Written by Steven M. Schain, Esquire

Steve Schain is a Senior Attorney at Hoban Law Group and admitted to practice in Pennsylvania and New Jersey. Steve represents entities, governments and individuals in choosing a structure, preparing and submitting license application, regulation, compliance and litigation, and drafting legislation.

Paving the way for banks and insurance companies to serve state-legal Marijuana growers, processors, transporters, and sellers (“Marijuana-Related Businesses” or “MRBs”) without fear of federal reprisal, on September 25, 2019, the United House of Representatives passed the “Secure and Fair Enforcement Banking Act of 2019” (“SAFE Banking Act”), a bipartisan bill seeking to align federal and state “banking services access” laws by prohibiting federal banking regulators from penalizing banks and credit unions servicing MRBs, by a 321-103 vote.

Difficulties in Banking Cannabis Cash

Spanning 34 states and generating $11.5 billion domestically in 2019, banking, cash management, and insurance have been among legalized Marijuana‘s greatest obstacles.

While 633 banks and credit unions provide Marijuana-Related Businesses with accounts, it is a small fraction of nation’s 11,954 financial institutions, which, to offset onerous compliance costs, impose service fees reaching $10,000 per month per account.  Due to difficulty in obtaining financial and armored car services and because Marijuana is primarily, if not exclusively, a cash business, MRB’s face overwhelming safety, security, and operational issues.

First, Marijuana-Related Businesses, their employees, and their patients and vendors face physical criminal risk of robbery and assault risk.  Second, the “lack of financial services” access both imposes additional disbursement and “accounting and record-keeping” requirements on the MRB and results in a massive productivity loss.

Third, because they lack financial services and receive all monies in cash, Marijuana-Related Businesses are forced to use cash to pay employees, landlord, taxes (local, state, and federal), utilities (electricity, water), and vendors, thereby passing on the criminal vulnerability, administrative burden, and productivity loss.

Fourth, because insurance typically only covers up to $20,000 cash loss and MRB’s often have between $200,000 to $500,000 in cash on hand, theft can be a fatal blow to an enterprise.

Fifth, even if it has a banking account, after writing a check to another Marijuana-Related business, an MRB’s account may be flagged and shut down creating huge business interruption issues.  Further, following account closure MRB’s owners and employees often have their personal accounts shut down and experience difficulty in obtaining home loans or credit cards.

SAFE Banking Act’s Protections

The SAFE Banking Act prohibits federal banking regulators from:

  1. terminating or limiting deposit insurance solely for providing financial services to a cannabis-related legitimate business or ancillary service provider;
  2. prohibiting, penalizing, or discouraging a bank from providing financial services to a cannabis-related legitimate business or ancillary service provider;
  3. recommending, incentivizing, or encouraging a bank not to offer, downgrade or cancel financial services solely because cannabis-related legitimate business; or
  4. taking adverse action on a loan made to a cannabis-related legitimate business or its employee, owner, or operator or an owner or operator of real estate or equipment that is leased to a cannabis-related legitimate business.

The SAFE Banking Act also includes provisions aimed at making financial institutions more comfortable serving the now-legal hemp and hemp-derived Cannabidol markets and incorporates the Treasury Department’s Financial Crimes Enforcement Network February 14, 2014, dated “Guidance” listing an approved methodology for providing financial services to Marijuana-Related Businesses including filing of Suspicious Activity Reports.

Copyright ©2020 by Steven M. Schain, Esquire

Cannabis and the Safe Banking Act