SAFE Banking Act Provides Safe Harbor To Financial Institutions

SAFE Banking Act Provides Safe Harbor To Financial Institutions

The SAFE Banking Act or the Secure and Fair Enforcement of Banking Act of 2019 was put in place to create protections for depository institutions that provide financial services to cannabis-related legitimate businesses.

Regardless of where one stands on the issue of marijuana legalization, it’s clear that nobody benefits when much of our nation’s existing $10+ billion legal cannabis industry is forced to operate outside the banking system. Marijuana businesses want bank accounts just like everyone else and support from financial institutions.

In the past two years, legitimate cannabis businesses have deposited over $500 million in cash into Maps Credit Union in Salem, Oregon. Despite this, the legal cannabis industry is seen as uncertain and potentially dangerous (high risk) when it comes to financial services. While cannabis is legal in some form in 47 states, it is still illegal under federal law. Banks that work with them could be charged with crimes including money laundering. Collectively, these states represent nearly 319 million people or 98% of the U.S. population.

On Wednesday, February 13, banking and credit union executives, law enforcement representatives, and the cannabis industry went before lawmakers to argue in favor of the change. People who wish to open up the banking system to legal pot operators see the hearing itself as a small victory. This is the first step toward proposing a bill in Congress that would offer financial institutions protections against federal regulators when dealing with legal cannabis operations.

The federal regulatory punishment worries banks credit unions and card networks. Even though the potential revenue for cannabis businesses are high, these card networks are just too scared of possible punishment.

Cannabis Tension

Tension grows as more time passes with no resolution. Legal suppliers of medical and recreational cannabis believe they should have access to the country’s legitimate financial system. Many states have legalized sales, possession, and use of pot to varying degrees even though the federal law still classifies pot as a harmful drug. Because the federal law still views pot as an illegal substance, most banks and credit unions are reluctant to accept deposits from or offer other banking services to legal cannabis businesses.

To open a checking account in the cannabis industry, it’s going to cost you $3,000-$5,000 a month. It comes with no lines of credit, no merchant services, no mortgages. 

This is why many cannabis companies chose to stay on a cash basis. On top of that, many financial institutions are just too afraid of being charged by the federal government for breaking money laundering laws. While Obama was in office, the Department of Justice’s Cole Memorandum stated that federal attorneys would prosecute violations of federal marijuana law in the states that had legalized the drug. About a year ago, the trump administration revoked that directive. This combined with the no federal “safe harbor” law regarding financial institutions, has led to uncertainty and ongoing FI reluctance to serve the growing U.S. market for legal weed.


SAFE Banking Act

SAFE Banking Act

The “SAFE Banking Act of 2019” or the “Secure and Fair Enforcement Banking Act of 2019’’ is a safe harbor for depository institutions. It states that a Federal banking regulator may not:

  • Terminate or limit the deposit insurance or share insurance of a depository institution solely because the depository institution provides or has provided financial services to a cannabis-related legitimate business
  • Prohibit, penalize, or otherwise discourage a depository institution from providing financial services to a cannabis-related legitimate business
  • Recommend, incentivize, or encourage a depository institution not to offer financial services to an account holder, or to downgrade or cancel the financial services offered to an account holder solely because the account holder is a manufacturer, producer, owner, operator, or employee of a cannabis-related legitimate business

The Hearing For The SAFE Banking ACT

The hearing on Wednesday before the House Subcommittee on Consumer Protection and Financial Institutions, focused on access to banking services for those businesses. The Colorado representative and Washington representative both back the Secure and Fair Enforcement of Banking Act of 2019, or the SAFE Banking Act. The speakers in favor of the SAFE Banking Act make sure to point out they were expressing no views on the legalization of pot, only the concept of providing “safe harbor” to financial institutions that work with cannabis businesses. These speakers also discussed the danger these businesses are in when they are forced to run operations via cash.

According to lawmakers and reports, this was the first hearing which proposed that bill. The bill would prevent federal regulators from targeting banks that accept deposits from legal cannabis operators. If this bill goes into place then we could see limiting FDIC protections for those cash deposits.



Cash Dangers

Cash Dangers

Speakers at the hearing on Wednesday told violent stories of armed robberies, money laundering, and tax evasion. They also went into the negative impacts of a cash-based industry. A former Maryland law enforcement officer who now works as executive director of the Law Enforcement Action Partnership, Neill Franklin, said criminals have little problem scoping out businesses that rely on cash and targeting owners or employers (who get paid in cash). He told lawmakers that opportunities for cash robberies will increase as more cannabis businesses start work on a cash basis.

Racheal Pross, a representative from the Credit Union National Association spoke about their first-hand experiences and challenges of facing state-sanctioned cannabis businesses and financial institutions. Maps Credit Union in Oregon has about 64,000 members. This credit union does criminal background checks on all account holders and commissions. They also do an annual external compliance audit for all cannabis-related business it conducts and monitors cannabis accounts closely. They are able to remove the cash from the streets where is it carried around in backpacks and shoeboxes. Racheal Pross also describes the favorable workforce balance at Maps Credit Union.  “We average one employee for every 40 cannabis business accounts,” she told lawmakers at the hearing. Maps stands as the only financial institution in Oregon to do business with the cannabis industry.

Oregon has over 50 state-sanctioned cannabis operations and only one financial institution that works with them.

Merchant Processing For The Cannabis Industry

Every business needs a payment processor for debit and credit card acceptance. It’s just a part of doing business in the modern world. The cannabis industry is considered a high-risk industry along with cigarettes, vape shops, and others; however, many merchant processing companies just won’t do business with this industry due to the conflicting concerns between state and federal laws, which is the same concerns for support from financial institutions in general, but Maverick BankCard continues to keep up to date with compliance and laws coming out in regards to the Cannabis Industry. The SAFE Banking Act appears to be a strong push forward for for legitimate and licensed cannabis businesses to receive the electronic banking services they not only need, but deserve.


SAFE Bank Act

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