Pending SAFE Banking Act Would Legitimize Marijuana- Related Businesses


By Angela Underwood

If passed, the pending Secure and Fair Enforcement (SAFE) Banking Act would finally legitimize marijuana-related businesses (MRBs).

And it’s been a long-time coming since Rep. Ed Perlmutter (D-CO) brought up the idea in 2014. By making money from the marijuana industry bona fide, billions of dollars would begin to flow freely through the federal banking system, which could only be a really good thing, according to Richard Blau, shareholder with Tampa-based GrayRobinson, who chairs the law firm’s Regulated Products Law Department.

Blau, who has followed the SAFE Banking Act closely, dedicates his time to providing services to hemp lenders, producers, suppliers, product manufacturers, and wholesalers, said most established banks and financial institutions refuse service to MRBs because the federal government continues to list “marijuana” as an illicit Schedule 1 narcotic under the Controlled Substances Act.

“Because these banking organizations typically are accredited by federal regulatory agencies, subject to federal regulatory oversight, and access the Federal Reserve System, they are unwilling to risk their accreditation, compliance and access by working with MRBs whose legal status may be unclear as a matter of federal law,” Blau said.

The attorney, who directs the firm’s Medical Marijuana Team that focuses on the rules and regulations that govern the production, processing, distribution, sale and dispensing of medical marijuana and related cannabis products. said by addressing these issues, passage of the SAFE Act will benefit regulators, law enforcement and the public at large, as well as members of the growing cannabis industry.

“Industry member support the proposed legislation because they need access to institutional financial services,” he said.

Absent the ability to deposit revenues and disburse expense-payments in a safe and reliable fashion, MRBs are forced to conduct their financial operations either through entities with little accreditation or history of reliability, or entirely on a cash basis, Blau added.

“Either scenario presents greater risks for the MRB – especially the cash-only option,” he said.

The Marijuana Policy Project (MPP), a Washington-based non-profit reports any advancement at the federal level will improve the likelihood of progress for cannabis policy at the state level.

“Passage of the SAFE Banking Act would ease the burden of accessing financial services that the cannabis industry currently faces,” Violet Cavendish, MPP communications director, said.  

The act would also enable business guidance resources and financial planning, both of which are not available but are “invaluable,” according to Blau.

“Just as importantly, government and the public have a strong interest in having MRBs utilize the established banking systems readily available to other industries,” he said. “Through banking with established financial institutions, MRBs eliminate the need to keep large amounts of cash on hand, which has a propensity to attract and encourage criminal activities.”

It would assure for accurate and reliable record-keeping, which is of great importance to regulators and law enforcement, Blau added.

“Safer business practices, in turn, are a benefit for the public generally,” he said.

Like Blau, D.C.-based firm McDermott Will & Emery LLP has been following the act closely, hosting a webinar in September. Claudia Springer, partner at the Philadelphia-based firm Reed Smith, and Chair of the Cannabis Law Team, said she anticipates that even with the Senate having a Republican majority, the SAFE Banking Act will be passed.

“The bill enjoys bipartisan support because the majority of states have legalized the sale and use of cannabis for certain purposes,” Springer said. “This law will enable banks and other financial institutions to provide services as basic as checking accounts to cannabis businesses operating legally within the states in which they do business.”

Blau detailed how currently, 33 states and D.C. have legal medical marijuana markets while 10 states, including D.C. have legal recreational markets and the nascent, but fast-growing cannabis, industry represents major profit-opportunity for financial services businesses only if they are allowed by law to provide their banking and financial services to MRBs.

He offered some stats to prove his point:

For example, New Frontier Data, a Washington, D.C.-based cannabis researcher, released an industry report in September of 2019 that projects total legal states of cannabis to grow at a compound annual growth rate (CAGR) of 14% over the next six years, reaching nearly $30 billion by 2025.

This figure takes into account the likely projection that more states will legalize cannabis products – either as medical marijuana, hemp-derived cannabidiol (CBD) products or as full recreational marijuana, based on each state’s laws. Currently, the existing cannabis industry is estimated at $17 billion in annual sales.

According to NFD’s The U.S. Cannabis Report 2019 Industry Outlook: *Annual sales of medical cannabis alone are projected to grow at a 17% CAGR through 2025, to an estimated $13.1 billion by 2025; adult-use sales are projected to grow at a 16% CAGR, to $16.6 billion.”

Blau added cannabis-focused economics research group BDS Analytics projects in its 2019 State of the Legal Cannabis Markets report that there are five states expected to hit the psychologically important $1 billion sales mark in 2019, and 10 that will produce at minimum $298 million in estimated 2019 marijuana revenue.

“These data make MRBs a significant client opportunity for banks and financial institutions across America only if they are allowed to service them,” he said.

Springer said it’s likely that, if passed, the SAFE Banking Act will be enacted before the 2020 election.

“It stands to have a substantial impact on the cannabis and banking industries, which is a thriving industry with millions of dollars in transactions daily, most of which are in cash,” Springer said. “The number of financial institutions that serve this billion-dollar industry are inadequate in number.”