The Secure and Fair Enforcement Banking Act of 2021 (“SAFE Banking Act”) seeks to provide legal marijuana growers, processors, transporters and sellers (Marijuana Related Businesses or MRBs) with the access to banking that every other legitimate industry enjoys.

Banking and cash management have been among legalized marijuana’s greatest obstacles, and seeking to align federal and state “financial services access laws” by prohibiting federal regulators from penalizing banks working with MRBs, the United House of Representatives passed the SAFE Banking Act on April 20, 2021.

Despite lessening criminal/administrative penalties and depository insurance obstacles, both the Act and pending state cannabis banking legislation fail to put legal cannabis on an equal footing with other legitimate industries or make depository accounts either available or affordable.

Banking Cannabis Cash Difficulties

Because the Comprehensive Drug Abuse Prevention and Control Act of 1970, 21 U.S.C. §§ 801, Et. Seq (1970 ("Controlled Substance Act") prohibits marijuana’s manufacture, distribution, dispensation and possession and the Financial Recordkeeping and Reporting of Currency and Foreign Transactions Act of 197031 U.S.C. 5311, Et. Seq (“Bank Secrecy Act”) prohibits banks from accepting deposits from and "failing to identify or report financial transaction involving proceeds of Controlled Substance Act violation," any deposit of monies yielded from marijuana’s sale may deemed "money laundering" in violation of 18 U.S.C. §1956 for the "seller" and a Bank Secrecy Act violation by the bank. 

The Treasury Department's Financial Crimes Enforcement Network clarified that through adhering to institution specific factors (ex. particular business objectives, evaluation of risks associated with offering particular product or service, and capacity to effectively manage risks), banks may provide financial services to MRBs consistent with Bank Secrecy Act obligations by: 

(i) obtaining and reviewing "marijuana related business and parties" information from licensing and enforcement authorities including application, license, and registration documentation;

(ii) developing an understanding of business' normal and expected activity including types of to-be-sold product and to-be-served customers (e.g., medical versus adult use);

(iii) monitoring publicly available sources for adverse information about business and related parties;

(iv) monitoring for suspicious activity, including Guidance's specified red flags;

(v)  routinely updating customer due diligence information commensurate with risk. "FIN-2014-G001: BSA Expectations Regarding Marijuana-Related Businesses,” FinCEN, February 14, 2014 (“FinCEN Guidance”).     

The FinCEN Guidance compounds compliance costs by requiring that a bank providing financial services to an MRB file Suspicious Activity Reports (SARs) if it knows, suspects, or has reason to suspect that a conducted or attempted transaction: (i) involves – or is an attempt to disguise –funds derived from illegal activity; (ii) is designed to evade BSA regulations; or (iii) lacks a business or apparent lawful purpose. FinCEN Guidance. Because, regardless of state law, federal law bars all growing and selling, all MRB financial transactions involve funds derived from illegal activity requiring banks to file a “Limited”, “Priority” or “Termination” SAR with every deposit, withdrawal, or transfer. 

To offset onerous compliance costs, banks servicing MRB impose service fees reaching $10,000 per month per account, and due to difficulty in obtaining financial and armored car services and because marijuana is primarily, if not exclusively, a cash business, MRBs face overwhelming safety, security, and operational issues. 

First, MRBs face physical criminal risk of robbery and assault. Second, the "lack of financial services" access both imposes additional disbursement and "accounting and record keeping" requirements on the MRB and results in a massive productivity loss.

Third, because they lack financial services and receive considerable monies in cash, MRBs are forced to use cash to pay employees, landlord, taxes, utilities, and vendors, thereby passing on the criminal vulnerability, administrative burden, and productivity loss.

Fourth, because insurance typically only covers up to a $20,000 cash loss and MRBs often have between $200,000 and $500,000 in cash on hand, theft can be a fatal blow to an enterprise.

Fifth, even if it has a bank account, after writing a check to another MRB, an MRB's account may be flagged and shut down, creating huge business interruption issues. 

Safe Banking Act’s Protections and Failings 

First, the SAFE Banking Act clarifies that funds from a licensed MRB’s operations are not proceeds from an unlawful activity after they are received by a third party. Act, §3. Thus, while not expressly removing MRB funds from the Bank Secrecy Act’s “money-laundering ambit,” the Act partially legitimizes Cannabis cash.

Second, the Act prohibits Federal banking regulators from terminating/limiting deposit insurance solely for providing financial services to an MRB; prohibiting, penalizing, or discouraging a bank from providing financial services to an MRB; recommending, incentivizing, or encouraging a bank not to offer, downgrade or cancel financial services solely if account holder is an MRB (or its employee, owner operator); taking adverse action on a loan made to a MRB (or its employee, owner, or operator); or prohibiting, penalizing or discouraging a bank from providing a financial service to an MRB. Act, §§2(a)(1)-(5).

Third, the SAFE Banking Act protects banks and insurers providing MRBs with financial services from Federal legal or regulatory exposure (including criminal, civil, or administrative forfeiture) solely for providing services or investing income derived from such a financial service. Act, §§4(a)-(d).

However, despite diminishing criminal and administrative punishment and depository insurance denial, the SAFE Banking Act fails to put cannabis at the same level as other legitimate industries regarding banking services’ access. First, it fails to amend the Bank Secrecy Act to remove MRBs’ proceeds from the “money laundering” purview which would make depository accounts both available and affordable to MRBs.

Second, instead, the Act incorporates the FinCEN Guidance’s requirements foisting onerous compliance demands on Financial Institutions preventing from profitably banking Cannabis, limiting the number of banks capable of providing financial services, and causing these egregious costs to be borne by MRBs. Act, §6(a). 

Third, the SAFE Banking Act expressly refuses to require banks or insurers to provide financial services to MRBs. Act, §5(a). Thus, because banks and insurers remain free to shun Cannabis industry participants, the Act falls staggeringly short of achieving its stated objectives.

State Banking Bills’ Impact

Although insufficient to immunize banks from federal repercussions, New York and Pennsylvania cannabis banking bills form an interim step assuring the financial sector of the lack of state penalties for banking marijuana cash.

First, to improve “compliance and make it easier and less costly for financial institutions who want to bank cannabis businesses to comply with the federal reporting”, New York’s SB S8758 authorizes the Office of Cannabis Management to “share any and all information obtained from applicants and licensees…to requesting financial institutions for the purpose of consideration and compliance”.

Second, Pennsylvania’s Senate recently approved a bill to safeguard banks and insurers against being penalized by state regulators for working with state-legal MRBs. Although stating that government agencies may not “prohibit, penalize or otherwise discourage a financial institution or insurer from providing financial or insurance services to a legitimate cannabis-related business or the business associates of a legitimate cannabis-related business” or “recommend, incentivize or encourage a financial institution or insurer” to not provide services just because a business is associated with Marijuana, Pennsylvania’s bill does require banks or insurers to provide services to MRBs.

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