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AML/CFT Cannabis Banking

SAFE Banking Act returns to Congress: Is safe harbor for cannabis banking on the horizon?

Terri Luttrell, CAMS-Audit, CFCS
May 24, 2023
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The SAFE Banking Act could bridge the state and federal cannabis banking gap

Read more for the legislation's history and how it benefits financial institutions looking to profitably bank CRBs.

You might also like this whitepaper, "Cannabis and financial institutions: Providing services to cannabis-related businesses."

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Takeaway 1

Under current federal law, banks and credit unions face federal prosecution and penalties if they provide services to legal marijuana-related businesses.  

Takeaway 2

Considering the urgent need for a legislative solution, the SAFE Banking Act of 2023 could bridge the gap between state and federal marijuana laws. 

Takeaway 3

While the SAFE Banking Act has had a rocky past, the current ongoing support and shifting attitudes provide reasons for cautious optimism. 

Bipartisan support

The SAFE Banking Act's long road to the Senate

Many in the AML/CFT community have been watching the unfolding of the Secure and Fair Enforcement (SAFE) Banking Act for some time now with no significant progress.  If signed into law, the SAFE Act would allow banks to provide services to cannabis-related businesses (CRBs) in states that have passed the legalization of marijuana in some form.  This would enable CRBs to transact business by means other than cash, providing an auditable trail for financial institutions to monitor for suspicious activity. 

The SAFE Banking Act hit a wall in Congress last year after lawmakers excluded it from a $1.7 trillion government funding bill. It was the seventh time the legislation failed to get through the Senate after passing in the House of Representatives. Recognizing the urgent need for a legislative solution to cannabis banking challenges, members of Congress introduced the SAFE Banking Act of 2023 to bridge the gap between state and federal marijuana laws. 

The new 2023 version of the SAFE Banking Act was introduced in the House of Representatives (HR2891) and the Senate (S1323) in May 2023. Previous bills have had bipartisan support, but this is the first time both chambers of Congress have discussed the SAFE Banking Act simultaneously. Although the new proposed legislation does not remove marijuana from the classification as a Schedule 1 drug under the Controlled Substances Act, it gives certain safe harbor for financial institutions that provide traditional banking services to state-legalized cannabis-related businesses.   

Stay up to date on federal and state laws relating to cannabis banking.

Know your risk

The current state of cannabis banking and its risks

Under current federal law, banks and credit unions face federal prosecution and penalties if they provide services to legal CRBs. While some financial institutions have taken on these risks and are currently providing cannabis-related banking services in states that have legalized marijuana, most have not been willing to open the doors to federally illegal businesses.  According to a letter from the American Bankers Association (ABA) to the Senate Banking Committee, only about 11 percent of all U.S. banks and about 4 percent of all credit unions actively provide banking services to cannabis-related businesses.  This lack of access to financial services hinders these businesses’ abilities to gain a market foothold and contributes to the flourishing of an unregulated, underground marketplace. Communities are flooded with cash associated with these businesses, with no place to deposit the funds. 

 “There is nothing like a cash economy to facilitate money laundering,” Senator Jeff Merkley testified before a committee hearing on the SAFE Banking Act. “The lack of electronic records in this world makes it easy to move money that shouldn’t be moved.” “Without full access to the banking and payments system, legal cannabis businesses are forced to operate in the shadows,” said Sen. Sherrod Brown, D-Ohio, in the same hearing. Many business owners rely on funds from friends and family instead of small business and bank loans because “they might go through all the cost and effort, only to be denied.”  

Since the legalization of marijuana in some form in most states, businesses operating in the marijuana industry have faced numerous hurdles due to current federal law. According to the ABA, survey data compiled last year by Whitney Economics reported that over 70 percent of participating cannabis businesses say the “lack of access to cannabis banking or investment capital” is their top challenge. Without access to traditional banks, legal cannabis businesses can’t access loans and capital or even use basic bank accounts. As such, companies are forced to operate in a cash-only model, which can result in robbery, money laundering, and organized crime. 

Awaiting action

The future of the SAFE Banking Act

Over time, the SAFE Banking Act has gained momentum, with increased public support and endorsements from influential organizations and law enforcement agencies. The ABA letter to the committee urges senators to “markup and advance the legislation as soon as possible.” The letter further states that the SAFE Banking Act is an urgently needed and widely supported bipartisan legislative solution to allow banks to handle the proceeds from state-licensed cannabis businesses and the accountants, skilled trades, landlords, law firms, and other service providers they rely upon for legal operations.  

The SAFE Banking Act also promotes the safety of millions of consumers who patronize state-legal cannabis markets. The multi-billion-dollar state-legal marijuana market operating mainly as a cash-only business makes CRBs more vulnerable to theft and more difficult to audit. It risks their customers’ safety and welfare, as patrons must carry significant amounts of cash on their person to make legal purchases at retail facilities. Similarly, it needlessly jeopardizes the safety of retail staffers, who are susceptible to robbery.  

The SAFE Banking Act is still awaiting further action in Congress. While it has encountered obstacles in the past, the current support and shifting attitudes toward marijuana legalization provide reasons for cautious optimism to banks interested in banking cannabis profitably while managing risk and maintaining regulatory compliance. With more states legalizing cannabis for medical or recreational use, the urgency to address the cannabis banking challenges becomes increasingly evident. Time will tell whether federal policy will adjust so that banks are able to minimize the risk of banking the growing numbers of state-compliant cannabis-related businesses 

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About the Author

Terri Luttrell, CAMS-Audit, CFCS

Compliance and Engagement Director
Terri Luttrell is a seasoned AML professional and former director and AML/OFAC officer with over 20 years in the banking industry, working both in medium and large community and commercial banks ranging from $2 billion to $330 billion in asset size.

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About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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