California cannabis business operators are hopefully eyeing a newly-reintroduced Safe and Fair Enforcement Banking Act (SAFE) that appears to be gaining some steam in Congress. Last session, it died in the U.S. Senate, but with new members seated, a new president and a growing trend toward public acceptance of cannabis companies as legitimate, cannabis banking may be more than a pipe dream. 
As our Los Angeles cannabis lawyers can explain, the goal is to establish a safe, legal means for banks and other financial companies to work with marijuana businesses that are state-legal. As it stands, 47 states plus Washington, D.C. have legalized the substance in some form or another.
Sponsors are optimistic that this is much less of a partisan issue than it was in the past, particularly in light of the tax revenue it produces.
Why Cannabis Banking Remains Burdensome
Banking is recognized as one of the most slippery slopes for cannabis companies. They’re cut off from traditional bank accounts, which is what provides many businesses safety, security and legitimacy. Unlike other companies, cannabis retailers and many ancillary companies have no choice but to haul bundles of cash around. Not only is that impractical, it’s dangerous. COVID-19 presented a whole new layer of danger with this prospect, and many customers didn’t want to deal in cash.
Further complications arise from a lack of a bank account. No bank account makes it much more difficult to secure a loan.
And all of it stems from archaic provisions in federal law. Specifically, U.S. law classifies cannabis as an illegal Schedule I narcotic (the most severe classification, with a high risk of addiction and no recognized medical uses). The banks are regulated by federal law. So even if a marijuana company is 100 percent legitimate in the eyes of the State of California, they can’t find financial institutions willing to risk accusations of money laundering or aiding and abetting a federal crime by going into business with them.
Looking for a Loophole
At this point, there is really just one legal loophole that a few banks (mostly smaller credit unions) have opted for in taking the risk. But as our Los Angles marijuana lawyers can explain, the catch is that it requires the financial institution to file a suspicious activity report for every single transaction. In turn, the business gets slapped with some major fees that typically don’t apply to other companies. Banks insist these fees are needed to offset not only the risk but extra work they’re taking on.
We’ve heard reports of some cannabis companies opening bank accounts by not disclosing the nature of their industry and using a name that would indicate they’re part of a different industry. That’s inadvisable because it’s a matter of time before the bank finds out. The accounts could be shut down and there could be stiff penalties imposed.
California Cannabis Industry Association Backs New Bill
Most cannabis businesses want to do the right thing – on the up-and-up – without decimating their bottom line. The California Cannabis Industry Association has lobbied for the SAFE Banking Act for the last two years, and ardently supports its reintroduction in Congress, according to The North Bay Business Journal. The association’s executive director was quoted as saying it would, “give a huge benefit to the legal businesses.”
Even leaders of some credit unions that have opened their doors to cannabis businesses say they’d welcome the change because it would reduce the risk – and the amount of paperwork they’d have to file. Suspicious activity reports are often onerous, and to file one for each transaction is cumbersome. Whereas it takes a single employee to manage two dozen marijuana businesses, that same employee could easily manage 400 other commercial accounts.
The SAFE Banking Act would extend protections to banks against federal money laundering laws. It would also prohibit U.S. bank regulators from terminating or limiting deposit insurance or taking other adverse action against a bank because it provided financial services to a cannabis company. There would be no penalization or prohibition on providing these services.
The Los Angeles CANNABIS LAW Group represents growers, dispensaries, ancillary companies, patients, doctors and those facing marijuana charges. Call us at 714-937-2050.
Additional Resources:
Northern California cannabis industry hopes for success of newly reintroduced banking bill, March 22, 2021, By Susan Wood, North Bay Business Journal
