Should the Feds Allow Legal Marijuana Businesses to Access Banks? (H.R. 1996)

What is H.R. 1996?

(Updated November 30, 2021)

This bill — the SAFE Banking Act of 2021 — would allow marijuana-related businesses in states where their businesses are legal to access the banking system. It would also protect banks that do business with marijuana firms from prosecution under federal law by providing a safe harbor for banks and credit unions to do business with legal, legitimate marijuana businesses. Currently, because cannabis is illegal at the federal level under the Controlled Substances Act, financial institutions that provide banking services to legitimate and state-licensed marijuana businesses can be subject to criminal prosecution. Because legitimate cannabis businesses can’t bank at federally insured institutions, they’re often forced to operate on a cash-only basis.

To address the safety concerns that arise from legal cannabis businesses being shut out of banking services, this legislation would prevent federal banking regulators from:

• Prohibiting, penalizing, or discouraging a bank from providing services to legitimate state-sanctioned and regulated cannabis businesses or associated businesses (e.g., a lawyer or landlord providing services to a legal cannabis business);
• Terminating or limiting a bank’s federal deposit insurance simply because the bank is providing services to a state-sanctioned cannabis business or associated business;
• Recommending or incentivizing a bank to halt or downgrade providing any kind of banking services to state-sanctioned cannabis businesses; or
• Taking action on a loan to an owner or operator of a cannabis-related business.

This legislation would also create a safe harbor from criminal prosecution and liability and asset forfeiture for banks and their officers and employees who provide financial services to legitimate, state-sanctioned cannabis businesses. It would also maintain the right of banks to choose not to provide services to cannabis businesses, even if legal. The same protections are provided for hemp and hemp-derived CBD businesses.

Finally, this legislation would require banks to comply with current Financial Crimes Enforcement Network (FinCEN) guidance while simultaneously allowing FinCEN guidance to be streamlined over time as states and the federal government adapt to legalized medicinal and recreational cannabis policies.

This bill’s full title is the Secure and Fair Enforcement Banking Act of 2021.

Argument in favor

The federal prohibition on state-licensed cannabis businesses accessing the traditional banking system has forced the industry to be largely cash-based. Aside from being inconvenient, this also makes cannabis businesses and their employees targets, sometimes with tragic results. makes cannabis businesses more difficult to audit. Giving cannabis businesses access to traditional banks would be beneficial to business operators, their employees and customers, in addition to the financial services institutions that would serve them.

Argument opposed

The federal government shouldn’t lift the ban on cannabis businesses accessing the banking system until federal marijuana laws are reformed more broadly to account for legalization by states, and Congress shouldn’t pass this legislation because it’s a backdoor to marijuana legalization that would allow Wall Street to throw its financial weight behind marijuana legalization. Alternatively, this bill is unnecessary because hundreds of banks and credit unions are already doing business with marijuana-related businesses.

Impact

Cannabis businesses; banking services for cannabis businesses; banks; banks that wish to do business with cannabis businesses; and federal regulations regarding banking services for cannabis businesses.

Cost of H.R. 1996

In the 116th Congress, the Congressional Budget Office (CBO) estimated that on net, this bill would reduce spending by $2 million over the period 2019-2029.

Additional Info

In-Depth: Sponsoring Rep. Ed Perlmutter (D-CO) reintroduced this bill from the 115th and 116th Congresses to address cannabis banking issues and allow marijuana-related businesses in states with existing regulatory structure to access the banking system as momentum for cannabis reform continues to grow: 

“The genie is out of the bottle and has been for many years. Thousands of employees and businesses across this country have been forced to deal in piles of cash for far too long, and it is the responsibility of Congress to step up and take action to align federal and state laws for the safety of our constituents and communities. The public safety need is urgent, and a public health and economic need has also emerged with the pandemic further exacerbating the cash-only problem for the industry. In many states, the industry was deemed essential yet forced to continue to operate in all cash, adding a significant public health risk for businesses and their workers. As we begin our economic recovery, allowing cannabis businesses to access the banking system would also mean an influx of cash into the economy and the opportunity to create good-paying jobs.”

