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SAFER Banking Act passes Senate Banking Committee: Will marijuana be re-scheduled under the Controlled Substances Act?

Terri Luttrell, CAMS-Audit, CFCS
September 25, 2023
Read Time: 0 min

The SAFER Banking Act could allow financial institutions to profitably bank MRBs

Legislation that could bridge the gap between federal and state marijuana policies for banks is on the move. Learn its history and how it benefits financial institutions.

You might also like this podcast, "To be blunt: The ins and outs of cannabis-related banking."


Bipartisan support

The 2023 SAFE Banking Act: An unclear outlook

In recent years, the intersection of the marijuana industry and federal banking regulations has been a source of risk and uncertainty. At the forefront of efforts to resolve this issue is the newest version of marijuana legislation, the Secure and Fair Enforcement Regulation (SAFER) Banking Act, which the Senate introduced on September 20, 2023. The House version of the bill, the Secure and Fair Enforcement (SAFE) Banking Act, has passed the House seven times, but this is the first time the topic has received bipartisan support across Congress.

On September 27, the Senate version moved to the Senate Banking Committee and passed to the full Senate with a vote of 14-9. According to CNBC, Jeff Merkley, an Oregon Democrat and lead sponsor of the bill, called its passage an “historic moment” and an “example of significant bipartisan cooperation.” 

“Forcing legal businesses to operate in all-cash is dangerous for our communities; it’s an open invitation to robberies, muggings, money laundering, and organized crime—and the only people benefiting from the current system are criminals,” said Merkley. 

The current legislation aims to provide a clear framework for financial institutions to serve marijuana-related businesses (MRBs) businesses without fearing federal retribution. This comes as an increasing number of states have legalized marijuana for medical or recreational use despite its continued federal classification as a Schedule I substance. As the SAFER Banking Act navigates its way through Congress, there is a sense of anticipation about the potential shifts in policy and their implications for both the marijuana and the financial services industry. Many in the industry believe this legislation will open the doors for marijuana-related businesses to obtain traditional banking services, such as checking accounts, loans, and credit card services.    

Under current federal law, banks and credit unions face federal prosecution and penalties if they provide services to legal marijuana-related businesses. While 38 states, along with Washington D.C., Guam, Puerto Rico, the Northern Mariana Islands, and the U.S. Virgin Islands, have legalized marijuana in some form, many banks and credit unions are reluctant to take on the risks associated with providing services to marijuana-related 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 marijuana-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.  

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

Bridge federal-state gap

What the SAFER Banking Act would do

The new bill follows a review by the Food and Drug Administration (FDA) and a recommendation by the Biden administration that marijuana be reclassified as a Schedule III drug under the Controlled Substances Act. Marijuana is currently classified as a Schedule I substance, which defines drugs with “a high potential for abuse” and “no currently accepted medical use in treatment in the United States” and cannot safely be dispensed under a prescription. Schedule three describes a drug with “a potential for abuse less than the drugs or other substances in schedules I and II” and “a currently accepted medical use in treatment in the United States,” which supporters view as a more appropriate classification. This would move marijuana out of a category with heroin to the classification the same as Tylenol with codeine.  According to a Congressional Research Service report, the Drug Enforcement Agency (DEA) is predicted to approve marijuana reclassification. 

While the SAFE Banking Act legislation prohibits a federal banking regulator from penalizing financial institutions for providing banking services to a legitimate marijuana-related business and protecting them from money laundering law violations, there are fundamental differences with the new legislation. The SAFER Banking Act would require: 

  • Development of uniform guidance and examination procedures  
  • Updated guidance related to hemp-related businesses 
  • Regulators to be prohibited from ordering banks to close an account “unless there is a valid reason” 
  • Additional language to protect employees of state-legal marijuana businesses attempting to obtain residential mortgages funded by federal programs 
  •  Language discouraging banks and credit unions from denying CRBs service based on “personal beliefs or political motivations.”  

 There are factors other than federal law preventing many financial institutions from providing banking services to marijuana-related businesses. Any cash-intensive business is considered high risk related to anti-money laundering laws, which can be costly when providing adequate due diligence and suspicious activity monitoring and reporting. In addition, reputational risk is a factor in many conservative communities. However, institutions successfully offering services to marijuana-related businesses are reaping the benefits of market opportunities, enhanced fee income, and community goodwill by preventing large amounts of cash from going underground, where suspicious activity monitoring cannot occur.  

Decision time

The future of marijuana-related business banking

The SAFER Banking Act is awaiting further action in the Senate before going back to the House for another vote. However, as a government shutdown is looming over Congressional debate on the passing of the budget, this important legislation may be postponed again. With an election year approaching, politics will most likely come into play, not wanting the current administration to have any significant wins before the election. Still, many watching the progression of the bill are hopeful. 

While marijuana bills have encountered obstacles, the current support and shifting attitudes toward marijuana legalization provide cautious optimism to banks and credit unions interested in banking marijuana profitably while managing risk and maintaining regulatory compliance. 

With more states legalizing marijuana for medical or recreational use, the urgency to address the marijuana banking challenges becomes increasingly evident. Time will tell whether federal policy will adjust so that banks and credit unions can minimize the risk of CRB banking as they encounter growing numbers of state-compliant marijuana-related businesses. 

In the meantime, whether an institution plans on banking marijuana-related businesses or wants to avoid them, MRB monitoring software can help banks and credit unions navigate the complexities of this ever-changing industry. 

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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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