The 36-state strong legal cannabis industry did nearly $20 billion worth of business in 2020, with many states, including Illinois and Oklahoma, taking in more tax revenue from cannabis than alcohol. Medical and legal cannabis has proved a boon to both states and businesses, but one of the biggest hurdles to gaining a foothold in the industry, particularly as to smaller operators, is access to capital and banking services.

Of approximately 12,000+ banking institutions in the country, only 710 of them (along with 150 credit unions) presently serve the legal cannabis industry according to reporting from the Financial Crimes Enforcement Network (FinCEN). One of the primary reasons for the tepid response from banks is the lack of regulatory clarity at the federal level concerning the legal status of cannabis and the propriety of banks providing services to the industry.

In an effort to provide more clarity and security for the banking industry, Congress, in a rare display of bipartisanship, passed the Secure and Fair Enforcement Banking Act of 2021 (or the SAFE Banking Act of 2021) on April 19, 2021, with a vote of 321 in favor and 101 against. Importantly, the bill as currently drafted helps to clarify a number of issues for the banking industry and banking regulators, including, among others:

• that proceeds from a legitimate cannabis business would not be considered unlawful under federal money laundering statutes or any other federal law;
• that FinCEN, and the federal banking regulators through the Federal Financial Institutions Examination Council, should issue guidance and exam procedures for banks doing business with cannabis-related legitimate businesses; and
• that federal regulators need to provide guidance to banks to help them evaluate the risks and expectations of handling cannabis-related accounts.

While the future of the bill is uncertain in the Senate, the passage by the House of Representatives represents an important first step in laying the groundwork for massive involvement in the legal cannabis industry by banks and other financial services companies.

If your cannabis or hemp company is facing legal or business issues, please contact the author, George S. Mahaffey Jr.

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