SAFE Banking Act for Cannabis-Related Businesses Included in the HEROES Act

Michelman & Robinson previously reported that federal assistance could be on the horizon for legitimate cannabis-related businesses and their service providers in the wake of the coronavirus pandemic. If Democrats in the U.S. House of Representatives have their way, that help could come sooner rather than later, as legislators have baked provisions into the pending HEROES Act aimed at providing cannabusiness's access to financial services, like banking.

Included in the HEROES ACT—discussed in a separate M&R alert distributed along with this one—is the SAFE Banking Act, which M&R breaks down in question and answer form.

Q. What is the SAFE Banking Act of 2020?

A. The Secure and Fair Enforcement (SAFE) Banking Act was approved and passed by the House in September 2019, though never passed in the Senate. The legislation is restated in the HEROES Act, and if signed into law, the way would be cleared for legal cannabis-related businesses to operate outside a cash-only world.

The SAFE Banking Act seeks to create protections for depository institutions that provide financial services to legitimate cannabusinesses, which would be a welcomed event for players in the cannabis industry who, until now, have been typically barred from opening bank accounts because their financial institutions could be subject to penalties and enforcement actions from the federal government for servicing them.

Q. Can federal banks currently provide financial services to cannabis-related businesses?

A. No, they cannot, which is why the SAFE Banking Act is so critical to legal cannabis operators. If Congress passes the proposed legislation and it is signed into law, federal banking regulators will not be allowed to terminate or limit the deposit insurance or share insurance of any depository institution (read: banks), or take any other adverse action against them for providing financial services to legitimate cannabis-related businesses or service providers.

More specifically, if the SAFE Banking Act is enacted, federal banking regulators could not:

  • Prohibit, penalize, or otherwise discourage a depository institution from providing financial services to a legal cannabis-related business
  • Recommend, incentivize, or encourage a depository institution not to offer financial services to an account holder (or to downgrade or cancel these financial services) because the account holder is, or is related to, a legal cannabis operation
  • Take any adverse or corrective supervisory action on a loan made to legitimate cannabis businesses or those affiliated with a cannabusiness, such as an owner, employee, operator, or lessor

Q. Does the SAFE Banking Act included within the HEROES Act protect businesses ancillary to the cannabis industry?

A. Yes, the SAFE Banking Act also provides a safe harbor under federal law for ancillary businesses involved in the legal cannabis trade. Pursuant to the bill, proceeds earned by such businesses will not be considered derived from unlawful activity solely because they involved cannabis-related business or activities.

Q. What types of financial service companies does the SAFE Banking Act seek to protect?

A. The SAFE Banking Act provides protections to depository institutions, insurers, and federal reserve and federal home loan banks that offer financial services to cannabusinesses, so long as those companies are located in jurisdictions where the cultivation, production, manufacture, sale, transportation, display, dispensing, distribution, or purchase of cannabis is legal.

Q. Does the SAFE Banking Act contemplate hemp and CBD products?

A. Yes, the legislation instructs federal banking regulators to issue guidance confirming the legality of hemp, hemp-derived CBD products, and other hemp-derived cannabinoid products. Such guidance is to also cover the legality of engaging in financial services with businesses selling hemp-derived items in light of the enactment of the Agricultural Improvement Act of 2018, which legalized the regulated production of hemp.

Further, the safe harbors included in the SAFE Banking Act specifically apply to hemp, including hemp-derived cannabidiol and other hemp-derived cannabinoid products, in the same manner as they apply to cannabis.

Q. How likely is it that the SAFE Banking Act will be passed by Congress?

A. Cutting to the chase, passage does not seem terribly likely given the response of Senate Republicans to the HEROES Act, together with their recent action—make that inaction—in connection with the prior attempt to pass the cannabis-related law.

Last year, when the SAFE Banking Act was a stand-alone bill, it made history by becoming the first legislation of its kind to be passed by a House floor vote. It did so with strong bipartisan support—nearly half of House Republicans joined the near-unanimous support from their Democratic counterparts. Unfortunately, the bill moved to the Senate and languished there in the face of Republican resistance to easing regulations as they pertain to cannabis.

Now that the SAFE Banking Act has been resurrected as part of the HEROES Act, passage in the Senate continues to be doubtful. That is because the Senate does not seem keen on passing the overall bill that includes the cannabis-facing legislation, given the reluctance of many GOP Senators to add to an already massive debt in the U.S. Consequently, the SAFE Banking Act becoming law is far from a safe bet, especially in the absence of compromise on the HEROES Act.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.