How the SAFE Banking Act Could Change the Cannabis Industry

Jeff Klingman

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Written by Jeff Klingman

The American cannabis industry’s biggest problem—a banking blackout—might soon be a thing of the past. The federal illegality of cannabis has so far prevented large multinational banks from serving cannabis businesses, even in weed-legal states. The Secure and Fair Enforcement Banking Act, currently moving through Congress, holds the potential to drastically alter that precarious status quo. The SAFE Banking Act is already the most successful piece of cannabis banking legislation in federal history. (As a law that still has a way to go before becoming law, that’s clearing a low bar.)

Here’s what you need to know about the SAFE Banking Act, and how it may re-shape the cannabis business in the U.S.A.

When “Bags Stuffed With Cash” Are a Business Problem

SAFE’s primary Senate sponsors are Oregon Democrat Jeff Merkley and Colorado Republican Cory Gardner. An anecdote, oft-repeated by Merkley in the course of his stumping for the bill, explains the cannabis industry’s banking problem in stark terms.

A few years back, the Senator followed an Oregon grower as he attempted to simply pay his state taxes. Since banks aren’t allowed to store cash, process credit card charges, or clear checks from cannabis businesses, the grower was forced to stuff $70,000 in cash into a backpack, throw it in his backseat, and make an anxious drive in an unguarded car directly to the state’s Department of Revenue in order to comply. Once there, he passed through a high-security labyrinth, ending up in a heavily guarded room where dozens of similar bags sat, bulging with millions in bills. The federal government has also had to build “cash rooms” to get their expected cut.

Under current law, cannabis growers face a supreme hassle, a major security liability, and a scene that more closely resembles a scene from a Scorsese movie than a simple tax day transaction.

How SAFE Solves Cannabis Banking

In the simplest terms, the SAFE Act would shield banks from federal prosecution for serving the cannabis industry. Mundane, but currently arduous business functions like account transfers and employee payroll would snap into line with any other employer’s, cutting the extra costs associated with local credit unions and specialty firms currently filling that void. Those companies, of course, would need to rethink their existence in a post-SAFE market.

SAFE could create a further boom for U.S. cannabis startups, as large banks would finally be able to provide the loans that get entrepreneurs off the ground. The legislation would also allow Canadian cannabis giants to enter the country without risking their status as publicly-traded companies on the U.S. stock market, which might lead to a huge wave of investment and a flurry of potential mergers and acquisitions. (Whether or not SAFE would let U.S.-owned pot companies enter the stock market is another big question mark that the current draft of the bill doesn’t definitively solve.)

So, Is This Thing Gonna Pass?

The multi-billion-dollar question for canna-businesses remains…does the bill stand a chance of actually passing?

There’s been progress. The House of Representatives’ version has already passed out of committee with 206 co-sponsors as of this summer, and a more-than-solid shot at passing in a looming full chamber vote. It’s a bigger question in the Senate, where basic political realities point toward short-term disappointment, despite bipartisan support. Majority Leader Mitch McConnell has become infamous for refusing to bring potentially popular progressive reforms up to a final vote. And greasing the wheels for nation-wide cannabis normalization is not on the top of the Republican Party’s priority list, to say the least.

Still, that the issue is finally being debated there at all is in itself a semi-surprising ray of hope. Senator Mike Crapo, an Idaho Republican who chairs the Senate’s banking committee, held a public hearing on SAFE in early August, which led him to at least concede that the status quo is unworkable. “We now need to, I think, move forward and see if there’s some way we can draft legislation that will deal with the issue,” said Crapo. For a chairman who’s been a staunch anti-legalization voice in the past and doesn’t necessarily buy in to SAFE’s solutions, that’s a pretty big concession. But in order to call his committee to vote and pass the bill on to the full Senate, Crapo needs to move past mere acknowledgement to full-scale blessing. The stakes are significant. If this effort fails, the problem will linger until after the results of the 2020 elections.

In short, real banking reform is closer than ever, and nothing is clear except that the sheer amount of cash flowing through legal cannabis businesses can no longer be ignored.