SAFE Banking Act

What Is the SAFE Banking Act?

The Secure and Fair Enforcement (SAFE) Banking Act was first introduced to Congress in May of 2017 under the sponsorship of Sen. Jeff Merkley (D-OR) and Rep. Ed Perlmutter (D-CO). It has been reintroduced several times, the latest in 2021 with sponsorship by Perlmutter in the House and Merkley and Sen. Steve Daines (R-MT) in the Senate.

The 2021 version of the bill passed the House on April 19; it is not the first version to do so. It will still need to pass the Senate and then be signed by President Joseph Biden in order to become law.

This bipartisan legislation would impact the ability of federal banking regulators to intervene in the actions of a depository institution dealing with a legal cannabis business.

Understanding the SAFE Banking Act

Specifically, the SAFE Banking Act would prohibit regulators from terminating or limiting either deposit or share insurance of such a financial institution for the sole reason that it does business with a cannabis company. It would also prohibit regulators from barring such institutions from offering financial services to these companies and stop regulators from encouraging financial institutions to not do business with those companies.

This Act did not receive a full vote or hearing in either chamber of Congress after it was first introduced in May 2017. It was passed by the Democratic-controlled House of Representatives in September 2019, when it was reintroduced but failed to pass in the Republican-controlled Senate.

A version of the bill was again introduced into Congress in the two-year legislative session that began in 2021. It passed the House by a vote of 321 to 101 on April 19th, 2021. It is expected to face less opposition than it did in 2019 since it now faces a split Senate, where it has already picked up more Republican sponsors than it had in 2019.

“After years of bringing up this issue, I’m thrilled to see overwhelming support for this bipartisan, commonsense legislation in the U.S. House once again. I feel optimistic about the path forward for the SAFE Banking Act and, more broadly, reforms to our federal cannabis laws,” Perlmutter said in a written statement concerning the 2021 passing in the House.

Origins of the SAFE Banking Act

The SAFE Banking Act is a direct response to issues faced by legal cannabis companies operating in the United States.

Specifically, the act is designed to bridge a gap between those companies' legal standing in some states and the current non-legal status of marijuana sales and usage on a federal level. A company conducting legitimate operations within a state that has moved to legalize marijuana may nonetheless face problems interacting with financial institutions like banks and lenders on account of concern among those institutions about punishment on the federal level.

Practically, this may make it difficult for these companies to seek loans to help grow their businesses or launch new ones, to recover from burglaries or other negative events, and so on.

The SAFE Banking Act is designed to prohibit federal regulators from punishing financial institutions for the sole reason that they choose to provide such services to cannabis companies, their owners, and their employees.

"Forcing legal businesses to operate in all-cash is dangerous for our communities," Sen. Merkley said in a statement about a previous version of the bill. "Operating in cash is an invitation to robbery, money laundering, and organized crime. This is a public safety issue, and I hope that this will be the Congress when we build a bipartisan consensus to put this common-sense fix into law."

The 2019 bill was slightly different from the 2017 bill. The National Cannabis Industry Association had indicated that the revised version "adds protections for ancillary businesses providing products or services to a cannabis-related legitimate business; specifies how businesses on tribal land could qualify, and requires the Federal Financial Institution Examination Council to develop guidance to help financial institutions lawfully serve cannabis-related legitimate businesses." Ian Katz, an analyst at Capital Alpha Partners, said in a note that it has been "sweetened" for Republicans with provisions that protect banks.

The 2021 SAFE Banking Act

The core provisions of the most recent version of the bill remain the same as the 2019 bill. They include protections for hemp businesses, as well as some small technical changes to the language and a slightly expanded definition of "financial services," which have been described as "additional incentives for bipartisan support."

In a release after the House passed the 2021 version, Aaron Smith, co-founder and chief executive officer of the National Cannabis Industry Association, noted that the act "will improve the lives of the more than 300,000 people who work in the state-legal cannabis industry...[and] will also help level the playing field for small businesses and communities with limited access to capital."

The association expects that "some of the major banks probably won't be willing to work with cannabis businesses until the substance is descheduled," according to Morgan Fox, the group's media relations director, who added that "the SAFE Banking Act would certainly provide ample assurance to many small and mid-sized banks and other financial institutions to feel comfortable providing services and lending to the cannabis industry to a much greater degree than is currently available."

Support for the SAFE Banking Act

In 2021, the National Association of State Treasurers and governors from 21 states and territories offered up support for the bill, according to one of the bill's sponsors.

The American Bankers Association, a key lobbying group representing the $17 trillion U.S. banking industry, had testified before Congress in support of the 2021 bill, and banks including Wells Fargo, HSBC North America, Key Bank, M&T Corporation, PayPal, Prudential, and Nationwide, had also reportedly supported its passage. The National Association of Attorneys General (NAAG) sent a letter to congressional leadership in May 2019, urging them to pass the SAFE Banking Act.

Other organizations that have expressed their support for some version of the bill as of 2021, include state banking associations in every state in the country, Americans for Tax Reform, Credit Union National Association (CUNA), Independent Community Bankers of America (ICBA), Law Enforcement Action Partnership (LEAP), the Electronic Transactions Association (ETA), the Cannabis Trade Federation (CTF), the National Cannabis Roundtable, Mid-Size Bank Coalition of America (MBCA), the Real Estate Roundtable, the National Association of Realtors, and various U.S. trade associations, including the American Land Title Association (ALTA), American Property Casualty Insurance Association (APCIA), and the Reinsurance Association of America (RAA).

The bill's sponsors are hopeful that changes in the political landscape could prove favorable for the bill in its latest round of consideration. Sen. Pat Toomey (R-PA), the ranking member of the Senate Banking Committee, for example, has indicated that he is willing to work on the legislation.

That, together with the increased support from Republican lawmakers, has led observers to believe the bill may pass. However, it is not a sure thing. The Senate is working on a separate comprehensive marijuana reform bill, led by Senate Majority Leader Chuck Schumer, and President Joseph Biden has seemed slow to embrace cannabis reform.