What is the Safe Banking Act and Will Congress pass it this year?

by Sarah Lee Gossett Parrish,
Cannabis Lawyer

What is the SAFE Banking Act? The Secure and Fair Enforcement (SAFE) Banking Act is a piece of federal legislation that was first proposed in 2017 by Representative Ed Perlmutter, a Colorado Democrat representing the 7th District in that state. It passed the United States House of Representatives a total of six times before being added to the House’s bipartisan America COMPETES Act, which was passed on Friday, February 4, 2022, largely along party lines with a vote of 222-210.

Despite having 40 bipartisan Senate cosponsors, the legislation has not been taken up for debate or a vote in that body, ever. In the past, Senate leadership has either refused to move SAFE Banking as a stand-alone bill or has permitted the SAFE Banking language to be removed as an amendment from other legislation in conference committee – a scenario that most recently occurred in December 2021.

While Senate Majority Leader Chuck Schumer has stated that federal legalization of marijuana is a priority for him, he needs 60 senators to support it in the 50-50 Senate, and advocates have been lobbying to legalize it for quite some time. So…time will tell.

Most beltway pundits agree that the best hope for federal reform in 2022 is SAFE Banking, reasoning that if Congress cannot agree on SAFE Banking, which has bipartisan support, then it is unlikely Congress will pass a bill ending prohibition. Still, with only two states
where there is no legal use, meaning cannabis is legal for adult and/or medical use in 48 of the 50 states (currently, Idaho and Nebraska are the only states in which it is not legal for some purpose), it really is a question of WHEN, not IF Congress will end the federal ban. In the interim, we have a document that has become known as the FinCEN Memo, issued February 14, 2014, by the Financial Crimes Enforcement Network. The FinCEN Memo was intended to provide guidance for financial institutions that seek to provide services to marijuana-related businesses by clarifying Bank Secrecy Act expectations.

Oklahomas new Legislation and HIPPA incompatible

Generally speaking, The SAFE Banking Act would provide protections to financial institutions serving marijuana-related businesses in states where it is legal. The legislation would protect financial institutions from prosecution for money laundering (and potentially other charges) when they provide banking and other commercial services to marijuana-related businesses operating legally in states where marijuana sales are permitted. It would thus allow state-licensed marijuana-related businesses to engage freely in relationships with banks and other financial institutions, allowing them to accept credit-card payments, open checking accounts, and apply for loans.
An increasing number of banks and credit unions have started working with marijuana-related businesses in recent years. However, credit unions and banks that do choose to work with cannabis companies are forced to file onerous reports known as Suspicious Activity Reports with FinCEN.

Why do we need The SAFE Banking Act? Really, there are five reasons why the country needs it:

Marijuana-related businesses need and deserve the option to borrow money, and the ability to work with a bank will present more opportunities to obtain funding. The lack of lending opportunities currently available to cannabis businesses perpetuates high costs along with the lack of access to capital – facts that are increasingly widening the gap between large and small businesses in the cannabis space when it comes to chances of success.

Customers would be able to use credit cards to purchase marijuana and marijuana-related businesses would have better ways to track spending and income.

The massive amounts of cash generated by marijuana-related businesses pose a danger to the business owners and their employees, the customers and patients, innocent bystanders, and those transporting the cash, the last of which, unbelievably, now includes armored car companies who have basically been hijacked not by criminals but by the FBI and local law enforcement authorities who have seized cash by weaponizing civil forfeiture.

Cash transactions are easier to conceal from the IRS, while funds deposited in financial institutions are much easier for the IRS to track and trace. One would think that this alone would have motivated Congress to enact The Safe Banking legislation years ago. Not so.
Of course, The Safe Banking Act does not reconcile the obvious hypocrisy of the federal government in refusing to legalize cannabis while insisting that marijuana-related businesses pay federal taxes to the IRS, a fortiori that they do so without the benefit of the usual deductions afforded to every other state legal business thanks to Section 280E of the Internal Revenue Code, which does not allow for ordinary and necessary business deductions. In fact, the only deduction allowed marijuana-related businesses is for the cost of goods sold. Other normal business expenses such as advertising, insurance, and salaries can be completely lost if not accounted for properly by a capable cannabis CPA. Notably, the lack of deductions results in potential tax liability on gross profit for marijuana-related businesses, instead of net profit—a situation that differs from that of any other state legal business in the country.

Nonetheless, if The Secure and Fair Enforcement (SAFE) Banking Act finally makes it into federal law, it will certainly be a step in the right direction for marijuana-related businesses and the financial institutions that work with them.

So, what’s the take-away? Stay tuned. This year may be full of surprises when it comes to cannabis legislation, not only at the state level but perhaps on the federal front as well.

Information contained herein provides general information related to the law and does not provide legal advice. It is recommended that readers consult their personal lawyer if they want legal advice. No attorney-client or confidential relationship exists or is formed between you and Ms. Parrish as a result of this article.