Aaron Stetter: Why ICBA supports SAFE banking

An employee inventories marijuana flower at The Health Center, a medical and recreational dispensary in Denver.

ICBA backs legislation offering a regulatory safe harbor for banks that choose to serve cannabis-related businesses.

By Aaron Stetter, ICBA

Differences between state and federal laws on cannabis-related businesses have left this high-revenue industry essentially unbanked. With so much legal and regulatory uncertainty, community banks and other financial institutions have avoided this market. That means it operates almost exclusively on a cash basis—a dangerous proposition and threat to public safety.

To help address this problem, ICBA has expressed its support for legislation that would allow banks to serve cannabis-related businesses in states where cannabis is legal for medical or recreational use. Here, I’ll break down exactly what the bill does and why ICBA supports it.

What is ICBA’s position on banking cannabis-related businesses?
ICBA is backing the Secure and Fair Enforcement Banking Act (H.R.2215 and S.1152), or the SAFE Banking Act. It would establish a safe harbor from federal sanctions for financial institutions that serve cannabis-related businesses in states where cannabis is legal.

What would this safe harbor mean for community banks?
In states where cannabis for medical or recreational use is legal, federal banking regulators would not be allowed to threaten or limit a bank’s deposit insurance, downgrade a loan, prohibit or discourage the provision of banking services, or take any other prejudicial action solely because that bank serves a cannabis-related business.

Why do we need it?
The conflict between state and federal law on cannabis-related businesses has created significant legal and compliance concerns for financial institutions that could provide banking services to these companies. This uncertainty has a whipsaw effect that makes working with these companies untenable for most financial institutions in states where it is legal. We have an entire industry of small businesses out there that simply can’t access the banking system.

Does ICBA support the legalization of marijuana?
No, ICBA does not advocate for the outright legalization of cannabis, but banks should not be deprived of the opportunity to provide this industry with banking services should they decide to do so, in states where it is legal for either medical or recreational use.

Why is this issue so important?
For one, it’s a safety issue. The uncertainty has forced cannabis-related businesses to operate mostly in cash. Cash-only businesses, especially those with a high volume of revenue, pose significant safety risks. The SAFE Banking Act would help eliminate this risk in states where cannabis is already legal.

We also don’t want community banks to be left behind, particularly with the growing push in many states and municipalities for publicly owned banks dedicated to this industry. As more states legalize cannabis for medical or recreational use, it is critically important that cannabis-related businesses have access to the traditional banking system.

How big of an industry are we talking about?
Cannabis is legal for recreational or medical use in 31 states and the District of Columbia. According to a 2016 study by the Tax Foundation, a mature cannabis industry could generate up to $28 billion in tax revenues for federal, state and local governments.

Relieving legal and compliance concerns would bring in new customers, avoid the need for government-owned public banks, extend our relationship-banking model to this industry, and reduce public safety concerns for everyone. This approach makes a lot of sense for a lot of reasons.

Does the SAFE Banking Act have bipartisan support in Congress?
Very much so. The Senate version has 18 bipartisan co-sponsors, and the House version has 94. The only cannabis bills ICBA is supporting are H.R.2215 and S.1152.

Is this something that could actually pass?
We’re working on it. ICBA has put its support behind the measure, but it is still relatively new. We’ll continue working to educate lawmakers on this critical issue and keep our nation’s community bankers apprised of any developments. Stay tuned.

Why ICBA supports the SAFE Banking Act

The problem

  • State and federal laws on cannabis-related businesses conflict.
  • This conflict has created significant legal and compliance concerns for financial institutions that want to legally serve these businesses.
  • Limited access to the banking system requires these businesses to operate mostly in cash, creating significant public safety risks.

The solution

  • The Secure and Fair Enforcement Banking Act (H.R.2215 and S.1152) would allow financial institutions to provide needed banking services to these companies in states where cannabis is already legal.
  • The SAFE Banking Act would establish a safe harbor from federal sanctions for financial institutions that serve cannabis-related businesses in these states. ICBA does not advocate for the outright legalization of cannabis.
  • Under the bill, federal banking regulators would not be allowed to threaten or take prejudicial action against banks for serving cannabis-related businesses—relieving bank concerns, opening the banking system to these businesses, and eliminating the public safety risk.

Aaron Stetter (aaron.stetter@icba.org) is ICBA’s executive vice president, policy and political operations.

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