The (Death of The) Secure and Fair Enforcing (Safe) Banking Act of 2021

Though the House of Representatives passed the Secure and Fair Enforcing Banking Act (“SAFE Banking Act” or “the Act”) on April 19, 2021, the bill was dropped from the final version of the larger China COMPETES ACT last week after it failed to muster the requisite support in the Senate. The bill would have prohibited federal regulators from penalizing banks and other financial institutions for providing services to cannabis-related businesses. This would have been a significant development since banks and other financial institutions have been wary of doing business with cannabis-touching businesses due to the swift penalties for doing so, given the current classification of cannabis as a Schedule I drug.

The SAFE Banking Act

The SAFE Banking Act would have protected banks from a number of penalties otherwise in place for transacting with cannabis dealers. For example, it would have prevented federal regulators from “terminating or limiting” a bank’s insurance coverage for doing business with the cannabis industry. Additionally, it would have blocked regulators from discouraging third parties from offering financial services to such businesses. Furthermore, the Act would have redefined federal law such that proceeds from cannabis-related transactions would no longer be treated as “proceeds from unlawful activity.” This provision was particularly important, since any proceeds procured through unlawful activities are subject to anti-money laundering laws. Additionally, the Act would have protected banks from asset forfeiture or liability simply for offering loans to cannabis-related businesses. Finally, the Act also specified that a federal agency would be unable to order the termination of a bank customer account, solely on the basis of that customer’s involvement in the cannabis industry.

Without passage of banking reform such as the SAFE Banking Act, most US banking institutions will not do business with companies that sell cannabis. According to the Treasury Department, currently, only about 11% of banks and 4% of credit unions currently do business with licensed cannabis businesses. This is in no small part due to the steep penalties from federal regulators that banks face for transacting with businesses that sell cannabis; still a Schedule I drug. Given the current regulatory landscape, cannabis businesses tend to rely on all-cash transactions, preventing them from taking advantage of federally insured banking systems and operating in an all-around less secure environment—leaving them more susceptible to theft, fraud, and even violent crime. Legislation like the SAFE Banking Act would not go as far as legalizing cannabis; it would have effectively shifted the risks involved for federally insured financial institutions, essentially incentivizing them to “get in the game.”

House sponsors of the SAFE Banking Act are exploring what the next steps could look like, and are optimistic that there are other avenues to passage before the November midterms. The prevailing concern regarding timing is that if Republicans retake one or both chambers of Congress in November, the SAFE Banking Act will no longer be a priority. With that said, the House has already passed these provisions several times, meaning there is a definite appetite for the benefits of the Act among current Congressional Democrats. Through reviving the SAFE Banking Act by attaching it to a broader marijuana legalization bill likely does not have enough Senate votes to pass at the moment, Democrats are exploring other bills the law could be attached to, in the short term, including social justice legislation or other spending bills. Congressmen Ed Perlmutter (D-CO) and David Joyce (R-OH), two House co-sponsors of the bill, suggested tying the SAFE Banking Act into a broader package of marijuana-related laws, including bills to expunge criminal records of various minor cannabis-related offenses, fund more cannabis research, and permit veterans to access medical marijuana. The statements from the Congressmen reflect an attempt to find bipartisan harmony on an issue that still divides the two parties.  

Although the demise of the SAFE Banking Act was a disappointment to many, its supporters continue to actively work toward federal legalization of cannabis and cannabis-related activity. We will continue to report in real-time on these developments.

*Jannet Irshad was a 2022 summer associate in ArentFox Schiff’s San Francisco office and a law student at Boston University School of Law, working under the supervision of Kristen Hart.


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