In a press release upon introducing this bill in the 116th Congress, Rep. Perlmutter noted that forcing legal and legitimate marijuana businesses to operate on a cash-only basis creates “a serious public safety risk for employees, businesses and communities [and provides] an opportunity for tax evasion, money laundering and other white-collar crimes.”

Original cosponsor Rep. Steve Stivers (R-OH) said, “We have a responsibility to legislate for the reality we live in, and the reality is that legal businesses in 33 states, including Ohio, are being denied access to the banking system and forced to assume huge risks as a result of operating solely in cash. The SAFE Banking Act is about keeping people safe, something that 321 of my colleagues recognized last year.” 

Original cosponsor Rep. Nydia M. Velázquez (D-NY) contends that giving cannabis businesses access to banking will help stimulate the economy and aid pandemic recovery:

“The cannabis industry has been operating with great success, with many of these businesses deemed essential as the coronavirus pandemic took hold,” said Congresswoman Velázquez. “However, without the ability to safely utilize the banking system, cannabis-related businesses are left behind and stuck resorting to tactics that can threaten public safety and economic success. That’s why I am proud to join to Reps. Perlmutter, Stivers, and Davidson in introducing the SAFE Banking Act, to allow these business in states that have legalized cannabis to access to the banking system, just as any other business currently enjoys. Doing so will help create jobs in communities throughout America, while stimulating the economy as we recover from the fallout of the pandemic.” 

Fellow original cosponsor Rep. Warren Davidson (R-OH) added:

“This bill is an important hedge against financial cancellation, and it will protect businesses and industries that find themselves out of favor with the latest trends of the day. Today we’re talking about cannabis, hemp, and firearms, but tomorrow there could be another industry that has its access to the banking system threatened by statute or by public opinion. With SAFE Banking, as long as it’s legal in the jurisdiction, no bank should be compelled to cancel their customers by a mob saying, ‘You aren’t going to bank THOSE people are you?’ Sadly, that has already happened too often in American history and it must end.” 

Sen. Jeff Merkley (D-OR), who has introduced companion Senate legislation for this bill in the 115th, 116th, and 117th Congresses, adds:

“No one working in a store or behind a register should have to worry about experiencing a traumatic robbery at any moment. That means we can’t keep forcing legal cannabis businesses to operate entirely in cash—a nonsensical rule that is an open invitation to robbery and money laundering. Let’s make 2021 the year that we get this bill signed into law so we can ensure that all legal cannabis businesses have access to the financial services they need to help keep their employees safe.”

Lead Senate cosponsor Sen. Steve Daines (R-MT) added: 

“The ‘SAFE Banking Act’ will help Montana small businesses, create jobs, boost local economies, and improve public safety. I’m glad to be working on this bipartisan legislation to provide certainty for small businesses in Montana. Montana business owners should have the ability to freely use banks, credit unions and other financial institutions without the fear of punishment.”

The Credit Union National Association (CUNA) is one of a number of financial services organizations that supports this bill. In testimony before the House Financial Services Committee’s Subcommittee on Consumer Protection on Financial Services during the 116th Congress, Rachel Pross, Chief Risk Officer at Maps Credit Union, testified in this bill’s favor:

“If enacted, the SAFE Banking Act would offer narrowly targeted federal protections for credit unions and other financial institutions accepting deposits from, extending credit or providing payment services to an individual or business engaged in marijuana related commerce in states where such activity is legal with a safe harbor, so long as they are compliant with all other applicable laws and regulations. Furthermore, the SAFE Banking legislation provides safe harbor to credit unions and their employees who are not aware if their members or customers are involved in this business. We believe that this is a reasonable and sound approach.”

The American Bankers Association (ABA) also supports this legislation. ABA President and CEO Rob Nichols writes that ensuring cannabis businesses have banking access will improve public safety, anti-money laundering security, and tax compliance: 

“[A] majority of states are struggling to address the significant challenges to public safety, as well as regulatory and tax compliance that go hand-in-hand with [cannabis] businesses forced to operate in an all-cash environment. Providing a mechanism for the cannabis industry to access the banking system would help those communities reduce cash-motivated crimes, increase the efficiency of tax collections, and improve the financial transparency of the cannabis industry. Since bank accounts are monitored in accordance with existing anti-money laundering and Bank Secrecy Act requirements, bringing cannabis-related legitimate businesses into the mainstream banking sector would also help law enforcement to identify suspicious transactions – an opportunity that is not available in an all-cash environment.” 

