Waiting to Exhale: HEROES Act Opens Door for Cannabis Banking

The new bill, which follows April 23, 2020 legislation aimed at opening COVID-19 emergency response funding to cannabis businesses, offers a previously unclear path forward for financial services to the cannabis industry by amending the current restrictive regulatory framework on banking.

More analysis on the April 23 legislation “Emergency Cannabis Small Business Health and Safety Act” can be found here.

House Democrats have released the latest stimulus proposal (“proposal”) in response to the ongoing economic fallout from the COVID-19 crisis. The proposal is an extraordinary legislative development for two distinct reasons, which this article addresses in turn below. First, the proposal has the potential to invigorate the US’s already lucrative $52 billion cannabis industry, which some perceive to be impervious to the effects of an economic downtown. Second, and notably from a federalism perspective, the proposal would bridge the divide between federal and state banking regulatory strategy apropos the cannabis industry.

Background on the SAFE Act

On May 12, 2020, the House of Representatives (“House”), led by Representative Nita Lowey (D-NY), introduced the next generation of COVID-19 relief entitled the Health and Economic Recovery Omnibus Solutions Act (HEROES Act). Included in the HEROES Act is the Secure And Fair Enforcement Banking Act of 2020 (SAFE Act), which aims to increase public safety by ensuring that legalized cannabis businesses and their service providers in the relevant states have access to financial services (i.e.,  demand deposit accounts, wire transfer, and ACH services, and B2B/B2C payment solutions), thereby reducing the amount of cash on hand.[1]

As drafted, the SAFE Act prohibits federal banking regulators from taking adverse action against financial institutions that provide financial services to cannabis-related businesses lawfully operating under state, local, or tribal laws (CRBs). The House has scheduled the HEROES Act for a floor vote on May 15, 2020.

Impact on Society and the Financial Services and Cannabis Industries

The State Perspective

The SAFE Act’s impact is best understood in the broader context of current policy goals surrounding cannabis banking. While official guidelines for operating medicinal or recreational cannabis businesses during the COVID-19 crisis differ among the states, many have declared such businesses to be “essential,” thereby permitting their continued operation during shelter-in-place restrictions.

In California, for example, the “essential” designation is driven, in part, by (i) patients’ need for access to recognized alternatives to addictive prescription medications and (ii) acknowledgment that consumers need a safe, regulated marketplace through which to purchase legalized cannabis products. Aside from safe access to cannabis itself, however, the policy rationales for safe cannabis banking are based on even broader public-harm prevention concerns. For instance, CRBs deal purely in cash due to the gap between inconsistent legalization among the states and federal prohibition that has obstructed CRBs’ access to digital payments services or banking relationships. Cash-based businesses, however, are targets for robberies, felony-murders, assaults, vandalism, or other serious crimes. Further, their cash-only revenues complicate state governments’ ability to collect accurate taxes from CRBs. And, most recently of concern, cash may be an efficient transmitter of the Coronavirus.

The Federal Perspective

Because cannabis remains a Schedule 1 (Class I) drug under the Controlled Substances Act (CSA) and given current anti-money laundering, RICO, and forfeiture statutes, federal agencies could (absent the SAFE Act) penalize any institution that banks a cannabis business. If an agency enforcement attorney or US Attorney were so inclined, this could materialize in the federal government’s revocation of a bank’s charter, termination of the bank’s access to its Fed master account, prosecution of bank managers or board members, or freeze of bank-loan collateral in asset forfeiture proceedings.

The SAFE Act’s Impact

Against this backdrop, the SAFE Act removes the current risks dis-incentivizing financial services providers from accepting CRBs as customers in two key ways.

First, the SAFE Act prohibits any prosecutor, regulator, or federal agency (i.e., not just banking agencies) from prosecuting bank executives, officers, or managers for any civil or criminal liability that would, absent the SAFE Act, otherwise exist from providing financial services to CRBs or failing to conduct adequate due diligence on them.

Second, the SAFE Act restricts federal banking regulators[2] from:

  • Terminating or limiting the deposit insurance or share insurance of a depository institution or taking “any other adverse action” against a depository institution under the Federal Deposit Insurance Act solely because the institution provides financial services to a CRB;
  • Penalizing, prohibiting, or otherwise discouraging a depository institution from providing financial services to a CRBs or to a state government or Indian Tribe that exercises jurisdiction over CRBs; and
  • Recommending, incentivizing, or encouraging a depository institution’s withholding of financial services from a customer, or downgrading or canceling of a customer’s financial services solely because the customer is an owner, service provider, or employee of a CRB.

By rescinding the federal “Sword of Damocles” that until now made cannabis banking a calculated risk,[3] the SAFE Act paves the way for banks, financial services companies, payments businesses, and Fintech operators to expand the reach of their financial services into an already sizable and growing industry, without fear of federal civil or criminal liability.

Closing the Gap Between Federal and State Cannabis Regulatory Approaches

Federal Agencies Begin to Inhale

It’s not entirely fair to say that federal agencies have been inflexible in their cannabis banking enforcement. For example, on February 14, 2014, the Financial Crimes Enforcement Network (FinCEN) issued guidance to Department of Justice attorneys and federal law enforcement to focus their enforcement resources on specific persons or organizations whose conduct with respect to cannabis interferes with identified priorities (e.g., preventing distribution to minors; blocking cannabis sales revenue from reaching cartels, gangs, or criminal enterprises; driving under the influence of cannabis-derived products; among other harms) (guidance). The guidance emphasized serious crimes as prerequisites to the issuance of federal money laundering, unlicensed money transmission, and Bank Secrecy Act (BSA) charges predicated on violations of the CSA. The guidance clarified how financial institutions can provide services to CRBs in a manner consistent with their BSA obligations.

State Agencies Take Charge

Notwithstanding the 2014 FinCEN guidance, state banking agencies have more recently cleared the path to delineate state regulatory expectations for cannabis banking, whereas (prior to the SAFE Act) federal banking agencies remained largely silent. For example, the Conference of State Bank Supervisors issued Cannabis Job Aid in April 2020 that incorporated the USDA Hemp Program regulations issued in 2019 to inform state bank examiners’ efforts to regulate financial institutions that may be banking CRBs. This Job Aid governs both hemp and marijuana-related products offered by financial institutions’ customers.


Despite the ambiguity caused by the state-federal disconnect, the cannabis banking industry has nevertheless grown to more than 630 financial institutions that are banking cannabis businesses in the US today, a number that is growing. If enacted, the SAFE Act would offer significant clarity and a long-awaited sense of finality for certain financial services providers and banks that may be champing at the bit to serve the cannabis industry.

[1] Although the SAFE Act’s language remains unchanged from the 2019 version that passed the House, its resurrection facilitated the federal government’s formal legislation of safe cannabis banking in light of the COVID-19 crisis.

[2] The SAFE Act defines “Federal banking regulator” to include each of the Board of Governors of the Federal Reserve System, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the Financial Crimes Enforcement Network, the Office of Foreign Asset Control, the Office of the Comptroller of the Currency, the National Credit Union Administration, the Department of the Treasury, and other federal agencies or departments that regulate banking or financial services.

[3] The above restrictions on federal agency activity apply not only to existing depository institutions but also to de novo institutions applying for a charter for the first time.


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