Lack of access to banking resources by cannabis-related businesses due to the continuing U.S. federal prohibition on marijuana use has for years been a thorn in the side of the cannabis industry. The author has represented two recent Massachusetts-based cannabis startups whose business plans were nearly nipped in the bud by lack of access to domestic banking and financial services. In one case, the author relied on a rarely-invoked Delaware statute to successfully re-domesticate a startup to a Canadian province where such banking and financial services are more readily available to cannabis-related businesses.
In what would represent a sea-change for U.S. federal treatment of the nascent cannabis industry, a new bill filed by Senators Cory Gardner (R-CO) and Jeff Merkley (D-OR) and 20 co-sponsors would protect banks from punishment by federal regulators for opening bank accounts for state-approved cannabis enterprises. Their proposal, the Secure and Fair Enforcement (“SAFE”) Banking Act, tracks recent similar legislation that cleared the House Financial Services Committee by a bipartisan vote of 45 to 15. The SAFE Act includes provisions that would prevent federal banking regulators from 1) penalizing depository institutions for providing financial services to cannabis companies or deposit insurance for their accounts, 2) recommending or providing incentives for a bank to refrain from offering financial services to cannabis companies, or 3) taking other disciplinary action against banks solely because they provide banking services to legitimate cannabis-related businesses. Notwithstanding the bill’s proposed protections to banks offering financial services to cannabis-related businesses, other provisions of the bill would still require financial institutions to file Suspicious Activity Reports and comply with other Financial Crimes Enforcement Network (“FinCEN”) requirements.
Also under the new Senate bill, depository institutions that provide financial services to cannabis-related businesses that are operating in compliance with state law may not be held liable under any federal law or regulation solely for providing such financial services, and the proceeds of any cannabis-related transactions of such businesses would not be deemed the proceeds of unlawful activity under federal law.
The introduction of the SAFE Act bill comes at a time of growing domestic support for reform of federal cannabis-related laws and regulations. Another bill recently introduced by bipartisan groups of House and Senate members would permit states to enact their own cannabis legalization laws without federal interference. Entitled the Strengthening the Tenth Amendment Through Entrusting States (“STATES”) Act, that bill would exempt cannabis-related activity that is legalized by a state from the federal Controlled Substances Act, which currently treats marijuana as a Schedule I narcotic -- a classification reserved for drugs with a “high potential for abuse,” “no currently accepted medical use,” and a “lack of accepted safety.”
The Senate’s new SAFE Act bill builds on H.R. 1595, the earlier House version of similar legislation, to clarify, among other things, that its protections also cover insurance companies.
These recent House and Senate legislative initiatives to liberalize the federal laws and regulations governing the provision of banking and financial services to cannabis-related businesses reflect growing public support for the cannabis industry. However, the bills are not intended to provide talismanic immunity to banks and other financial institutions from the reach of all federal regulations governing the provision of financial services to cannabis-related businesses, since neither bill would prevent the Department of Justice or FinCEN from taking action against institutions that provide financial services to the industry’s members. Nevertheless, together with ongoing efforts at the state level to liberalize restrictions on the cannabis industry, the bills represent a major push to remove one of the biggest barriers to the development of a robust domestic marketplace for cannabis-related businesses and products.
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