SAFE Banking Act brings new life to federal banking for cannabis companies

Federal cannabis banking solutions took another small step towards reality last week when the House Financial Services Committee approved the SAFE Act (Secure and Fair Enforcement) 45-15 for a vote on the House floor. With widespread Democratic support, the bill, introduced by Reps. Ed Perlmutter (D-CO) and Denny Heck (D-WA) is expected to pass the House easily. The bill’s fate in the Republican controlled Senate is less certain, but bipartisan support may drive Senate Majority Leader Mitch McConnell to at least allow the bill to the Senate floor for a vote.

The SAFE Act would be a boon to the cannabis industry. Legal (state, if not federal) cannabis businesses have had limited access to state chartered credit unions for a few years, but the possibility of federal criminal liability for money laundering has kept big banks out of the cannabis game. And in states with limited banking options, that means many cannabis businesses are still dealing in cash, with all of the associated risks that large cash transactions bring.

Those few credit unions that offer cannabis banking services, like Maps in Oregon, are still forced to place significant restrictions on the account holders. Commingling funds between different shared license types is prohibited. Account holders are required to submit to regular audits. Fees are, shall we say, above market compared to the average banking customer due to the increased regulatory compliance. MAPS didn’t even initially advertise its cannabis banking services and required account holders to sign non-disclosure agreements.

Banking access remains problematic for hemp companies, too. Even after the 2018 Farm Bill passed at the end of last year, federally legal hemp businesses have yet to find banks opening their arms, or even doors for that matter. To many banks, hemp and cannabis are still synonymous. Anecdotally, when we’ve reached out to banks about hemp accounts, the unfortunate response is total ignorance of the Farm Bill’s effects. Hemp is no longer subject to the Controlled Substances Act like cannabis, but most bank managers are blissfully unaware of the change. The only thing standing in the way of hemp banking is the banks themselves.

The SAFE Act probably isn’t a priority in the Republican Senate or for the White House, but its introduction and support in the House is the most promising development for cannabis banking in years. The Obama administration in 2014 cleared the way for banks to begin taking cannabis accounts when it directed the DOJ not to pursue charges against banks who do business with legal cannabis companies. But that came with an enormous caveat: the DOJ wouldn’t go so far as to say banks dealing with legal cannabis companies were exempt from money laundering prosecution. The bank response was predictably lukewarm.

One notable exception locally was M-Bank, who briefly provided cannabis accounts in 2014-2015. They quickly amassed $6 million in deposits in Oregon, and even launched services in Colorado before the FDIC quashed their efforts. For the $165 million bank, that was big business. Regrettably, the experiment was short-lived when M-bank succumbed to the regulatory compliance and red tape that cannabis banking still required at the time. Ironically, M-Bank sold its assets to Riverview Community Bank in 2016.

Whatever happens, cannabis banking remains an untapped client base for banks willing to take on an industry that desperately wants parity with virtually every other business area. Declassifying cannabis from the Controlled Substances Act would solve not only financial services industry problems, but interstate commerce problems as well. Maybe in another 5 or 10 years.