15 states and Washington D.C. have legalized recreational cannabis and there’s an effort towards decriminalizing cannabis at the federal level. But one of the largest hurdles still faced by the growing cannabis industry is a lack of banking services. Now lawmakers in Congress are trying to make banking easier for companies in the cannabis industry with the Secure and Fair Enforcement Act or SAFE Banking Act.

Banking Challenges for Cannabis Businesses

Despite the growing popularity of cannabis, the plant remains illegal under federal law. With the threat of severe penalties from federal regulators, banks and credit unions are discouraged from doing business with cannabis companies, leaving the cannabis industry largely unbanked. While some smaller, locally-owned banks have been willing to work with cannabis businesses, most large banking institutions still refuse to work with companies in the industry.

As a result, many cannabis companies continue to operate primarily on a cash basis, making both businesses and customers targets for theft. Lack of banking options also prevents cannabis companies from securing the funding needed to expand and grow.

The SAFE Banking Act

The SAFE Banking Act was first introduced in March 2019 in the House of Representatives by Ed Perlmutter, a Democratic representative from Colorado. The standalone bill would prevent federal banking regulators from terminating or limiting a financial institution’s deposit or share insurance for doing business with a cannabis company. This would allow banks and other financial service providers to work with companies in the cannabis industry without the fear of regulatory repercussions.

The SAFE Banking Act garnered bipartisan support as well as support from lobbying groups like the American Bankers Association. In September 2019, the House of Representatives passed the bill. The bill’s provisions were also included in the COVID-19 relief bill passed by the House in October 2020. While neither the standalone bill nor the new COVID-19 relief bill advanced to a vote in the Senate in 2020, the now Democrat-controlled Senate and executive branch may allow the bill to receive a Senate vote and become law in 2021.

Implications for Cannabis Businesses

Passage of the SAFE Banking Act would represent a monumental shift for most cannabis companies. By expanding access to banking services, companies could eliminate many of the risks and inefficiencies created by operating on a cash basis.

Advantages for cannabis businesses include:

  • Reducing security measures required to protect large amounts of cash
  • Less record keeping required for tracking cash transactions
  • Access to loans for real-estate purchases and other business investments
  • Being able to accept debit and credit cards without needing to go through a third party

Although federal cannabis legalization could solve many of these issues, the SAFE Banking Act represents an incremental change with bipartisan backing that could help to legitimize and expand the cannabis industry.