The SAFE Banking Act and How It’s Changing the Cannabis Industry

Due to the federal ban on marijuana, cannabis companies must operate financially as though they are drug trafficking organizations. Legitimate cannabis companies cannot claim deductions on their federal income taxes, which means they can pay up to a 90% rate! Additionally, cannabis companies cannot apply for lines of credit or loans because the majority of banks refuse to do business with them. This forces the $10.9 billion industry to operate on a cash-only basis, limiting its ability to flourish.

While the federal ban on marijuana looms large over a booming market, pro-cannabis politicians have stepped up to offer relief through the SAFE Banking Act. 

In this post –

What is the SAFE Act
What are the next steps
SAFE Act for businesses
SAFE Act and Canada
Limitations of the legislation
The Deadline

What is the SAFE Banking Act?

The SAFE Banking Act is the first piece of stand-alone cannabis legislation that would remove the threat of punitive action against banks in states where cannabis is legal. The idea is that the bill will help ease banks’ concerns about losing their licenses and inspire these institutions to open their doors to the marijuana industry.

On September 25, the Bill was released to the House of Representatives through a procedure that required a two-thirds vote. When the vote concluded, the bill passed by a landslide majority, 321:103. All but one Democrat voted yes, and nearly half of Republicans agreed. Case closed right?

The legal context

The case is not closed, but it’s definitely a huge step forward considering the context: In 2014 the House of Representatives passed a similar, but more limited amendment aimed at preventing the Treasury Department from penalizing banks that work with cannabis companies. The measure passed 231:192 in the House, but was never enacted into law because the conservative Senate refused to vote on it.

This time around Senate Republicans are more open to cannabis banking reform, but they’ll likely require a few edits to the bill before agreeing to support it. For instance, they may ask for concessions that favor legal Hemp and CBD companies as well as verbiage that offers greater protection to the firearms industry.

The next steps

After the bill is revised, Senate majority leader Republican Mitch McConnell must agree to bring it to the floor for a vote. While McConnell has come out recently as a pro-CBD advocate via his support for 2018 Farm Bill, he’s less enthusiastic about marijuana reform. Thus far, McConnell has blocked nearly every piece of cannabis legislation that congress has sent for approval. But with overwhelming support for the 2019 SAFE Act, many hope he’ll have a change of heart.

Assuming McConnell agrees to send the bill to the floor, it must then pass the Republican controlled Senate by at least 60 votes. The trouble is that Republicans have historically voted no on pro-cannabis legislation and congress can’t rely on every Senate Democrat either. A selection of Democrats in conservative states have said they refuse to agree to cannabis banking reform until marijuana’s legal status is tackled at the federal level.

What the SAFE Act means for US businesses

Regardless of the uncertainty, industry advocates are optimistic that some version of this bill will pass providing vast benefits to banks, companies and budding cannabis entrepreneurs. While imperfect, the SAFE Bank Act addresses several issues including the current cash-only environment, which can increase the risk of violent crime and prevent vital access to loans and lines of credit.

With Increased access to banking, companies can start to invest more in hiring and innovation. Additionally, cannabis entrepreneurs with limited financial resources will be able to apply for loans and access the funds they need to launch their business plans. This will inevitably spur exponential growth in the industry.

What the SAFE Act means for Canada

As Americans cross their fingers for a positive outcome, Canadians are less excited about the prospects. Since Canada legalized marijuana in 2018, the country’s stock market and investment banking industries have grown. If the SAFE Act passes, Canadians fear that American cannabis companies could move their cash out of Canada and over to the New York Stock Exchange and U.S. banks–according to Bloomberg News.

Limitations of the SAFE Banking Act

The SAFE Banking Act (if passed) will be a momentous step forward for the U.S. cannabis industry, but it may not be a disaster for Canada quite yet. Big American banks including Chase, Bank of America and PNC have all announced that they have no plans to work with cannabis companies until federal law is amended, citing the continued risk.

While big banks stall for federal reform, many expect that smaller credit unions and local banks will be the first to offer services to the marijuana industry. This is great news that should help decrease cannabis companies’ operating costs, increase security, reduce the black market, and create new customers for smaller community banks. All that’s left is the vote.

The deadline for answers

Senate Banking Committee Chairman Republican Mike Crapo said he hoped to conduct a vote on cannabis banking legislation before the end of 2019. Stay tuned and check in with our blog for the latest updates.


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