Smart Approaches to Marijuana (SAM) opposes this legislation. In a March 18, 2021 statement, SAM Co-Founder and President Dr. Kevin Sabet said:

“This bill, the UN-SAFE Act, is nothing more than a backdoor attempt at legalizing marijuana. Allowing banking access to the marijuana industry would open up direct access to Wall Street investment into the sale and marketing of today’s highly potent marijuana at a time when such products are increasingly under scrutiny for their damaging effects on mental health. Passing this bill would be a significant gift to Big Tobacco, which has already invested billions into pot and officially partnered with Big Alcohol to lobby in support of federal marijuana policy. Granting this industry access to banks will bring billions of dollars of institutional investment from the titans of addiction and vastly expand the harms we are already witnessing.”

Rep. Blaine Luetkemeyer (R-MO) argued against this bill during its committee hearing in the 116th Congress, saying lawmakers were “putting the cart before the horse” by focusing on the marijuana industry’s banking needs while the industry remains illegal at the federal level. Luetkemeyer’s sentiments were echoed by Jonathan Talcott, chairman of Smart Approaches to Marijuana, who argues that “[y]ou really need to address the Controlled Substances Act and its prohibition on marijuana … before any of the proposed changes and safe harbors would be effective.”

In mid-September 2019, several leading advocacy groups, including the ACLU, Human Rights Watch (HRW), and Drug Policy Alliance (DPA) wrote a letter urging leadership to delay the vote on this bill until more far-reaching legislation ending federal cannabis prohibition advances first. Expressing concern that this bill would help the marijuana industry and decelerate the push to end prohibition, the organizations wrote: 

“We are concerned that if the House approves this bill, it will undermine broader and more inclusive efforts to reform our country’s marijuana laws. The Congress has a unique opportunity to address the myriad injustices created by this nation’s marijuana laws. For decades, people of color have suffered under harsh and racially-biased marijuana laws... The banking bill does not address marijuana reform holistically. Instead, it narrowly addresses the issues of banking and improved access to financial services, measures that would benefit the marijuana industry, not communities who have felt the brunt of prohibition. To be clear, we recognize the challenges facing marijuana businesses that lack access to financial services. However, we believe it is a mistake to move this issue forward while many of the other consequences of marijuana prohibition remain unresolved. The banking bill does not solve the underlying problems of marijuana prohibition – namely, that many people of color have been saddled with criminal records for a substance that is now legal in many states, and that communities have been shut out of the emerging and booming marijuana industry.”

Queen Adesuyi, policy coordinator for DPA, explained: 

“Individuals and communities who are still suffering from the destabilizing collateral consequences of prohibition need reform and should not be second in line behind the industry. We need to ensure that the sequencing of federal marijuana bills, especially under House Democratic Leadership, is well thought out and done in a way that centers the millions directly impacted by overenforcement. We want to avoid the banking bill becoming Congress’ only bite at the apple for cannabis reform this session.”

The National Cannabis Industry Association’s media relations director, Morgan Fox, rebutted Adesuyi’s statement, arguing that banking reform is a step in the right direction towards more comprehensive marijuana reform: 

“The SAFE Banking Act is a necessary reform that would represent a major step toward more sensible cannabis laws, and it’s looking increasingly likely that it can actually pass soon. We have an opportunity to end policies that actively endanger people, hurt small businesses, and stymie equitable participation in the cannabis industry. Banking reform is certainly not the end of the road, and the industry is committed to working in support of far more comprehensive reforms that more fully address the harms caused by prohibition. Passage of this legislation will only add momentum to those efforts.”

