SAFE Banking Act of 2021: where are we on the change of cannabis bank? – Finance and banking


United States: SAFE Banking Act of 2021: where do we stand on cannabis banking change?

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There is no denying that not only is the cannabis industry here to stay, it is growing exponentially. To date, 47 states, 4 US territories and the District of Columbia have legalized cannabis in one form or another – whether decriminalizing production, allowing uses limited to cannabidiol (“CBD”) or hemp, or ‘they are as broad as the authorization of cannabis containing TCH for medical use, adult use or both. Yet, compared to other industries, legitimate licensed cannabis businesses remain hampered by the difficulties they face in accessing traditional banking and financial services – largely due to the fact that ‘marijuana’ is still considered illegal. federally under controlled substances. Law (“CSA”). Currently, financial institutions (including federally insured banks) are reluctant, and often unwilling, to work with cannabis-related companies for fear of reprisal from federal banking regulators.

Due to the federal illegality of cannabis, financial institutions are forced to navigate a maze of anti-money laundering laws. For example, under the Banking Secrecy Act (“BSA”), financial institutions are subject to various record keeping and reporting requirements, and must file a Suspicious Activity Report (“SAR”) with the Financial Crimes Enforcement Network (“FinCEN”) whenever there is a suspected case of money laundering, fraud or the use of funds from illegal activities – such as a cannabis operation. Regulations under the BSA, CSA, and other federal laws also subject financial institutions to enforcement action and severe civil fines.

Thus, without proper banking and financial services, cannabis-related businesses are limited in their ability to raise capital, maintain advantageous loan arrangements, protect their income and, in general, grow their businesses. These disabilities are particularly restrictive in jurisdictions where cannabis is legal. What these businesses need to continue to thrive is simple: a federal seal of approval for cannabis banking.

Enter the Secure and Fair Enforcement (“SAFE”) Banking Act of 2021, the successor to the SAFE Banking Act of 2019. Taking advantage of the current domino effect seen among states to legalize cannabis use and regulate the market over time. Over the past two years, a more liberal administration (with Democrats controlling both the White House and Congress) and growing bipartisan support, supporters of the SAFE Banking Act of 2021 have reason to believe that this iteration of banking regulation will pass. Indeed, on April 20, 2021, the US House of Representatives passed the SAFE Banking Act of 2021 by a vote of 321-101. The bill is currently awaiting consideration by the Senate Committee on Banking, Housing and Urban Affairs.

If the SAFE Banking Act of 2021 is passed, it will alleviate many of the concerns of financial institutions regarding transactions with cannabis-related businesses by providing a number of safeguards, including:

  • Prohibit federal banking regulators from restricting, penalizing or discouraging a financial institution or depository institution from providing banking services to a legitimate cannabis-related business;
  • Establish that transactions involving the proceeds of legitimate cannabis companies are not considered the proceeds of illegal activities and, therefore, do not fall under anti-money laundering regulations;
  • Establish that deposit-taking institutions are not, under federal law, liable or subject to asset forfeiture for providing loans or other financial services to legitimate cannabis-related businesses;
  • Prohibit a federal banking regulator from asking or ordering a deposit-taking institution to end its client relationship with a protected cannabis business, unless the agency has a legitimate reason not based on a reputational risk; and
  • Amend reporting requirements for SARs and require FinCEN to publish guidelines on cannabis-related business transactions that are “consistent with the object and intent of the SAFE Banking Act of 2021 and no. not significantly impede the provision of financial services ”said companies.

The law also extends protection to legitimate hemp-related businesses, including CBD businesses. It also requires federal bank regulators to publish annual reports to Congress containing: (1) data on the availability of access to financial services for legitimate minority and female-owned cannabis businesses; and (2) recommendations to further help these businesses access financial services.

In short, the Safe Banking Act of 2021 paves the way for both cannabis-related businesses and financial institutions in denying the stigma surrounding cannabis and legitimizing these businesses. In doing so, cannabis companies will have easy access to essential banking and financial services; thereby reducing their need to be a cash-only business. Federally backed financial institutions will finally have the green light to work with cannabis companies without fear of incrimination, federal prosecution and regulatory penalties.

Although the 2021 SAFE Banking Act received broad bipartisan support, some continue to oppose its passage. Even so, many members of the Senate are optimistic about the passage of the bill, especially with overwhelming support from organizations and businesses, including the American Bankers Association, the American Financial Services Association and the Credit. Union National Association. Now is the time for cannabis banking reform and it is hoped lawmakers across the country will see it. For now, since the bill is currently still under consideration in the Senate, we have to wait.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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