The SAFE Banking Act: One Month After Passing the House

The political and cultural landscape surrounding marijuana is evolving at an accelerated rate as of late, fuelled by a momentum generated by major legislative leaps taking place in countries around the world. The good news is that there is no sign of that trend letting up anytime soon. The not-as-great news is that from these fast changes and with the quick expansion of systems and policies – there are gaps.

In particular, the discrepancy between federal and state laws regarding marijuana in the United States has been a source of widespread confusion and glaring contradiction. For that reason, one may not be surprised to hear that the federal laws regarding marijuana are slated for a revamp in an effort to bridge those gaps – enter the SAFE Banking Act of 2019. We’ll get to the details of the bill in a moment, but first let’s get some background on how the need for such an act came to be.

As cannabis slowly but surely becomes more socially acceptable and less villainized, stigmas begin to slowly fade out, public opinions shift further and now we see state after state taking the legislative leap.

Medical use of cannabis is currently legal (upon doctor’s recommendation) in thirty-three states, the District of Columbia, and four out of five inhabited U.S. territories. Recreational use is legalized in 11 states including Alaska, California, Colorado, Illinois, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont and Washington), the District of Columbia, the Northern Mariana Islands, and Guam.  On top of all that, another 15 states and the U.S. Virgin Islands have decriminalized the plant.

However, on a federal level, marijuana is still illegal and in fact, is considered a Schedule I controlled substance – up there with drugs such as heroin and cocaine (um…?). That alone is a major source of ideological tension, as Schedule I designations are deemed to be reserved for drugs that lack any medical value, cannot be safely prescribed and have a high potential for abuse.

When state and federal laws are in direct opposition, what exactly happens? It’s like when you were a kid and asked both parents for ice cream and got completely conflicting responses – who did you end up listening to? The one who said yes, or the one who threatened to ground you if you didn’t stop bugging them? Like most kids, you likely listened to whomever was more of the disciplinarian, and in this case – no surprise – the feds have us covered. So, are we ever going to have the chance to prepare, eat and sell ice cream worry-free or what? And what purpose would state laws have if the federal laws could just automatically override them? Well, the answer is fairly simple and it takes us back to the scribblings of the U.S. Constitution, and specifically to what’s known as the Supremacy Clause.

The Constitution’s Supremacy Clause provides that federal law is “the supreme Law of the Land” and is the foundation for federalism, containing a very important component known as the doctrine of federal preemption. According to this fancy-titled constitutional clause, federal law both expressly as well as impliedly supersedes conflicting state laws – ie. it’s the boss. Judges in every state are required to abide by the Constitution, laws and treaties of the federal government in all matters. So federal law will almost always prevail when it interferes or conflicts with state law, except in those rare circumstances where the federal law is deemed unconstitutional.

Let’s take a look at what’s currently going on in the U.S. legislature and how the SAFE Banking Act plans to mend some of those discrepancies.

One of the main obstacles at hand for cannabis-related legitimate businesses stems from the fact that the federally-regulated banking industry still sees and treats them as a liability. In fact, due to the fear of federal prosecution, most financial institutions will not bank with cannabis businesses – despite the fact that they are legally-licensed by their respective states. This has forced these businesses to function primarily – if not exclusively – in cash, fostering an environment in which accounting, security, and economic issues are seemingly inevitable for many of these (law-abiding, tax-paying) businesses.

In an attempt to cure these impractical legislative issues, U.S. House of Representative Ed Perlmutter from the District of Columbia introduced a bill. With the hopes of mending some of the inadequacies currently plaguing the industry’s economic backbone, Perlmutter introduced a piece of proposed legislation H.R.1595, known as the SAFE (Secure and Fair Enforcement) Banking Act.  The SAFE Banking Act was designed to eliminate some of the fundamental financial obstacles facing cannabis-related companies when it comes to capital management.

On September 29, 2019, the bill was passed in the Democratic-controlled U.S. House of Representatives, with members voting 321 to 103 in favour of the legislation. 229 Democrats and 91 Republicans cast ‘yes’ votes.

Next step – getting the thumbs up from the Republican-controlled Senate.

Official Bill Tracker
Image: Official Bill Tracker of the American Congress, via

Though this might not be the first time such a Bill was introduced (Representatives Ed Perlmutter (D-CO) and Denny Heck (D-WA) have introduced similar Bills every Congress since 2013) it is, however, the first time it’s made its way to this point in the process. There’s no denying that’s because the general acceptance of the legalization of marijuana is at an, er, all-time high…as evidenced by the healthy backing of the 206 co-sponsors supporting this new legislation.

But wait, we may want to hold our applause just yet.

Despite the state support and legislation, it is still possible for federal laws to prosecute banks for funding these companies. What’s an even harsher reality – it is possible for punishments to even include stripping them of deposit insurance.

Should this Bill pass in the Senate, it will serve to prohibit federal banking regulators from, “…penalizing a depository institution for providing banking services to a legitimate marijuana-related business.”

Beyond that initial mandate, there are 5 main components of the Bill. Let’s take a closer look.

The SAFE Banking Act prohibits a federal banking regulator from terminating or limiting the deposit (or share) insurance of a depository institution solely because the institution provides financial services to a legitimate marijuana-related business.

It also prohibits them from discouraging a depository institution from offering financial services to such a business and from incentivizing the depository institution not to offer financial services to an account holder because the account holder is affiliated with a pot-friendly business.

The federal regulators will also be prohibited from taking any corrective supervisory action on a loan made to a person just because the person either owns such a business or owns real estate or equipment provided to such a business.

Finally, should the Bill become law, it would disallow the penalization of a depository institution for processing or collecting payments for such a business. In fewer words, the Bill would force federal banks to play fair with these state law-abiding businesses and stop keeping them at such a disadvantage caused by the ambiguous gap between federal and state law. The result has been a wave of new state-sanctioned and legitimate businesses that are excessively cash-dominant. The Act will allow access to traditional banking and is thought by many to be a clear signal that the United States is building momentum towards national legalization.

However, as we have witnessed time and time again in the world of American politics, getting an Act to pass in a dominantly democratic House of Representatives represents a much easier task than the daunting next step at hand. Following a Bill receiving assent on the House level, it will now require acceptance in the Senate, and that is not something that is going to be done without some resistance. The upfront costs associated with making the changes required to implement this bill are enormous – however, one might argue that the consequences of not resolving the current problems could have a price-tag that is unimaginably higher.

Either way, this monumental moment in American history has lots of life ahead with many more changes and amendments to come.

Puff Puff Post will keep this article updated as these changes arise – and that, my friends, you can take to the bank.