While the SAFE Banking Act continues its seemingly never-ending rise and fall through the halls of Congress, it’s important to take a step back and ask what would actually be accomplished if the bill were to pass.  Would this mean that any legitimate cannabis business can walk into any bank and conduct business as usual?

Let’s start with a look at the intention behind the legislation.  Already passed in April 2021 by the House, the SAFE Banking Act would create a “safe harbor” to protect federal depository institutions and credit unions from federal prosecution if they work with cannabis-related businesses (CRB) and ancillary companies in legal states.  Shockingly in today’s political climate, this is one of the few bills with bi-partisan support, and it is joined by competing bills attempting to solve the same problem such as South Carolina Republican Congresswoman Nancy Mace’s States Reform Act.

While one of the main focuses of this bill — at least on the surface — is on protecting financial institutions (FI), the real beneficiary may be cannabis-related businesses as they continue to grapple with limited financial services and the risks of running primarily cash-based businesses. Notice that I said limited financial services, but not necessarily lack of access to banks and credit unions. This idea that cannabis businesses cannot find banking is a little bit of a myth. The reality is that if you look around, the industry is banked. The issue is more that it’s underbanked.

What the industry really suffers from is a deficiency in capacity, capability and cost.  FINCEN estimates some 700 FI’s are openly banking the industry, but most insiders would agree that estimate is far too high. But let’s assume for a minute that number is accurate; that still means less than 10 percent of FIs in this country are openly banking the fastest growing industry in America.  Hence the capacity issue — there are just simply not enough financial institutions serving the market.  Therefore, cannabis businesses in any particular state might all be going to just a handful of FIs.  Those FIs, in turn, will have a limited bandwidth and capacity to accept cannabis business, further exacerbating the capacity issue.

The second issue — capability — is mainly caused by both the type of FI commonly banking the industry and hesitancy around offering a full-suite of services to these high-risk businesses.  The industry is mostly banked by smaller FIs with limits on the services they provide in general, and in many cases, they further impose limitations on what their cannabis-related clients can and cannot do.  Wires, payments, foreign exchange and lending are a few examples of services that the industry tends to struggle with.

The final issue is cost, which is fairly straightforward; it’s expensive for cannabis businesses to bank right now.  To summarize, first cannabis businesses have to look really hard to find the few financial institutions in the state that will work with them, and then they possibly have to wait a lengthy period of time for the account to be opened.  Once the account is opened, they may be faced not only with limited services but also sometimes extensive fees to offset the costs of the advanced due diligence and monitoring required from the FIs that serve them.

Can SAFE address some of these issues? Possibly.  If SAFE works as intended, it can help address the problem by bringing in more, and perhaps larger, institutions into the space.  Larger FIs will have more capacity to take on a greater number of cannabis accounts.  With clearer regulations, more capabilities will naturally come on line as well, and increased competition will start driving down costs.  Additionally, the SAFE Act could also reduce pressure on CRBs to go “cash only,” reducing those businesses’ risks and making their employees a whole lot safer.

Why It’s Not So Simple 

Even after SAFE comes to fruition, it certainly doesn’t mean that strict cannabis compliance and regulatory laws will suddenly disappear.  The legislation simply codifies some of the rules and regulations that banks and CRBs will continue having to navigate.  Yes, the passage of SAFE will increase access to banking services for cannabis businesses; however, each state’s regulatory requirements are different.  Cannabis businesses will likely encounter a host of new compliance rules that must be adhered to.

From SMBs to corporations, most U.S. CRBs have matured significantly over the past few years in readying themselves to ensure they are compliant to date. Forward-thinking cannabis businesses should work with financial institutions that are already thinking ahead to SAFE and other large regulatory changes that could affect the industry. These institutions have adopted the right tech tools and knowledge needed to smartly and accurately comply with the regulatory laws and associated banking rules, even as they evolve.  Technology will be key for ensuring compliance, and the financial institutions that have expert support and the right solutions in place will be able to overcome those obstacles more easily.

SAFE, and similar laws, do have the potential to address the cannabis banking problem, but there will still be significant challenges.  Both financial institutions and cannabis businesses can prepare now by bracing themselves for more, not less regulation, and putting the tools in place to quickly adapt.

In sum, cannabis banking is happening today. More services are being developed across the FIs in the space, and the SAFE Banking Act will be an accelerant. It shouldn’t, however, be viewed as the gating factor for entering the space.  Cannabis businesses already have options when it comes to banking partners, and they should be seeking those that are already banking the industry and actively preparing for change.