The SAFER Banking Act aims to provide federal protections to banks servicing state-legal cannabis businesses, reducing financial constraints and fostering economic growth by enabling access to traditional financial services and creating a safer financial ecosystem.
Cannabis banking is on the cusp of significant transformation, driven by notable legislative changes. The Secure and Fair Enforcement Regulation (SAFER) Banking Act, recently introduced in the US Congress, aims to ease the financial constraints faced by state-sanctioned marijuana businesses.
New legislative developments
SAFER, an evolution of the SAFE Banking Act, seeks to provide federal protection to financial institutions servicing legal marijuana businesses. This act addresses the persistent issue of cannabis businesses operating primarily in cash due to banks’ reluctance to engage with an industry still deemed illegal at the federal level. The bill introduces a “safe harbour” provision, shielding banks from criminal, civil, and administrative penalties when providing services to state-legal cannabis businesses.
This legislative effort coincides with a significant recommendation from the Department of Health and Human Services (HHS) to reschedule marijuana from a Schedule I to a Schedule III substance under the Controlled Substances Act. If enacted, this reclassification would reduce regulatory burdens on marijuana businesses, allowing them to deduct business expenses and access traditional financial services more easily.
In the US, the cannabis industry is expanding rapidly, with 38 states and Washington, DC allowing medical use, and 23 states plus DC permitting recreational use. The opening of Maryland’s recreational market in 2023, which generated $85 million in sales in its first month, exemplifies the growing economic impact of cannabis legalisation. This trend is echoed internationally, with countries like Canada and Uruguay leading the way in national legalisation and regulation of cannabis.
However, the US still faces significant banking challenges compared to these countries. In Canada, for instance, marijuana businesses have full access to banking services, a result of federal legalisation in 2018. This has allowed Canadian cannabis companies to operate with greater financial stability and transparency. Similarly, Uruguay’s government-regulated market ensures that cannabis businesses can use traditional banking services without fear of legal repercussions.
Potential impact of SAFER
The passage of the SAFER Banking Act would mark a pivotal change in the US cannabis industry. By providing legal certainty to financial institutions, the Act would encourage more banks to offer services to marijuana businesses, thus reducing the risks associated with a cash-only model. This shift would enhance the safety and operational efficiency of cannabis businesses, enabling them to invest in growth and innovation. Moreover, the Act would benefit ancillary industries, such as insurance and mortgage lending. Insurers could engage with cannabis businesses without fear of federal penalties, and mortgage lenders could consider marijuana-related income as legitimate for loan qualifications. These changes would create a more integrated and supportive financial ecosystem for the cannabis industry.
Royce B DuBiner from McGuireWoods highlights: “The SAFER Banking Act would mitigate the dangers of operating in a cash-only environment, allowing banks and marijuana businesses to thrive under a protected framework.” According to data from the American Bar Association, SAFER’s protections could significantly increase the number of financial institutions willing to service the cannabis industry, fostering broader economic growth and stability.
SAFER represents a critical step towards normalising cannabis banking in the US, aligning it more closely with international standards. As the cannabis industry continues to grow, these legislative changes could unlock new opportunities for financial integration and economic development.