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  • Steve Schain

The SAFE Banking Act’s Many Failings

The Secure and Fair Enforcement Banking Act of 2021, known as the SAFE Banking Act, seeks to provide legal marijuana growers, processors, transporters and sellers (“MRBs”) with the access to banking that every other legitimate industry requires. Banking and cash management have been among legalized marijuana's greatest obstacles and, seeking to align federal and state financial services access laws, the United House of Representatives passed the SAFE Banking Act on April 20, 2021.


In reality, the SAFE Banking Act, while a laudable first step from the federal government, falls far short of providing the fair playing field that cannabis companies require and deserve.


Despite lessening criminal and administrative penalties and obstacles for depository insurance, the SAFE Act fails to put legal cannabis on equal footing with other legitimate industries or make depository accounts and credit card processing either widely available nor affordable.


What did the SAFE Banking Act Do?


First, the SAFE Banking Act clarifies that funds from a licensed plant-touching marijuana business are not proceeds from an unlawful activity after they are received by a third-party. Thus, while not expressly removing these funds from the Bank Secrecy Act’s “money-laundering ambit,” the Act partially legitimizes cannabis cash.


Second, the Act prohibits federal banking regulators from:

  1. terminating/limiting deposit insurance solely for providing financial services to an MRB;

  2. prohibiting, penalizing, or discouraging a bank from providing financial services to an MRB;

  3. recommending, incentivizing, or encouraging a bank not to offer, downgrade or cancel financial services solely if account holder is an MRB (or its employee, owner operator);

  4. taking adverse action on a loan made to a MRB (or its employee, owner, or operator); or

  5. prohibiting, penalizing or discouraging a bank from providing a financial service to an MRB.


Third, the SAFE Banking Act protects banks and insurers providing MRBs with financial services from federal legal or regulatory exposure (including criminal, civil, or administrative forfeiture) solely for providing services or investing income derived from such a financial service.



What Didn’t the SAFE Banking Act Do?


Despite diminishing criminal and administrative punishment and depository insurance denial, the SAFE Banking Act fails to put cannabis at the same level as other legitimate industries regarding access to banking services.


First, it fails to amend the Bank Secrecy Act to remove MRBs’ proceeds from the money laundering purview, which would make depository accounts and credit card processing, known as merchant services, both available and affordable to MRBs.


Second, instead, the Act incorporates the FinCEN Guidance’s requirements, foisting onerous compliance demands on financial institutions which effectively prevent them from profitably banking cannabis, limiting the number of banks capable of providing financial services, and causing these egregious costs to be borne by plant-touching MRBs.


Third, the SAFE Banking Act expressly refuses to require banks or insurers to provide financial services to plant-touching or non-plant touching MRBs. Thus, because banks and insurers remain free to shun cannabis industry participants, the Act falls staggeringly short of achieving its stated objectives.


Steve Schain is admitted to practice in Pennsylvania and New Jersey and represents entities, governments and individuals in litigation, regulation and compliance, license applications, entity formation and drafting legislation. Reach him at steve@smart- counsel.com