Cannabis Banking Reform

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The cannabis industry has historically been plagued by difficulties in banking and funding. Many banking and lending institutions have been resistant to do business with cannabis companies for fear of federal penalties.

However, new legislation and cannabis banking reform is paving the way for many financial institutions to work with legitimate cannabis businesses.

Secure and Fair Enforcement (SAFE) Banking Act of 2021

The SAFE act was passed in April 2021 by the U.S. House of Representatives and could have a profound effect on the cannabis industry if ratified into law.

It offers protection to depository institutions, federal and state credit unions, and insurance companies. This protection allows these institutions to offer services to legitimate cannabis businesses without fear of federal penalties.

The goal of the SAFE act is to reduce the amount of cash held by cannabis companies by offering a full range of banking solutions, including bank accounts and CBD merchant account services.

It encourages financial institutions to offer services to legitimate cannabis businesses that are conducting business in states where the use of cannabis is legal for medical purposes, recreational, or both.

It will also prohibit federal banking regulators from imposing penalties on financial institutions for doing so.

Some of the key features of the SAFE Banking Act include:

  1. Prohibits federal banking regulators from penalizing depository institutions for offering services to legitimate cannabis businesses
  2. Prohibits any practices that encourage or reward depository institutions for refusing services to legitimate cannabis businesses
  3. Removes the assumption that revenues generated by cannabis companies are done so through unlawful activity and exempts those monies from anti-money-laundering regulations
  4. Offers protection to and relieves liability from depository institutions who offer services to cannabis companies, in the event that the company(ies) face forfeiture of assets
  5. Prohibits federal banking regulators from requiring a depository institution to terminate accounts with legitimate cannabis businesses unless there is probable cause. Reasons that are considered probable cause include matters of national security and preventing involvement with terrorist organizations.
Cannabis banking reform

Key features NOT covered by the act:

  1. The act does not legalize or deschedule marijuana at the federal or state level.
  2. The act does not protect private money lenders, non-bank lenders, or other financial institutions that are not depository establishments.

Why is the SAFE Act Important?

The SAFE Act was proposed because many cannabis companies found it difficult to grow their businesses due to the lack of ability to secure loans and other funding.

The lack of collaboration with financial institutions crippled the industry’s ability to grow, even in states where the distribution and use of cannabis is legal. This posed a threat to cannabis businesses because they had no ability to scale their businesses or save for potential hardships.

Cannabis businesses have also historically faced the risk of theft and robbery due to the increased amount of cash onsite. If banks and other financial institutions refuse to offer services to a business owner, they have no choice but to deal in cash and invest in safes and security to protect that cash.

Many cannabis businesses have been unable to secure deposit accounts or payment processing, which is a key contributor to these issues.

Additionally, the excessive amount of cash being stored inside brick-and-mortar cannabis businesses has posed a public safety risk on numerous occasions. The stores have become a target for robbery, which could result in injuries or even casualties.

The SAFE Act will hopefully alleviate some of that pressure by allowing these businesses to deposit their revenue into bank accounts, instead of storing the cash onsite.

History of the SAFE Act

This act dates back to 2019 when it failed to pass through Congress for a variety of reasons. It was introduced to the House of Representatives by Democrat Ed Perlmutter in March of that year and had plenty of bi-partisan support, but very little momentum. It was passed by the House but later died in committee.

Earlier versions of the bill included mass federal reform of cannabis, which was not a popular proposition at the time. Legislators on both sides of the issue were resistant to pass such an act due to its size and scope.

Additionally, the original bill was drafted exclusively with banking institutions, which prompted lobbyists to come forward and insist on the inclusion of insurance companies and other professional organizations seeking protection under the bill.

Long Term Effects of the Cannabis Banking Reform

This act will provide protection to depository institutions when doing business with legitimate cannabis businesses, allowing them to offer services to such businesses without fear of penalties.

As a result, cannabis companies will be able to secure lending to grow and scale their businesses, along with basic banking services. The availability of funds & services will have a major impact on cannabis companies and their ability to survive and thrive during market downturns.

Cannabis businesses operating in states where medical and/or recreational use is legal will be afforded the same access to funding and capital as other legitimate businesses. If a cannabis company is compliant with all state laws surrounding their business, they will be able to continue providing jobs, tax revenue, and services in their communities.

Under the SAFE Banking Act, they will be able to do so in a safe and secure way that allows them to place their monies in depository institutions, thereby decreasing public safety risks associated with keeping cash in-house.

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