United States: House Takes First Step To Open Banking For Cannabis Companies

Legalization of certain cannabis-related activities by over 30 states has led to a surge in companies that grow and produce cannabis and related products. However, banks and other financial services companies have been hesitant to serve this growing population of potential customers due to conflicting statutes and enforcement policies under federal law. On Thursday, March 28, 2019, the Financial Services Committee in the U.S. House of Representatives took a step toward clearing some ambiguity, at least for federally insured financial institutions.

The Secure and Fair Enforcement Banking Act of 2019 ("SAFE Act"), which the Committee approved on a vote of 45-15, with 11 of the panel's Republican members voting in favor, has been cleared for consideration by the full House. The SAFE Act would, if enacted, provide a safe harbor against retaliatory enforcement action by federal bank regulators directed at banks (including federal branches of non-U.S. banks), savings associations, and credit unions that provide services to cannabis businesses or service providers. In addition, the SAFE Act would prohibit federal regulators from discouraging depository institutions from offering financial services, including loans, to an account holder on the basis that the account holder is a cannabis-related business or service provider; an employee, owner, or operator of a cannabis-related business; or an owner or operator of real estate or equipment leased to a cannabis-related business. Furthermore, the SAFE Act would provide that officers, directors, and employees of depository institutions and the Federal Reserve Banks may not be held liable under federal law or regulations based solely on their provision of financial services to cannabis-related businesses or for investing any income derived from such businesses. The protections would apply only to cannabis-related businesses located in states, political subdivisions of states, or an Indian country where local law permits the cultivation, production, manufacture, sale, transportation, distribution, or purchase of cannabis.

While potentially clarifying the ability of federally regulated and insured depository institutions to provide financial services to cannabis businesses, the SAFE Act would not alter the status of cannabis under federal law. Cannabis remains a controlled substance under the Controlled Substances Act, and under federal law it is illegal to manufacture, distribute, or dispense marijuana. On August 29, 2013, amidst a growing number of states legalizing certain cannabis-related activities, the Justice Department under the Obama Administration issued updated guidance concerning cannabis-related enforcement policies. That guidance, known as the Cole Memorandum set forth the following priorities for the prosecution of marijuana offenses:

  • Preventing the distribution of marijuana to minors;
  • Preventing revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels;
  • Preventing the diversion of marijuana from states where it is legal under state law in some form to other states;
  • Preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;
  • Preventing violence and the use of firearms in the cultivation and distribution of marijuana;
  • Preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use;
  • Preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and
  • Preventing marijuana possession or use on federal property.

In line with the Cole Memorandum, in February 2014 the Financial Crimes Enforcement Network ("FinCEN") issued updated guidance governing procedures that financial institutions must implement if they take on cannabis businesses as customers. Among other things, that guidance required financial institutions to subject a cannabis businesses to significantly enhanced due diligence, including confirming with relevant state authorities that the business is properly licensed and does not in any way implicate priorities set forth in the Cole Memorandum. In addition, financial institutions were required to file a specific type of suspicious activity report ("SAR") known as a "Marijuana Limited SAR" for each cannabis business the financial institution took on as a customer. Former Attorney General Sessions rescinded the Cole Memorandum on January 4, 2017, but FinCEN did not withdraw its February 2014 guidance, which did little to alleviate the uncertainty that continued to deter federally regulated financial institutions from serving cannabis businesses. Notably, the SAFE Act would require FinCEN to modify its SAR guidance to ensure it is consistent with the Act's purpose and intent and does not significantly inhibit the provision of financial services to cannabis companies.

The Committee's passage of the SAFE Act is significant not only because it would be a first step in clarifying federal enforcement policy governing the provision of financial services to cannabis companies, but for the support the bill received from Republican members of the House Financial Services Committee. The full House of Representatives must now approve the bill, and bipartisan support will be critical not only to its prospects on the House floor but to persuading Senate Majority Leader McConnell to permit a vote on the bill, or similar legislation, by the full Senate.

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