial services to such parties without fear that the underlying activities of their customers violated federal law.

While S.B. 1028 would provide greater protection to financial institutions by creating an exemption to the CSA, the lawmakers reintroduced the STATES Act only this week, putting it behind the schedule of the SAFE Banking Act. 

To read the SAFE Banking Act, click here.

To read the STATES Act, click here.

Why it matters

The continuing momentum of the SAFE Banking Act indicates that there is support for enabling financial institutions to provide banking services to the cannabis industry. However, the bill is not a panacea, as it does not prevent the Department of Justice or FinCEN from taking action against banks that provide services to members of the marijuana industry. It also remains unclear that either bill could survive opposition in the Senate. Nevertheless, the fact that the SAFE Banking Act successfully made it out of the Financial Services Committee—and the more than 130 bipartisan lawmakers who have signed on in support—reflects an ongoing effort by federal legislators to find a solution to legislative impediments to cannabis banking. Coupled with ongoing state efforts to continue to advance solutions to banking the marijuana industry, the conundrum of banking the cannabis industry may be riding a headwind into the next election cycle.