A bipartisan group of attorneys general from thirty-eight states have signed on to a letter backing the Secure and Fair Enforcement (“SAFE”) Banking Act – H.R. 1595 – as it moves toward the floor of the House of Representatives.
Thirty-three states plus the District of Columbia, Puerto Rico, and Guam have legalized marijuana for medical use, and an additional ten states plus the District of Columbia allow recreational use. The SAFE Banking Act was introduced to provide businesses access to banks and other financial services in those states where marijuana has been legalized. The proposed law also offers banks protections from federal regulators who could punish banks for working with cannabis businesses.
Marijuana remains illegal under federal law, meaning financial institutions handling proceeds from a transaction involving marijuana could be in violation of federal money laundering statutes and banking regulations, creating a strain on businesses operating in states that have legalized marijuana. As of now, banking services are practically non-existent in the marijuana industry, and most transactions are handled by community banks and credit unions. In 2014, the Financial Crimes Enforcement Network (“FinCEN”) issued non-binding guidelines for banks interested in providing services to businesses involved in marijuana. The guidelines require the filing of suspicious activity reports (“SARs”) for transactions involving proceeds from a marijuana-related business. This has led most financial institutions to avoid these transactions for fear of regulatory repercussions.
The letter, organized by the National Association of Attorneys General, cites the lack of financial services protection as a problem because “[t]he resulting grey market makes it more difficult to track revenues for taxation and regulatory compliance purposes, contributes to a public safety threat as cash-intensive businesses are often targets for criminal activity, and prevents proper tracking of billions in finances across the nation.”
The letter’s concerns have merit, especially considering the exponential growth of the legal marijuana industry. For example, the letter points out that legal sales of marijuana in 2017 were approximately $8.3 billion and are expected to exceed $25 billion by 2025, with Barclays estimating that, if legalized, the marijuana industry would be worth $28 billion today and its value would increase to $41 billion by 2028.
In the House, the SAFE Banking Act most recently passed through the Committee on Financial Services on a 45-15 vote, but remains in the Committee on the Judiciary. If the bill passes out of the judiciary committee, it will be taken up on the House floor where it faces favorable odds before the Democratic majority. The bill’s future is less certain in the Senate where similar legislation failed to make it out of committee in 2017.
Troutman Sanders continues to monitor developments in the financial services sector. You can find the latest news here on the Consumer Financial Services Law Monitor blog.