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SAFE Banking Act and Cannabis


On September 25th, the cannabis industry celebrated perhaps the most significant victory in the nascent sector’s history when the U.S. House of Representatives voted 321 in favor and 103 against to pass the Secure And Fair Enforcement (SAFE) Banking Act. The bill aims to offer clarity and protection to financial institutions that provide loans and services to cannabis businesses in states where medical and/or adult-use cannabis is legal.

The passage of the SAFE Banking Act is the highest profile indication of growing support for the cannabis industry at the federal level. And while cannabis operators, investors and advocates are right to cheer, it is important to note that this is just the first step of many on a long and winding path.

What exactly is the SAFE Banking Act?

The SAFE Banking Act aims to “create protections for depository institutions that provide financial services to cannabis-related legitimate businesses and service providers for such businesses.” Currently, because cannabis remains illegal at the federal level, the federal government equates providing banking and financial services to cannabis-related companies with money laundering. This creates a litany of both real and perceived risks for financial institutions, making them reluctant to work with the industry, or only doing so with such rigorous checks and balances that services become cost-prohibitive.

The SAFE Banking Act is relatively straight-forward in its purpose. In Sec. 2. SAFE HARBOR FOR DEPOSITORY INSTITUTIONS, the Act states that federal banking regulators may not do any of the following solely due to the fact that services are provided to a cannabis-related business:

  1. “Terminate or limit the deposit insurance or share insurance,” of financial institutions;
  2. “Prohibit, penalize, or otherwise discourage” financial institutions from providing services;
  3. “Recommend, incentivize, or encourage” financial institutions not to provide services;
  4. “Take any adverse or corrective supervisory action” on loans to the cannabis industry;
  5. “Prohibit or penalize” a financial institution from engaging in services.

It is also important to note that the SAFE Banking Act also extends these same protections to: “a State, political subdivision of a State, or Indian Tribe that exercises jurisdiction over cannabis-related legitimate businesses,” Federal Reserve Banks, and ancillary cannabis businesses.

An under-reported aspect of the SAFE Banking Act is language charging federal banking regulators to review, assess and provide an annual report on the availability and access of financial services to “minority-owned and women-owned cannabis-related legitimate businesses.” The bill also charges the Comptroller General of the United States (GAO) with performing a study and issuing a report to Congress on “the barriers to marketplace entry, including in the licensing process, and the access to financial services for potential and existing minority-owned and women-owned cannabis-related legitimate businesses.”

Next steps for the SAFE Banking Act

While passage in the House is a significant step forward, the SAFE Banking Act is a long way from becoming law. First the bill travels to the Senate, which will review it in committee, make revisions, and ultimately conduct their own vote. It is impossible to know how long this process might take, but for comparison, the SAFE Banking Act was introduced to the House on 3/07/2019, and voted on 9/25/2019, with over six months passing between the two. Should the bill successfully pass through the Senate, it then lands on the President’s desk for final approval.

As the SAFE Banking Act moves into the upper chamber, a number of imposing obstacles stand in the way. The first is Senate Majority Leader Mitch McConnell, who has a history of blocking bills that he perceives as not fitting the Republican agenda. McConnell went on the record last year stating that cannabis is “an illicit cousin (of hemp) which I choose not to embrace.” The silver lining is that McConnell has emerged as an unlikely advocate for hemp due to its growing role in the economy of his home state of Kentucky. He helped push the 2018 Farm Bill through, which legalized the cultivation of industrial hemp, and a new provision has been added to the SAFE Banking Act that includes hemp businesses under its protections. Since the SAFE Banking Act is not a “legalization” bill there is, perhaps, a greater likelihood that he’ll at least allow for a vote.

The Senate has had already had cannabis banking legislation in their chambers and Sen. Mike Capo (R-ID), Senate Banking Committee chairman, provided some optimism earlier this year when he stated his support for a banking solution and that he would hold a committee vote before the end of 2019. No further details have emerged regarding this vote, but there is hope that the House’s “Yay” vote will provide further momentum.

The SAFE Banking Act goes “too far” and “not far enough”

One of the more intriguing complexities of the SAFE Banking Act’s progress has been the steady emergence of organizations that stand in opposition to the bill. Prohibition groups have taken a predictable stance against its passage, but more surprisingly, a number of pro-cannabis reform and criminal justice advocacy groups have also expressed criticisms. Most prominently, a coalition of advocacy groups – including the ACLU, Human Rights Watch, and the Drug Policy Alliance – issued an open letter to the House stating that the bill does not go far enough. It reads, in part “We are concerned that if the House approves this bill, it will undermine broader and more inclusive efforts to reform our country’s marijuana laws.” It goes on to state: “The banking bill does not address marijuana reform holistically. Instead, it narrowly addresses the issues of banking and improved access to financial services, measures that would benefit the marijuana industry, not communities who have felt the brunt of prohibition.”

This sentiment has a lot of value, as the SAFE Banking Act does not address issues of legalization and social justice related to cannabis. The cannabis community is largely split between two schools of thought: “any” progress is exactly that; and progress without addressing underlying issues isn’t progress at all.

When will banking solutions for the cannabis industry be resolved?

As momentous and historic as the House vote was, the unfortunate fact is that nothing has changed on the ground for cannabis operators and investors, and there is no clear timetable for a resolution. As a result, the industry must continue to soldier on as they always have, relying on hard work, creativity and a pioneering attitude to grow this promising industry, despite unprecedented and unjust operational and financial obstacles.

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