While the Secure and Fair Enforcement (“SAFE”) Banking Act has passed the United States House of Representatives (the “House”), in one form or another six (6) times, in June of 2022 it yet again failed to pass the United States Senate (the “Senate”).
Given the political climate in the United States, this turn of events is not exactly surprising, but it is yet another federal government action that could stifle state authorized commercial cannabis businesses for years to come. By way of background, the SAFE Banking Act would have, among other things, allowed banks, credit unions, and other financial institutions to offer banking services to state authorized commercial cannabis businesses without fear of punishment by federal regulators. Because cannabis is still a schedule one substance under the federal Controlled Substances Act, most banks will not allow cannabis companies to open or maintain bank accounts and there is a lack of clarity regarding the legal risks associated with allowing commercial cannabis businesses to bank. As a result, most state licensed commercial cannabis businesses have either had to operate on a cash basis or open accounts with credit unions that charge extremely high fees for their services.
In early 2022, the House amended a bipartisan competition bill called the United States Innovation and Competition Act (the “America COMPETES Act”), to include the language of the SAFE Banking Act rather than trying to pass the SAFE Banking Act as a piece of stand-alone legislation. Then, on February 4, 2022, the House passed the America COMPETES Act by a bipartisan vote of 222 to 210. Once passed in the House, the America COMPETES Act made its way to the Senate.
On May 12, 2022, a bipartisan group of twenty-three (23) Senators wrote a letter to Senate and House leadership including Senate Majority Leader, Chuck Schumer, Senate Minority Leader, Mitch McConnell, Speaker of the House, Nancy Pelosi, and House Minority Leader, Kevin McCarthy, explaining the need for Congress to pass the SAFE Banking Act as included in the America COMPETES Act. Within the letter, the Senators specifically asked leadership to “ensure that the text of the [SAFE Banking Act] remain[ed] in the final conferenced version of the [America COMPETES Act] to be considered by both the House and Senate.” Unfortunately, the paired down version of the America COMPETES Act that came out of the Senate committee did not include the language of the SAFE Banking Act.
Congress’ failure to pass the SAFE Banking Act through both houses means that state compliant commercial cannabis businesses will continue to face the operational issues associated with lack of access to banking. Currently, most commercial cannabis businesses are unable to obtain bank loans, accept credit card payments, or even write checks to cover payroll expenses and required tax payments. As a result, commercial cannabis businesses are predominantly cash based and have had to develop creative ways run operate without access to the basic banking services that similarly regulated industries enjoy.
Additionally, commercial cannabis businesses have had to take extra precautions to protect against cash-motivated crimes such as robbery, theft, and even physical violence against their employees. With so much cash on hand, it is not surprising that criminals have found commercial cannabis businesses to be worthy targets of such violence. What is surprising is how long the federal government has been willing to let commercial cannabis businesses go without widespread banking privileges notwithstanding how cash heavy the industry is.
While curbing cash motivated crime is one reason commercial cannabis businesses urgently need access to banking, it is far from the only reason. Legislators from both sides of the aisle also recognize that enacting the SAFE Banking Act would “support a rapidly growing industry that creates jobs, fosters innovation, supports small businesses, and raises revenue in states that have chosen to legalize cannabis.” (See Bipartisan Letter).
As more and more states legalize cannabis in some form, the pressure to formalize banking rights for companies collectively generating billions of dollars per year will likely become harder and harder to ignore. However, if history is any indicator of what the commercial cannabis industry can expect moving forward, it may be years before cannabis businesses see access to banking in any significant capacity.
Rogoway Law Group will continue to monitor the progress of the SAFE Banking Act and bring you updates as they become available.