As Congress continues to debate the SAFE Banking Act, cannabis business and financial institutions should pay close attention to the bill’s potential to transform the accessibility of banking and payment processing solutions within the cannabis industry. In May, a national group of state banking regulators issued open letters to Congress urging passage of the bill. This action by state banking regulators builds upon prior support from groups like the American Bankers Association as well as dozens of state governors and attorneys general. Here, we check in on the status of the SAFE Banking Act and look ahead for its implications if passed.

What Is the SAFE Banking Act?

The SAFE Banking Act would enable financial institutions to support the cannabis industry by eliminating two major risks of adverse government action. The proposed law explicitly permits financial institutions to do business with cannabis companies and prohibits the government from terminating or limiting a financial institution’s deposit or share insurance solely because the institution works with a cannabis business. In addition, the bill would provide protections for other financial service providers, such as payment processors, from liability solely because of their activities providing services to legitimate cannabis businesses and investing income derived from such services. Currently, federal restrictions on cannabis have prompted only a limited number of financial institutions to take on the risk of providing banking services to cannabis companies. And those that do charge exorbitant fees and costs that foreclose the services to many—predominately affecting small and diversity-owned entities. As a result, the economic development of cannabis businesses, and especially small and diversity-owned entities, has been impeded through reduced liquidity, heightened entry barriers, and heightened security issues for some businesses forced to depend on cash transactions.

What Is the Status?

To become law, the SAFE Banking Act must pass both chambers of Congress before the president signs the bill. So far, it has only done so in the House, where it has passed six times. As a stand-alone bill, the House passed the proposal in April 2021 by vote of 321–101, with 180 legislative co-sponsors (154 Democrat and 26 Republican). Most recently, the House passed the SAFE Banking Act as part of the larger America COMPETES Act, which aimed to promote American competitiveness.

The SAFE Banking Act has not yet passed the Senate. As a stand-alone proposal, the SAFE Banking Act has 42 co-sponsors, with 33 senators who caucus with Democrats and nine Republican senators. Last July, the Senate passed the United States Innovation and Competition Act (USICA). The SAFE Banking Act was not part of the Senate-passed USICA, and Congress is now working to resolve differences between the two bills, including the omission of the SAFE Banking Act’s provisions.

Looking Ahead

On May 25, the Conference of State Bank Supervisors (CSBS) released open letters to the House and Senate calling for the SAFE Banking Act to not only be retained but also be expanded. Specifically, the group, representing bank regulators from across the country, asked for the extension of the bill’s safe harbor provisions to be extended to all financial services, not just depository institutions. In the statement, the CEO of CSBS wrote: “By granting a safe harbor for financial institutions, Congress can bring regulatory clarity to the financial services industry, address public safety concerns and ensure access to financial services for state-compliant marijuana and marijuana-related businesses.”

In addition to the CSBS, a number of public officials and professional associations have publicly noted their support of the SAFE Banking Act in recent years. For example, over 20 governors signed a joint letter supporting the bill in 2021, and more than 35 state attorneys general issued a joint letter in 2019. Similarly, groups such as the American Bankers Association, American Council of Life Insurers, and National Association of State Treasurers have each publicly noted their support of the act’s protections in 2021 (here, here, and here, respectively).

To date, many major financial institutions and payment processors have been reticent to work with cannabis businesses, particularly those that are plant-touching, due to the continuing illegality of cannabis at the federal level. The SAFE Banking Act’s protections would provide some clarity to the significant uncertainties and hurdles regarding the financial aspects of the cannabis industry. If passed, the bill and its resulting regulations might prompt additional financial institutions to service the industry.

In addition, many cannabis businesses are looking to grow and potentially list on, or uplist onto, U.S. securities exchanges. The major domestic securities exchanges require that listed companies comply with all applicable laws, which is complicated due to the illegality of cannabis at the federal level. While the SAFE Banking Act’s language is generally silent as to listing or uplisting of companies, resulting regulation could provide clarity as to the bill’s potential effects on securities laws and exchange rules.