The SAFE Banking Act and the Future of Cannabis Banking in the U.S.

By October 28, 2019 November 12th, 2019 Cannabis, Tax
Cannabis farm in a greenhouse | Safe Banking Act

Armored cars. Ex-military guards. Automatic Pistols. Black cash boxes. These are all necessary components to transfer money throughout a number of states. It’s not the black market. It’s the cannabis industry. An industry with perfectly legal operations (in some states) and yet no means to safely and properly store or move funds.

The fact of the matter is that recreational marijuana is legal in 11 U.S. states (and counting) and Washington D.C., while 33 states allow medicinal marijuana. However, the illegality on the federal level has made it impossible for legitimate cannabis-related businesses to store their money in federal banks. By simply doing business with cannabis companies, the banks put themselves at risk of severe federal punishment. Thus, with no federal banks to turn to and very few credit unions offering their services to a market that far outnumbers them, many cannabis businesses are left with bulletproof vehicles and armed guards moving their cash from place to place. No viable method of transferring funds electronically resulted in all cash businesses. And there is a lot of cash at play.

Not only is the current system unsafe for those involved, but it hinders the states from collecting the necessary taxes. So where does that leave the cannabis industry as a whole? Some states have initiated legislation to help solve the problem, but what about the federal government? Where does it stand on the issue?

The answer, for now, is the SAFE Banking Act and it is making moves.

What is the SAFE Banking Act?

The Secure and Fair Enforcement (SAFE) Banking Act, also known more formally as H.R. 1595, aims to prevent federal regulators from intervening in the actions of a depository institution dealing with a legal cannabis business. More plainly, it protects financial institutions that elect to do business with cannabis companies in states where marijuana is legal. The bill would prohibit federal regulators from interfering or punishing financial institutions for the sole reason of working with legitimate cannabis-related businesses.

Origins of the SAFE Banking Act

The SAFE Banking Act is a direct response to the financial service issues plaguing legal cannabis companies operating in the United States. More specifically, the legislation intends to bridge one of the gaps between the companies’ legal standing in particular states and the current federal prohibition of marijuana sales and usage. There are clear and obvious problems tying the hands of the legal cannabis companies and forcing them to go all cash. Banks and other federal service institutions also have their hands tied, as working with legal cannabis companies either straps them with severe compliance regulations and/or puts them at risk of federal punishment. As a result, the cannabis companies performing legal operations are themselves at risk, both professionally and personally. They struggle to get the loans necessary to grow their businesses or launch new ones, to recover from burglaries or other adverse events, and more.

A solution – at the federal or state level – is vital.

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Where does the bill stand today?

Starting the Process

Originally, the SAFE Banking Act made its way to Congress in May of 2017 under the sponsorship of Sen. Jeff Merkley (D-OR) and Rep. Ed Perlmutter (D-CO). However it never received a full vote or hearing in either chamber of Congress.

Following the 2018 election year, the SAFE Banking Act was again introduced to the House of Representatives by Rep. Perlmutter and Rep. Denny Heck (D-WA) on March 7, 2019. The bill was referred to the Judiciary and Financial Services Committees of the House. Promptly on March 28, 2019 the Financial Services Committee, led by Rep. Maxine Waters (D-CA), voted 45-15 to advance the bill to a full House vote. At the time, the bill had garnered wide spread bipartisan support and collected 152 cosponsors.

However, after success in the Financial Services Committee, the bill stalled in the House. In response, a bipartisan group of attorneys general from 33 states and five territories pushed Congress to advance the bill to the House at large. Subsequently, on June 6, 2019 the bill transferred out of the committee and landed on the calendar for a future House vote.

While the bill waited its turn on the House voting calendar, Sen. Merkley introduced a companion bill to the Senate where it was referred to the Banking, Housing, and Urban Affairs Committee. In July, Committee Chairman Sen. Mike Crapo (R-ID) announced a hearing before the end of the year.

As time passed and the moment for a House vote neared, the bill continued to gather support throughout Congress. By September 18, the House bill featured 206 cosponsors, including U.S. House Judiciary Committee Chair Jerry Nadler (D-NY) and U.S. House Financial Services Committee Chair Maxine Waters. Likewise, the Senate companion bill boasted 33 cosponsors, including Dick Durbin (D-IL), the Senate Democratic Whip.

Finally, on September 20, 2019, House Majority Leader Steny Hoyer (D-MD) announced the vote was set to take place the following week under the suspension of the rules. Under suspension of the rules means that the bill will not be amended and must be approved by a two-thirds majority vote. The vote would mark the first time a standalone marijuana bill reached the House floor.

The House Vote

On September 25, 2019, for the first time in the history of the U.S. Congress, the House of Representatives passed a standalone marijuana reform bill. The chamber pushed the legislation forward with a resounding 321-103 vote.

Up Next: The U.S. Senate

Following a strong bi-partisan victory in the House, the bill now heads to the U.S. Senate where it is likely to face more stringent opposition. The bill, going up against a Republican-held Senate, now sits with an uncertain future, especially with little time remaining on the legislative calendar and an ongoing impeachment inquiry headlining Congressional affairs.

Yet, supporters are hopeful, noting the remarkably strong bipartisan support in the House.

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What are both sides saying?


Following the historic committee vote in March, a number of different lobbyists and cannabis groups initiated active involvement to continue the push forward. Notably, some of the largest financial institutions in the country included the SAFE Banking Act in their first quarter lobbying reports. Some of the mainstream banking institutions and financial service companies ramping up their involvement are: Wells Fargo, Citigroup, Paypal, Prudential, Nationwide and HSBC North America.

