Bill that Would Enable Banks and Insurance Companies to Provide Services to the Cannabis Industry Passes the House; Heads to the Senate

Iconic image of a bank.On September 25, 2019, the U.S. House of Representatives passed H.R. 1595, the Secure and Fair Enforcement (SAFE) Banking Act.  The legislation is intended to allow the cannabis industry to have access to financial services and to enhance public safety by reducing the industry’s reliance on cash.  It provides a safe harbor for financial services companies, including banks, credit unions, and insurers, to serve cannabis-related businesses operating under state law without the threat of regulatory backlash or criminal prosecution.

The House voted 321 to 103 to pass the bill.  The bill was supported in the House by 229 Democrats, 91 Republicans, and 1 Independent.

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Bill that Would Provide Cannabis Industry with Access to Banking and Insurance Services Advances in the House

Iconic image of a bank.As a recreational cannabis bill in the New Jersey legislature stalls, federal legislation directed at expanding the cannabis industry’s access to banking and insurance services advances in Congress.   On March 28, 2019, the U.S. House of Representatives Committee on Financial Services approved H.R. 1595, the Secure and Fair Enforcement (SAFE) Banking Act.  The bill was introduced to allow the cannabis industry to have access to financial services and to enhance public safety by reducing the industry’s reliance on cash.  It provides a safe harbor for financial services companies, including banks, credit unions, and insurers, to serve cannabis-related businesses operating under state law without the threat of regulatory backlash or criminal prosecution.

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Federal Reserve Chair Asks for Clarity on Cannabis Banking Issues

Image of Fed. Chairman Jerome Powell

Fed. Chairman Jerome Powell

This blog has previously addressed the difficulties the cannabis industry encounters with the current federal banking system.  One potential solution proposed by Governor Murphy was the establishment of a state bank for cannabis businesses only, which has yet to materialize.

A recent development on this issue took place nationally when Chairman of the Federal Reserve Jerome Powell requested clarity on this subject from the Senate Banking Committee.  Chairman Powell was responding to a question from Senator Robert Menendez (D-N.J.), who raised that New Jersey is moving toward legalization of recreational cannabis.  The concern for Senator Menendez – as is the concern for many in the industry – is that cannabis businesses will be shut out of the banking industry and will be forced to operate only in cash, which is a safety risk.

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Cannabis Businesses and State Banks: a Possible Solution to a Difficult Issue

One of the more frustrating aspects of the cannabis industry for business owners is the lack of available banking services.  Many banks are hesitant to provide banking services to the cannabis industry because of the conflict between state legality and federal illegality, not to mention the obligation of banks to file Suspicious Activity Reports for transactions that may violate the Bank Secrecy Act.  While the number of banks providing services to the cannabis industry is growing, obtaining banking services is still very challenging for cannabis entrepreneurs.  The standoff between banks and the cannabis industry manifests in many frustrating ways, including but not limited to strictly cash businesses, banks who charge excessive services fees to cannabis business clients and the need to use credit unions in lieu of traditional banks (who themselves are fighting their own legal battles).

Iconic image of a bank.

Recently, California proposed an idea that could very well reshape the entire cannabis industry: a state sponsored bank for cannabis businesses.  California State Treasurer John Chiang and Attorney General Xavier Becerra are planning to conduct a feasibility study to test whether a California state bank would help California’s many cannabis businesses.

“We are contending with the emergence of a multi-billion dollar cannabis industry that needs banking services, and a private banking industry that is stymied by federal law in meeting the needs of the new industry,” Chiang said.

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