This bill has the support of 168 bipartisan cosponsors, including 145 Democrats and 23 Republicans. In the 116th Congress, this bill passed the House by a broad bipartisan vote (321 in favor and 103 against), with 91 Republicans and one Independent voting in favor.  It had 206 bipartisan House cosponsors, including 180 Democrats and 26 Republicans. The 116th Congress version of this bill also passed as part of the Heroes Act, an earlier COVID-19 relief package that the House approved twice. The Senate companion version of the SAFE Banking Act was sponsored by Sen. Jeff Merkley (D-OR), had 33 bipartisan Senate cosponsors, including 27 Democrats, five Republicans, and one Independent, and didn’t receive a committee vote. 

Financial regulators in 25 states and territories, as well as 17 state treasurers, endorsed this legislation in the 116th Congress. Additionally, a range of financial services, trade, and marijuana business organizations support this legislation; most of these same organizations have continued to express their support in the 117th Congress. Smart Approaches to Marijuana and the National Fraternal Order of Police (NFOP) opposed this legislation in the 116th Congress.

In the 115th Congress, this legislation had 95 bipartisan House cosponsors, including 82 Democrats and 13 Republicans. Its Senate companion, sponsored by Sen. Merkley, had 20 bipartisan Senate cosponsors, including 15 Democrats, four Republicans, and one Independent. Neither bill received a committee vote.

Reps. Perlmutter and Heck have introduced bills like this one in every Congress since 2013. Although this bill passed the House Financial Services Committee by a healthy margin, as of June 9, 2019, there were discussions underway to introduce amendments to garner more Republican support. 

These were spurred by the bill’s uncertain chances in the Senate, particularly in the face of Senate Majority Leader Mitch McConnell’s (R-KY) aversion to bills favoring marijuana over hemp (of which he has been a major champion, given that Kentucky is a major hemp producer). Some amendments under discussion earlier this year included proposals to extend the banking protections to hemp and CBD businesses, or to block regulators from going after some unrelated, but also controversial, business sectors, such as the gun and payday loan industries. 

Of Note: As of April 2021, marijuana is marijuana is fully legal in 14 states and the District of Columbia. Medical marijuana is also legal in 35 states as of April 2021.  As of January 2021, this $17.7 billion industry supported 321,000 jobs across the country and remained largely unbanked.

State-level laws allowing some form of marijuana use are all in conflict with the Controlled Substances Act of 1970 (CSA), which makes cannabis illegal at the federal level. Under the CSA, financial institutions providing banking services to legitimate cannabis businesses licensed under state law are subject to criminal prosecution and civil and regulatory action. Due to the restrictions on banks imposed by the CSA, legal and legitimate marijuana businesses are forced to operate on cash-only bases.

Over the past several years, there have been numerous memoranda on the issue of banking for cannabis businesses. Originally, in response to ongoing state cannabis legalization efforts, both the Dept. of Justice (DOJ) and Treasury Dept.’s FInancial Crimes Enforcement Network (FinCEN) issued memos and guidance on cannabis banking. In an August 29, 2013, memorandum, then-Deputy Attorney General James Cole stated that while marijuana remains illegal under the CSA, the DOJ would focus its resources on the “most significant threats in the most effective, consistent, and rational way.” The memo set out eight enforcement priorities, which didn’t include prosecuting banks providing services to legal and legitimate marijuana businesses. This point was reiterated in a February 14, 2014 memorandum in which then-Deputy AG Cole directed U.S. Attorneys to “apply the eight enforcement principles described in the August 29 guidance” in determining whether to charge individuals or institutions with financial offenses based on marijuana-related violations of the CSA. 

FinCEN issued its own guidance with respect to cannabis-related financial crimes on February 14, 2014. In its guidance, FinCEN provided a roadmap for financial institutions seeking to comply with suspicious activity reporting requirements when providing financial services to state-authorized cannabis-related legitimate businesses. It also directed them to alert FinCEN to transactions that might trigger federal enforcement priorities. Specifically, FinCEN’s guidance advised financial institutions that “[b]ecause federal law prohibits the distribution and sale of marijuana, financial transactions involving a marijuana-related business would generally involve  funds derived from illegal activity. Therefore, a financial institution is required to file a [suspicious activity report (SAR)] on activity involving a marijuana-related business (including those duly licensed under state law) in accordance with this guidance and [FinCEN regulations].”