The involvement and support from banks comes as little surprise as the American Bankers Association (ABA) has been a vocal supporter of the SAFE Banking Act and even testified on its behalf during the House Financial Services Committee hearing. Joining the ABA in support are other national banking groups like the Credit Union Association and the Independent Community Bankers of America. Additional Congressional urging has come from the National Association of State Treasurers, a bipartisan group made up of more than 30 attorneys general, and the governors of 20 states. The National Organization for the Reform of Marijuana Laws (NORML) is also in favor of the SAFE Banking Act.

Among the arguments put forth by the ABA is that the state vs. federal clashing over banks produces far broader issues for financial institutions. It is about more than whether they can open checking accounts for cannabis businesses. In their written testimony, the ABA explains, “The impact of the divide between state and federal taxes extends to any person or business that derives revenue from a cannabis firm – including real estate owners, security firms, utilities, vendors and employees of the cannabis business.”

In an open letter to Congressional leaders, 38 state and attorneys general wrote that the current cannabis banking situation, “makes it more difficult to track revenues for taxation and regulatory compliance purposes, contributes to a public safety threat as cash-intensive businesses are often targets for criminal activity, and prevents proper backing of billions in finances across the nation.”


On the other side of the coin are those opposed to this particular banking bill.

The American Civil Liberties Union (ACLU), the Center for American Progress, The Drug Policy Alliance and Human Rights Watch are among the high-profile organizations urging Congressional leaders to stall the bill. The Drug Policy Alliance explained, “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…The banking bill does not solve the underlying problems of marijuana prohibition – namely, that many people of color have been saddled with criminal records for a substance that is now legal in many states, and that communities have been shut out of the emerging and booming marijuana industry.”

Instead, the Drug Policy Alliance supports another piece of legislation, the Marijuana Opportunity Reinvestment and Expungement (MORE) Act. The measure aims to end federal cannabis prohibition, expunge marijuana convictions and create programs to help communities reap the financial benefits of legalization.

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Why is this bill so important?

Marijuana prohibition took hold 80 years ago when the federal government banned the sale, cultivation and use of the cannabis plant. However, since then 11 states and Washington D.C. legalized the growth, sale and distribution of cannabis for recreational use. Another 33 states permitted cannabis use for medical purposes. The federal government is behind the times. Our fellow North American countries each legalized marijuana at the federal level. Last October, it was Canada – becoming the first G7 country to do so – and Mexico soon followed suit once the Mexican Supreme Court ruled that marijuana prohibition is unconstitutional.

The rise in the number of states choosing to legalize the product reflects the changing beliefs about it. In a Pew Research Center poll in 2018, 62% of Americans were in favor of legalizing marijuana. This is not new, in fact it is part of a steady increase in favorability. Of that group, 74% of Millennials, 63% of Gen Xers, and 54% of Baby Boomers are in favor of marijuana legalization.

While the federal government has no plans to legalize cannabis in the near future, the reality is that a growing number of individual states are on board. Allowing banks and other financial institutions with federal ties to legally and safely do business with the burgeoning cannabis industry is critical.

As it stands right now, the federal banking ban on doing business with cannabis-related businesses is impacting more than just those directly involved. For example, Green Bits, a company that helps cannabis retailers and dispensaries manage their businesses and stay compliant with state laws, experienced this firsthand. After their company executive spoke about the lack of financial services available to cannabis companies, Green Bits had one of their financial service providers terminate their relationship with the company. No work that Green Bits does touches marijuana; however, the tangential link was enough to push the financial institution away. The lack of federal legislation protecting banks doing business with cannabis companies is adversely affecting other companies and industries as well.

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What is going on at the state level?

As the federal government tries to work through the SAFE Banking Act, states with legalized marijuana are trying to do their part as well. Here are some examples:

Most recently in California, where marijuana activities have been legal since January 1, 2018, introduced Senate Bill 51 (SB 51). The bill would authorize specified banks and credit unions to do business with legitimate cannabis-related businesses on a limited basis. Despite momentum in the State House of Representatives, the bill’s sponsor elected to pull it until the start of the new session in January 2020. The bill does have an “urgent” tag attached to it and there is hope about progressing the bill onward and eventually to the desk of Governor Gavin Newsom.

Washington State, which legalized marijuana in 2014, has found more luck. Cannabis companies have access to some credit unions and small community banks open to serving them and their needs. However, it comes with certain stipulations. For example, to open a “Green” account, an owner of the cannabis company must submit their license information, operating agreement and several signed waivers. Furthermore, state laws assign extra requirements for the banks as well. The banks must perform annual facility inspections of their cannabis business customers, verify the existence of ID checkpoints at appropriate doors and registers, ensure no employees are under 21 years of age and all security cameras function properly, and that there is a fireproof safe and operational security system. Even then, cannabis companies do not have access to certain financial services.

Similarly in Oregon, there are some credit unions willing to serve cannabis-related companies. However, the compliance requirements are difficult. Lynn Heider, Vice President of the Northwest Credit Union Association (NWCUA) noted that the compliance burden is “time-consuming and significant.”

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What can I do while we wait?

As legislation continues to hit roadblocks, cannabis companies will continue their operations and we are here for you. Squar Milner is one of the few California-based accounting firms at the forefront of working with clients in the cannabis industry and the complex financial issues they face on a daily basis.

Our robust Cannabis Practice is here to help you with all of your tax, audit and accounting needs. We are well-versed in serving both publicly- and privately-held cannabis companies in both the United States and Canada. Don’t wait, reach out to us today!

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Disclaimer: This material has been prepared for informational purposes only, and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional tax planner or financial planner. All information is provided “as is,” with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information.