House Passes Landmark Cannabis Banking Bill

Published on Oct 21, 2019

On September 25, the U.S. House of Representatives passed H.R. 1595, also known as the SAFE Banking Act of 2019, which aims “to increase public safety by ensuring access to financial services to cannabis-related legitimate businesses and service providers and reducing the amount of cash at such businesses,” as stated in its purpose. The bill was subsequently referred to the Senate, where it was referred to the Senate Banking Committee to await its fate.

The bill would provide safe harbor to financial institutions that provide services to a “cannabis-related legitimate business,” which is defined essentially as a company that produces, sells, and distributes (etc.) cannabis “pursuant to a law established by a State or a political subdivision of a State.” The Financial Institutions Examination Council is required to develop uniform guidance and examination procedures for financial institutions within 180 days of the bill’s enactment.

Interestingly, the bill also includes language on hemp and cannabidiol (“CBD”), which was legalized in late-2018, but still faces significant issues with banks for its close association with cannabis. The bill states, “The Congress finds that… despite the legalization of hemp, some hemp businesses (including producers, manufacturers, and retailers) continue to have difficulty gaining access to banking products and services[,] and businesses involved in the sale of hemp-derived cannabidiol (“CBD”) products are particularly affected, due to confusion about their legal status.” The bill directs federal banking regulators to issue guidance to financial institutions within 90 days of the bill’s enactment to “confirm the legality of hemp” and to provide best practices for financial institutions to follow when serving hemp and CBD companies. It is likely that this was done to appease Senate Majority Leader Mitch McConnell, a known advocate for hemp (but not cannabis).

It is difficult to speculate on the fate of the bill’s sister bill in the Senate, S. 1200, but it currently has 33 co-sponsors, including five Republicans.

Banking remains one of the largest issues for cannabis companies across the country. The cannabis industry still transacts almost entirely in cash and there are very few state-charted banks and credit unions who will serve it, resulting in exorbitant fees just to have these accounts. Because non-hemp cannabis is still federally illegal and because of the inherent difficulty in determining the legal status of hemp, national banks will not knowingly provide services to these companies. In addition to the high fees the companies must pay to the few institutions that will take them, companies also face a massive shortage in lending and capital, and when they can find it, they often face onerous interest rates and terms. If this bill were to pass Congress and be signed by the President, who has not indicated any opposition, this could be a massive boon to the cannabis industry.