What the Senate Banking Hearing on the SAFE Banking Act Really Means

The Senate Banking Committee held a hearing on July 23, 2019, on the lack of financial services available to the cannabis industry and the challenges this creates. The hearing shifted the conversation around cannabis at the federal level to one of support and concern. The Chairman of the Senate Banking Committee, Senator Crapo who is a Republican from Idaho, opened the hearing with a statement that voiced his concern that federal regulators are choking off the ability for lawful businesses, such as the cannabis industry, to obtain banking services.

Senator Cory Gardner from Colorado and Senator Jeff Merkley from Oregon spoke about the safety issues that exist in their states that are caused by the lack of banking services. Senator Gardner stated that the situation is untenable as hundreds of millions of dollars in cash are being driven in cars through the state.

The Senators also focused on the individual hardships faced by industry employees including the loss of bank accounts, credit cards the inability of cannabis employees to obtain a mortgage. The hearing also highlighted the impact on ancillary service providers such as plumbers, electricians, and union members.

Both Senators demanded that the federal government respect the state’s rights to develop a lawful cannabis industry. Senator Cory Gardner thoughtfully stated that the federal government must recognize the majority of citizens support cannabis and it is the one issue that the country can unite around. Senator Gardner remarked that we are a government of the people and the people have changed their point of view with regards to this issue. 

The tone of the hearing along with sentiment expressed in Senator Crapo’s statement reveal that Congress is finally listening. The tables may be turning in a positive manner for the cannabis industry.

So what is the SAFE Banking Act and how will it help the cannabis industry?

Under the Act, banks can provide financial services to the cannabis industry, and federal regulators may not initiate an action against the bank because cannabis is classified as a Schedule 1 drug. The banking regulator, FinCen, must also revise guidance to the banks within 6 months of the law’s effective date as to the type of activity a bank should report to it as suspicious or indicative of money laundering.

The SAFE Banking Act is a great start to bringing the cannabis industry into the mainstream commercial market. The devil will be in the details as to how federal regulators will treat the legacy money that will be brought into the banking system. Cannabis businesses should ensure to have appropriate documentation as to the origin of all investments and revenues. All new investments should be vetted to ensure that an audit trail exists to demonstrate that the money is derived from legal sources.

The Senate Banking Hearing was remarkable in that both sides of the aisle appear to be uniting around cannabis. Republicans will have a hard time arguing that state rights don’t matter. Democrats will be able to provide their constituents with a win that has been in the wings for a long time. A remarkable outcome in a contentious political environment.

Nevada Introduces Bill to Create a Marijuana Bank

The Nevada Legislature has introduced a bill that would establish a marijuana credit union or charter bank. The marijuana bank will primarily allow special purpose checks to be issued for the payment of state taxes, rent and operational expenses. The bank would be a bare bones alternative to storing money under the mattress.

Some interesting highlights from the bill include:

  • The bank’s board will be responsible for finding safe ways for broker-dealers and investment advisers to buy and hold cannabis investments for customers.

  • A banking license costs $10,000 and is not transferable.

  • The bank accounts are not required to be insured by the FDIC.

  • The bank may cash a check for a non-customer if the check was issued by the bank, and it was issued for an approved purpose (ie, taxes, operational expenses, rent).

California Legislature Introduces 3 Cannabis Bills Ahead of 2019 Session: Banking, Cannabis Donations and Training Events

The California Legislature has started the 2019 legislative season by introducing three cannabis bills relating to banking, cannabis donations and training events. The California Legislature previously introduced all three bills during the 2018 legislative season. Governor Brown vetoed the cannabis training event and donation bills, which passed the Assembly and Senate with strong support . We believe that all three bills will quickly become law under Governor Newsom.

SB-51 Financial institutions: cannabis. The financial institutions bill would create the Cannabis Limited Charter Banking and Credit Union Law. The new law is a positive step towards filling the banking void in the cannabis industry. However, it does not solve the problem. The federal government has a responsibility to its citizens, investors and the business community to legalize marijuana and provide cannabis clients with access to banking services.  

