While the marijuana industry becomes more legitimate—and more lucrative—its participants’ need for traditional banking products and services increases. Conversely, current federal laws make capitalizing on this emerging client base an extremely risky proposition for financial institutions.

However, the recently introduced Secure and Fair Enforcement (SAFE) Banking Act might finally reconcile this conflict by providing safe harbor to those institutions that provide banking services to marijuana-related businesses (MRBs), and the momentum for its passage is growing.

Here is where the matter currently stands and what it means for our industry.

The veil of legitimacy

Today, medical marijuana is legal in 33 states, and recreational marijuana is legal in 10. The District of Columbia has legalized both.

Despite the shift toward state legalization, marijuana is still considered a Schedule I drug by the federal government, a dichotomy the Department of Justice (DOJ) addressed in the 2013 Cole Memorandum.

In early 2014, the Financial Crimes Enforcement Network (FinCEN) followed suit and issued BSA Expectations Regarding Marijuana-Related Businesses to provide guidance to financial institutions that bank MRBs in states where marijuana is legal. However, marijuana’s growing legitimacy hit a snag in 2018 when former U.S. Attorney General Jeff Sessions rescinded the Cole Memo. But in another conflicting twist for banks, the FinCEN guidance remains in effect, according to the ABA Banking Journal.

In advocating for the SAFE Banking Act, the state attorneys general pointed out the significant value of the marijuana industry, which was estimated to be $8.3 billion in 2017 and expected to grow to $25 billion by 2025.

The SAFE Banking Act

Both houses of Congress are expected to vote on the SAFE Banking Act in the near future. It would create a safe harbor for depository institutions in order to “increase public safety by expanding financial services to cannabis-related legitimate businesses and service providers and reducing the amount of cash at such businesses.”

The bill’s five key tenets—which apply to financial institutions that bank legitimate MRBs and their ancillary partners and vendors—prohibit federal regulators from imposing the following penalties:

1. Terminating or limiting their deposit insurance just because they bank MRBs.
2. Prohibiting, penalizing or discouraging them from banking MRBs in states where it is legal.
3. Recommending, incentivizing or encouraging them not to bank MRBs, their owners or employees.
4. Taking adverse or corrective action on a loan to an MRB, its owner or employees.
5. Prohibiting or penalizing institutions or their third-party service providers for conducting routine banking functions for MRBs.

Legal or not, MRBs pose risk

Passage of the SAFE Banking Act would certainly make the choice easier for banks by alleviating a major risk currently associated with banking MRBs: the fact that at present it is done in contradiction to federal law and federal banking regulations.

Learn more about these marijuana-related regulations, as well as the steps your institution should take to minimize the risk of banking MRBs, by reading our Playing It SAFE: The Future of Cannabis Banking white paper.

Amber Goodrich, compliance strategist for CSI Regulatory Compliance, has more than 15 years of financial industry experience. She is a Certified Anti-Money Laundering Specialist (CAMS) and a Certified Regulatory Compliance Manager (CRCM).