Loans and Financing for Cannabis Businesses: Everything You Need to Know about the SAFE Banking Act

Despite the rapid growth of the cannabis industry, banks have been reluctant to provide financial services to cannabis-related businesses. Banks and other financial institutions fear that providing financial services to those in the cannabis industry could violate federal criminal laws and financial regulations such as “The Bank Secrecy Act” (“BSA”) and the “Money Laundering Control Act” codified under both sections 1956 and 1957 of title 18, of the United States Code.

In an attempt to create protections for banks that wish to provide financial services to cannabis-related legitimate businesses and service providers, the U.S. House of Representatives has each year since 2013 introduced the “Secure and Fair Enforcement Banking Act” (or “SAFE Banking Act”).  With a change of control of the U.S. Senate in 2021, this may be the year that the SAFE Banking Act is finally enacted into law.

The SAFE Banking Act would provide a “safe harbor” for banks that provide financial services to legitimate cannabis-related businesses, specifically: (1) prohibiting federal banking regulators from terminating or limiting deposit insurance of the bank; (2) prohibiting or discouraging banks from providing financial services to such a business; (3) recommending, incentivizing, or encouraging a bank to not offer financial services to such a business; or (4) taking adverse or corrective supervisory action on a loan made to a person solely because the person owns such a business or owns real estate or equipment leased or sold to such a business.

The SAFE Banking Act would further provide that “proceeds from a transaction conducted by a cannabis-related legitimate business or service provider shall not be considered as proceeds from an unlawful activity solely because the transaction was conducted by a cannabis-related legitimate business or service provider, as applicable.” This is significant considering the framework of the BSA requires banks to report any suspicious transaction relevant to a possible violation of law or regulation if the transaction involves or aggregates at least $5,000 in funds or other assets, and the bank knows, suspects or has reason to suspect that: (i) the transaction involves funds derived from illegal activities/are part of a plan to violate federal law; (ii) the transaction is designed to evade the BSA; or (iii) the transaction has no business or apparent lawful purpose. In other words, should the SAFE Banking Act pass Congress and become law, cannabis-related activates would not be considered “unlawful or illegal activity”, ending the need for banks to report a suspicious activity report for transactions involving cannabis-related businesses under the BSA.

Even more significant is that the SAFE Banking Act would ensure that collateral used by a cannabis-related legitimate business, in connection with securing financings by banks and credit unions, would not be the subject of criminal, civil, or administrative forfeiture “pursuant to any Federal law” solely on the basis that the credit was extended to a cannabis-related legitimate business.

In summary, many businesses or individuals looking to become involved in the cannabis industry find it difficult to obtain financing because of existing laws and regulations. If the SAFE Banking Act is enacted, members of the financial services industry would be permitted to issue loans to cannabis-related legitimate businesses. Additionally, cannabis-related legitimate businesses would have access to traditional banking services.

The SAFE Banking Act demonstrates a major development in the ever-changing cannabis industry. Lindabury counsels cannabis entrepreneurs with entity formation, regulatory compliance, corporate transactions, leasing, financing and licensing matters.  Please feel free to contact our office for additional insight concerning the cannabis industry.

Disclaimer: Using, possessing, distributing and/or selling marijuana is illegal under federal law, regardless of any state law. Businesses and individuals should be aware that compliance with state law does not assure compliance with federal law. Federal laws may be enforced in the future. Legal advice provided by Lindabury, McCormick, Estabrook & Cooper, P.C., is designed to counsel clients regarding existing and/or proposed cannabis law. No legal advice we give is intended to provide any guidance or assistance in violating federal law.

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