The Safe Banking and Fair Enforcement (SAFE) Act, proposed legislation intended to allow banks to do business with businesses operating legally within states that have legalized marijuana, has the potential to change the way the marijuana industry operates.
Despite widespread support, the bill failed to pass in Congress, leaving communities vulnerable to crime and a cash-only cannabis business. But what is the impact of this legislation on the industry?
The SAFE Banking Act was not approved by Congress in December, leaving communities vulnerable to crime and forcing cannabis companies to operate with cash only. In addition, these companies will still lack access to financial services from banks and other institutions.
What is the Safe Banking Act?
the Safe Banking Act It is proposed legislation intended to allow banks to do business with cannabis companies that operate legally within states that have legalized marijuana.
Currently, traditional financial institutions do not facilitate cannabis-related transactions due to the federal illegality of marijuana.
This measure would prevent federal regulators from penalizing financial institutions for providing services to cannabis companies, their owners and employees. It will also clarify that funds obtained from and compliant with state-controlled cannabis companies will not be considered proceeds of illegal activity and provide protection against federal liability for banks, insurance companies and other financial institutions that do business with these companies.
In 2022, the SAFE Banking Act was about to be voted on in the Senate but in the end Did not succeed during a lame duck session. The bill has already been passed seven times in the House of Representatives, but the Senate has yet to vote on it. The limited time available during the lame-duck session, in which passage bills such as the National Defense Authorization Act (NDAA) and appropriations bills of 2023 were given priority, prevented the SAFE Act from being passed as a standalone bill or as a contestant on one of those bills . Despite the efforts of supporters, the bill never came before the Senate due to time constraints and competing priorities.
Despite this setback, some industry experts argue that the practical impact of the SAFE Banking Act would have simply been to formalize existing, albeit limited, links between financial institutions and marijuana-related businesses.
Financial institutions are indeed the commercial banks associated with marijuana
Peter So, senior vice president at Green Check Verified, one of the leading banking software and advisory services in the cannabis industry, explained that approval of the SAFE Banking Act would not significantly impact the industry.
“SAFE has the potential to be a huge boon for my business as I work with banks and credit unions that want to do business with cannabis. However, I don’t think it will have a significant impact on the cannabis industry. According to the Financial Crimes Enforcement Network (FinCEN) , around 755 financial institutions currently bank cannabisBut insiders believe the number is closer to 250. But the point is, there are actually hundreds of financial institutions dispensing cannabis today.”
The fact that hundreds of financial institutions are currently involved in the cannabis business, despite the lack of specific legislation, suggests that a realistic situation similar to what the Banking SAFE Act would establish has already been created but on a smaller scale.
FinCEN is issued guidance in 2014 to clarify the expectations for financial institutions under the Bank Secrecy Act (BSA) when providing services to marijuana-related businesses. These guidelines help financial institutions comply with their “BSA obligations and align the information provided by financial institutions in BSA reports with federal and state law enforcement priorities.” In simple terms, these guidelines help banks know how to handle transactions with marijuana-related businesses, and help the government keep track of any suspicious activities.
Su explained that the SAFE Banking Act could increase the number of financial institutions providing services to marijuana-related businesses, creating competition and giving companies more options for banking. This could lead to better rates and terms for marijuana companies and more access to banking services.
Cannabis transaction cash alternatives
like Marijuana is becoming increasingly legal across the United StatesDispensaries faced a unique challenge: access to financial services.
With marijuana still illegal at the federal level, traditional banks have been reluctant to provide services to dispensaries, leaving many to deal exclusively in cash. However, innovative solutions have emerged to address this issue. Cashless ATMs and PIN debit options are becoming increasingly popular among dispensaries, providing customers with a safe and convenient way to purchase cannabis products without the need for cash. Not only do these solutions increase revenue and simplify the payment process, but they also provide dispensaries with a way to reduce the risks associated with handling large amounts of cash.
However, Su argues that these options have not been popular with consumers because they tend to prefer the convenience of using credit cards.
“Consumers are reluctant to use cashless options because they require more work than they used to. As a result, consumers choose cash over these cashless options, even when they are available in the store,” he said.
However, handling cash can be dangerous for dispensaries as it increases the risk of violent crimes such as burglary and robbery. The SAFE Banking Act can help reduce these risks, but it is not a complete solution, even in countries where marijuana has been legalized nationwide, such as Canada, where dispensaries and marijuana-related businesses often have difficulty accessing the banking system.
Despite the legalization of marijuana in Canada, dispensaries and manufacturers continue to do so struggle to obtain bank accounts due to concerns from banks about working with marijuana-related businesses.
Su explained that this highlights the fact that although something may be legal, banks and credit unions may still be reluctant to work with these companies, and specialized software and experts are needed to help them navigate complex regulations and laws.
What’s next for the Safe Banking Act (SAFE)?
The failure of the Safe Banking Act led to Marijuana stocks drop, with many companies experiencing double-digit percentage declines. The industry is facing challenges from the current economic environment and regulatory uncertainty, which is a stark contrast to the high demand for cannabis stocks in 2018-2019.
A change in the capital markets, such as a cannabis company’s listing on a US stock exchange, will open up a whole new world of possibilities.
From a mergers and acquisitions (M&A) perspective, it’s about the same interest and concern.
Currently, listing on the Canadian Stock Exchange is the norm, resulting in a large number of SPACs, but the results have not always been favorable.
However, this is due not only to regulations but also to the decline of the cannabis industry in general. According to Su, a listing on the NASDAQ or New York Stock Exchange will have a significant impact.
The future prospects of the SAFE Banking Act, which aims to provide safe access to banks for cannabis companies, are uncertain. Despite support for the law, which has the potential to reduce crime, boost diversity and boost the economy, it failed to pass this year. However, there is a belief that it will be introduced again this year.
“I’m shocked the SAFE Banking Act didn’t pass. I thought there was a lot of positive talk about passing it. I assume it will be introduced again. I hope it passes because it would be great for the industry. Politics can be like a game of chess, where The law needs to be seized. There is a lot of support for it because it makes sense that companies that pay taxes should have the same banking rights as everyone else. I suppose it will be brought forward again this year,” Su said.