The SAFE Banking Act of 2019 Scores Victorious Step for Cannabis Businesses

On March 28, 2019, the House Financial Services Committee voted 45-15 to advance the Secure and Fair Enforcement Banking Act of 2019 (“SAFE Banking Act”) to the House of Representatives. While there is still a long road ahead, this is the most promising step forward for cannabis businesses who would like to move away from cash-only transactions and towards mainstream banking.

What Does the SAFE Banking Act Provide?

Currently, in Massachusetts, only two banks have publicly disclosed that they will work with recreational cannabis businesses, GFA Federal Credit Union and BayCoast Bank.
Section 1 of the SAFE Banking Act addresses the obvious concerns for cannabis businesses holding large amounts of cash on hand by detailing that its purpose is to “increase public safety by expanding financial services to cannabis-related legitimate business and service providers and reducing the amount of cash at such businesses.”
The SAFE Banking Act will bar a Federal Banking Regulator from:

  1. Terminating a bank’s FDIC deposit insurance if they accept funds from a cannabis business;
  2. Prohibiting, penalizing, or discouraging a bank from providing financial services to a cannabis business;
  3. Recommending, incentivizing, or encouraging a bank not to offer services to a cannabis business;
  4. Taking any adverse or corrective action on a loan made to a cannabis related business; or
  5. Prohibiting, in any way, a bank from performing services for a cannabis business.

Most importantly above, banks would not be at risk from losing their FDIC deposit insurance for accepting funds from cannabis businesses, a risk that most banks up to this point have not been willing to take.

How Would These Changes Affect Cannabis Businesses?

If the SAFE Banking Act were to pass, it is likely that many more banks would take in cannabis businesses. This could in turn drive down the costs of banking for these businesses, which, at this time, is extremely high due to the relatively few banks willing to accept them.
Additionally, reducing the demand on cashless transactions would allow cannabis businesses to keep more accurate records and reporting, which would be invaluable should the IRS audit the business.

Protections for Ancillary Businesses

Section 3. Protections for Ancillary Businesses in the SAFE Banking Act provides protection for ancillary cannabis businesses by stating that “proceeds from a transaction conducted by a cannabis-related legitimate business or service provider shall not be considered as proceeds from an unlawful activity solely because the transaction was conducted by a cannabis-related legitimate business.”  This provision protects businesses such as real estate owners, accounting and legal firms, and other venders from prosecution simply for working with cannabis businesses.

Will the SAFE Banking Act Become Law?

There is still a long way to go until the SAFE Banking Act becomes law.  Most observers believe that it will pass in the House of Representatives but its fate in the Senate is less certain.

What Does AAFCPAs Advise?

Regardless of whether the SAFE Banking Act is passed into the law, it is very possible that more banks will begin to take in cannabis businesses due to the support and progress of the bill.  What this bill won’t provide is federal bankruptcy protection to cannabis businesses, so access to loans will remain difficult.
Banking reform seems to be inevitable for the cannabis industry, and even if this bill does not ultimately pass, safer banking conditions seem to be coming sooner rather than later and cannabis businesses should begin reaching out to their local banks.
AAFCPAs has a proven track record of effectively advising the Massachusetts cannabis industry on: tax planning and preparation; entity structure; financing structures; audit and assurance; business plans; development of the state’s management and operations profile; financial projections; cost allocations; accounting operations; and more. Our proven Cannabis expertise makes us uniquely qualified to assist cannabis businesses in navigating through the complexities of the industry.
Update: On March 8, 38 Attorneys General signed a letter supporting the SAFE Banking Act and calling for progress on the topic. Read more here.
The Cannabis practice of AAFCPAs will continue to monitor the legislative process and keep you informed as significant changes occur. If you have any questions please contact: Christopher Consoletti, Esq. at 774.512.4180, cconsoletti@nullaafcpa.comDavid McManus, CPA, CGMA at 774.512.4014,; or your AAFCPAs Partner.

About the Authors

Chris Consoletti
Chris, in conjunction with AAFCPAs’ multi-disciplinary team of CPAs, investment & business advisors, provides effective tax planning and research, tax compliance, charitable planning, and asset protection solutions for trusts & estates, corporations and partnerships. Chris provides clients with corporate law analysis and recommendations related to entity formation, management and board structure, executive compensation, limited liability protection, and the applicable laws of relevant states and jurisdictions. He evaluates and assesses opportunities and risks associated with complicated tax challenges or controversies.
David McManus CPA
Dave leads AAFCPAs’ Cannabis Business Practice, providing highly coveted tax, entity structure, and business advisory solutions.  Dave has been deeply immersed in understanding the complex financial and operational nuances of the cannabis industry since 2012. He advises multi-state operators, recreational and medical retailers, cultivators, product manufacturers, and investors. He proactively advises clients on risks, opportunities, and tax implications related to market entry, accounting methods, capital structure, debt financing, R&D, M&A, and goodwill impairment. He has led industry training sessions on interpreting and implementing new federal and state marijuana statutes, including compliance with 280E. Dave maintains a strong network of cannabis industry investors, attorneys, bankers, employee compensation and benefits providers, realtors, risk managers, and insurance agents, and he leverages these resources as appropriate to help clients achieve success.