In what could very well be another enabling reform of the burgeoning cannabis industry, a Senate Banking Committee is expected to convene a hearing on the recently updated SAFE Banking Act, now known as the Secure and Fair Enforcement Regulation Banking Act (SAFER), as early as September 27, 2023. Among the provisions in SAFER, of material impact is the potential removal of penalties imposed against financial institutions that loan money to or otherwise financially support the cannabis industry. If passed in its revised form, the Act would provide a safe harbor for banks to provide financial services to state-legal cannabis businesses, many of which are smaller and independently owned. Significantly, this would allow cannabis businesses to accept credit and debit card payments, eliminating the need to rely on cash-only transactions.
Currently, financial services to the cannabis industry are strictly regulated, at the federal level, making it difficult for state-legal cannabis businesses to have effective access to credit card processing and other financial services, leaving many of these businesses to operate exclusively on a cash basis. This has the potential to expose these operations to crime (including theft and money-laundering) and is also inefficient from a commercial perspective (as it can adversely impact a cannabis business' ability to effectively manage payroll, record and pay taxes and manage income).
Specifically, under current federal law, financial institutions face prosecution and penalties if they provide services to state-legal cannabis businesses because cannabis is classified as a "Schedule I" substance (i.e., substances with no currently accepted medical use and a high potential for abuse).
Recently, the U.S. Department of Health and Human Services (HHS) recommended to the U.S. Drug Enforcement Agency (DEA) that marijuana be moved from Schedule I to Schedule III under federal law.
As noted above, the Senate Banking Committee is expected to review and possibly edit the SAFER bill this week, which would be a predicate to any formal passage by Congress.
The passage of some form of SAFER combined with the rescheduling of cannabis would be a major boon to the industry. However, the looming government shutdown may delay these efforts, and, as in the many prior attempts to pass some form of SAFE banking legislation, put cannabis reform on the back burner. Shipman & Goodwin LLP will continue to monitor and provide updates on these matters as they develop.
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