On September 25, 2019, the House of Representatives passed the “Secure And Fair Enforcement Banking Act of 2019” or the “SAFE Banking Act of 2019” (H.R. 1595) by a vote of 321 to 103.  If adopted, the SAFE Banking Act would, among other things, create a safe harbor for depository institutions that provide banking services to state compliant marijuana-related businesses and also remove proceeds from state compliant cannabis transactions from the definition of criminal proceeds under U.S. anti-money laundering laws.  This would dramatically change the industry, opening a whole range of legitimate services to state compliant businesses, and would also be a significant step in the direction of de facto legalization of the state compliant cannabis industry.   

What Would the Act Do?

The Act defines “cannabis-related legitimate business” as a “manufacturer, producer, or any person or company” that engages in any activity that is legal under state law and “participates in any business or organized activity that involves handling cannabis or cannabis products, including cultivating, producing, manufacturing, selling, transporting, displaying, dispensing, distributing, or purchasing cannabis or cannabis products.”  It also provides that the proceeds from a transaction conducted by a cannabis-related legitimate business or service provider shall not be considered as proceeds from an unlawful activity for purposes of U.S. anti-money laundering laws “solely because the transaction was conducted by a cannabis-related legitimate business or service provider.”  It also prohibits a federal banking regulator from

(1) terminating or limiting the deposit insurance or share insurance of a depository institution solely because the institution provides financial services to a legitimate marijuana-related business;  

(2) prohibiting or otherwise discouraging a depository institution from offering financial services to such a business;

(3) recommending, incentivizing, or encouraging a depository institution not to offer financial services to an account holder solely because the account holder is affiliated with such a business;

(4) taking any adverse or corrective supervisory action on a loan made to a person solely because the person either owns such a business or owns real estate or equipment leased or sold to such a business; or

(5) penalizing a depository institution for processing or collecting payments for such a business.

Winning Republican Support in the House

As we previously reported, the SAFE Banking Act was in danger of failing because of political divisions.  However, since a committee markup in March 2019, Rep. Ed Perlmutter (D-CO) amended the bill to make it more palpable to Republicans.  The amendments include changes that would explicitly extend the bill’s safe harbor to cover hemp companies, filling a gap in the 2018 Agriculture Improvement Act, (P.L. 115-334), also known as the “Farm Bill,” that legalized the sale and production of hemp but did not explicitly authorize financial institutions to work with the newly legalized industry.  Similarly, the changes would also prevent financial regulators from launching another Operation Choke Point, a 2013 Obama administration initiative that discouraged banks from working with industries with significant reputational risks, such as firearms and payday loans.  Other tweaks to the bill’s text clarify that ancillary businesses working with cannabis companies, like vendors and suppliers, would also be covered.  Those amendments swayed some key Republicans on the House Financial Services Committee, and specifically Andy Barr of Kentucky, Peter King of New York, Blaine Luetkemeyer of Missouri, Lee Zeldin of New York, and Lance Gooden of Texas.  (For example, in a speech from the House floor, Rep. Barr credited the hemp provisions for changing his vote.)  Rep. Perlmutter then worked with fellow Democrat Denny Heck of Washington and Ohio Republicans Steve Stivers and Warren Davidson in getting the bill through committee and onto the floor with enough support to pass it on suspension of the rules, which requires a two-thirds majority.     

What’s Next?

The bill will now advance to the Senate for consideration.  The amendments that helped win Republican support in the House should also help win Republican support in the Senate and, in particular the support of two critical Republican gatekeepers: Senate Banking Chairman Michael Crapo (R-ID) (who had pushed for amendments addressing Operation Chokepoint) and Senate Majority Leader Mitch McConnell (R-KY) (whose support for the hemp industry was crucial to passage of the Farm Bill).  Sen. Crapo said that he now wants to advance a cannabis-banking bill that will be similar to the version that passed the House Wednesday afternoon “as soon as we can,” but declined to say when exactly the Banking Committee might mark up the bill.  He also demurred when asked whether he would work on the House bill, its Senate companion (S. 1200), which was introduced by Sens. Cory Gardner (R-CO) and Jeff Merkley (D-OR), or introduce his own version.  Specifically, Sen. Crapo said that he wants the bill to address how financial firms should deal with the large amount of money dispensaries now hold (so called “legacy cash”) and also interstate commerce issues.  As Sen. Crapo explained, while the House bill would allow banks to work with state-licensed marijuana businesses, it is unclear whether or how a financial firm in a state where cannabis remains illegal could conduct transactions with an authorized company in another state, as would happen, for example, if someone with a bank account in Idaho, which has not legalized or decriminalized marijuana in any form, tried to use a debit card to buy marijuana in a legal state such as Colorado.

What Does It Mean?

If enacted, the Act would dramatically change the industry.  It would allow state legal businesses to deposit their proceeds in banks, which would reduce the risk of robbery.  It would also protect legitimate ancillary businesses, ranging from providers of agricultural support services to legal and business consultants, who cannot now work with state legal businesses for fear of being paid with criminal proceeds.  These effects would provide legal businesses with an advantage over their illegal competitors, thereby stimulating the entry into the industry of legal businesses, reducing the scope of the black market, and expanding the scope and nature of stakeholders in the reform movement.  In short, it could be a key turning point in the movement towards reform.           


Tom Firestone is located in Baker McKenzie's Washington D.C. office and Co-chair of the firm's North American Government Enforcement practice.


Bruce Linskens is a Senior Analyst for International and Legislative Affairs in Baker McKenzie's Washington office. He assists clients with compliance matters extending into federal legislative, regulatory, and policy issues.