AB-141 Cannabis: informational, educational, or training events. The bill permitted cannabis licensees to hold informational and training sessions with state and local employees, among others, without a temporary cannabis event license. Governor Brown vetoed the bill as nothing within the current legal framework would prohibit such an event.

SB-34 Cannabis: donations. The compassionate care bill permitted dispensaries to provide free marijuana products to medical marijuana patients. Governor Brown vetoed the bill indicating that it conflicted with the Control, Regulate and Tax Adult Use of Marijuana Act, and undermined the rules and the intent of voters. The bill is currently being considered by California’s Senate, and will need a 2/3 vote to become law.

The US Government Must Allow Cannabis Banking: 3 Steps to Make it Happen

The cannabis industry continues to expand at record rates without a viable banking system to support capital investment or payment transmission. Current federal regulations prohibit banks from serving clients that are engaged in illegal activity, including the sale of marijuana.

Penalties include significant fines and criminal prosecution. The risk of criminal prosecution increased when, on January 4, 2018, Jeff Sessions rescinded a 2014 DOJ memo written by UnitedStates Deputy Attorney General James M. Cole (Cole Memo) that provided states with prosecutorial relief so long as the states met certain conditions. Although the US Treasury (FinCen)issued guidance that permitted banks to provide cannabis clients with services following the Cole Memo, the practical matter is that banks cannot rely on the guidance in such an uncertain regulatory environment.  The lack of an interstate banking system increases systemic risk in the nascent industry including the viability of businesses and increases the safety risk to business owners and employees hoarding large amounts of cash.

The exit of Jeff Sessions and Rep. Pete Sessions, and the Democratic control over the House provides the cannabis industry with a window to push banking reform forward.  The federal government has a responsibility to its citizens, investors and the business community to legalize marijuana and provide cannabis clients with access to banking services.  Initial steps that can help include 1) Congressional action to legalize interstate cannabis related services, 2)  the issuance of DOJ and FinCenguidance that allows banks to service cannabis clients, and 3) an agreement between the federal and state governments on the industry risks and enforcement priorities.

  • Federal Legalization:  Congress must set aside partisan politics and eventually legalize the possession and sale of cannabis. The risk to the business community, investors in cannabis businesses, consumers, employees, and state and local governments grows daily as stakeholders invest capital, cannabis businesses create jobs, generate revenues and pay taxes, and state and local governments become reliant on these taxes. Congress, not the states, will bear the responsibility of market failures caused by inadequate banking services and capital markets oversight.  Congress should demand that the DOJ and FinCen provide adequate relief to the banking industry and provide timelines for resolution.

  • DOJ and FinCen Authorization: The DOJ and FinCen should mitigate the outstanding risks caused by the revocation of the Cole Memo, and issue guidance on how banks can provide services to the cannabis industry. Failure to provide such guidance is irresponsible since the industry is becoming further entrenched every day, and both agencies can assess enforcement priorities through suspicious activity reports and monitoring account activity.

  • State and Federal Regulatory Collaboration:  The federal government can learn about the true risks associated with the cannabis industry from the state regulators that have forged the path forward. Historically, the states have been the laboratory of reform, and the federal government often adopts state frameworks. The federal government must work with the states to define the industry's risks and solutions so as not to disrupt the industry's innovation or growth.

The cannabis industry has established itself in the United States. The federal government must stop kicking the can down the road and address issues that, if left unaddressed, will hurt investors, consumers, employees, states and local governments. In three easy steps, the federal government can fulfill its obligations to the citizens of the United States and prevent further harm.


The California Legislature passed a bill that would establish a working group to focus on the benefits, risks and costs of using blockchain technologies by state, local and California-based businesses. The working group would focus on the possible use cases, privacy risks, legal implications and best practices for implementation.  The working group will issue a report to the legislature by July 1, 2020.   
Blockchain is a distributed ledger that records each step in a supply chain or transaction. Blockchain technology can be on a public network, such that everyone can see and access the information on the chain, or it can be on a private network, such that only persons in the network can access the information.  Blockchain technologies would be an optimal solution for the states seed-to-sale tracking system.  Cannabis banking is another use case that would benefit from blockchain technology, especially if coupled with crypto currency.  California is leading the way forward.  We can hope that the cannabis industry is a key beneficiary of this process.