FinCEN advised financial institutions providing services to cannabis-related businesses that they’d be required to file one of three types of special SARs: 

1. Cannabis Limited SAR: For cases in which the bank determines, after exercising appropriate due diligence, that the customer isn’t engaged in any activities that violate a state law or implicate the investigation and prosecution priorities in the Cole Memorandum; 
2. Cannabis Priority SAR: For cases in which the financial institution believes a customer is engaged in activities that implicate DOJ’s investigation and prosecution priorities; and
3. Cannabis Termination SAR: For cases in which a financial institution finds it necessary to sever a relationship with a customer to maintain an effective anti-money laundering (AML) program.

On January 4, 2018, then-Attorney General Jeff Sessions issued a new DOJ memo on marijuana enforcement that effectively rescinded the previous memoranda that former Deputy AG Cole had written on the topic. However, after Reps. Pelmutter, Heck, Young, and other Congress Members wrote a letter urging FinCEN to maintain its 2014 guidance, the Treasury Dept. responded that the FinCEN guidance would remain in place. 

Today, although the FinCEN guidance is still valid, many financial institutions are still reluctant to serve cannabis-related legitimate businesses. Thus, many cannabis businesses have little to no access to traditional banking services, and must operate as cash-only businesses that can’t access credit cards, deposit their profits, or write checks to pay employees or taxes.

However, not all banks decline to do business with cannabis businesses. According to FinCEN, 515 banks and 169 credit unions are actively banking marijuana-related businesses. 

Because cannabis businesses are so cash-heavy, they’ve been described as a “soft target” for robberies, assaults, store break-ins, and theft of both cash and cannabis products. Employees themselves — who are often paid in cash — are also soft targets for criminals. In some cases, this has had tragic consequences, such as in the case of 24-year-old Travis Mason, a security guard and former Marine who was killed in a 2016 robbery at a dispensary in Aurora, Colorado. Mason, who had only worked as a security guard at the dispensary for a few weeks at the time of the shooting, was gunned down when two masked men stormed the store.

During the pandemic, Portland, Oregon-area marijuana businesses have been targets of the largest crime spree targeting one type of business in the city’s history. Since March 2020, there have been 103 burglaries and robberies at Portland cannabis shops. Over half a million dollars of cash and product have been stolen in these incidents; in the biggest single incident, an armed robbery at a cannabis store in 2020, $255,000 in cash and product were stolen. Anthony Johnson, a former criminal defense lawyer who organized Oregon’s cannabis legalization efforts, pins the crime wave to cannabis businesses’ cash-only nature. He says, “The notion that these businesses have to operate with a lot of cash definitely make[s] them a target for robberies.”

The cash-dependent nature of marijuana businesses also poses challenges for service providers that work with such businesses, such as electricians, plumbers, insurance providers, and landlords. For these businesses, cannabis business customers’ lack of checking accounts or inability to utilize payment processors can be challenging for their business operations.

Media:

• Sponsoring Rep. Ed Perlmutter (D-CO) Press Release (117th Congress)
  
• Senate Sponsor Sen. Jeff Merkley (D-OR) Press Release (117th Congress)
  
• Sponsoring Rep. Ed Perlmutter (D-CO) Press Release (116th Congress)
  
• Sponsoring Rep. Ed Perlmutter (D-CO) Press Release After House Financial Services Committee Passage (116th Congress)
  
• Senate Sponsor Sen. Jeff Merkley (D-OR) Press Release (116th Congress)
  
• American Bankers Association (ABA) (117th Congress)
  
• Maps Credit Union Chief Risk Officer Rachel Pross Congressional Testimony on Behalf of CUNA (In Favor, 116th Congress)
  
• Smart Approaches to Marijuana (SAM) (Opposed, 117th Congress)
  
• ACLU, Human Rights Watch (HRW), Drug Policy Alliance (DPA), and Others Letter to House Leadership (Opposed to Vote, 116th Congress)
  
• CBO Cost Estimate (116th Congress)
  
• Willamette Week
  
• House Financial Services Committee Report
  
• Marijuana Moment
  
• Marijuana Moment
  
• Marijuana Venture
  
• Barron’s
  
• Bill Text