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Up in Smoke III – The SAFE Banking Act is Major Step Towards Access to Banks and Credit Unions (and Service Providers) for Legalized Cannabis Industry

Cannabis & money

By Rickard Jorgensen, FCII, ARM, ACIArb

This past month the majority of Democratic and ninety-one Republican members of the House of Representatives passed the landmark Secure and Fair Enforcement Banking Act of 2019, commonly known as the SAFE Banking Act. This law has been in development for six years and is intended to reduce the legal risks faced by financial institutions and professionals that provide services to the legalized cannabis businesses. It is intended to provide access to financial service to the cannabis industry and service providers for what has predominantly been an all-cash business.

The SAFE Banking Act prevents a federal bank regulator (as defined by the Act) from the following:

  • Terminating or limiting the deposit insurance of a depository institution under the Federal Deposit Insurance Act (FDIC) and the Federal Credit Union Act (FCUA).
  • Taking any negative action against a depository institution under the FDIC.
  • Penalizing, prohibiting or discouraging a depository institution from providing or engaging in financial service to a cannabis-related legitimate business or service provider
  • Encouraging a financial institution to not offer financial service to a cannabis-related legitimate business or service provider
  • Taking any adverse supervisory action on a loan made to a cannabis-related legitimate business or service provider or an owner or operator of real estate or equipment leased to a cannabis-related legitimate business or service provider purely because the matter involves a cannabis-related legitimate business or service provider.

Go here for details of the proposed act.

For purposes of the SAFE Banking Act, the following definitions should be noted:

  • “Financial service” means (i) a financial product or service as defined in the Dodd-Frank Wall Street Reform and Consumer Protection Act; (ii) the business of insurance; (iii) authorizing, processing, clearing, settling, billing, transferring for deposit, transmitting, delivering, instructing to be delivered, reconciling, collecting, or otherwise effectuating or facilitating payments or funds where such payments or funds are made or transferred by any means, including use of credit cards, debit cards, other payment cards, or otherwise access devices, or electronic transfer of funds; (iv) acting as a money transmitting business which makes use of a depository institution, and; (v) acting as an armored car service for processing and depositing with a depository institution or the Board of Governors of the Federal Reserve System.
  • “Cannabis-related legitimate business” includes any business that involves the handling, cultivating, producing, manufacturing, selling, transporting, displaying, dispensing, distributing, or purchasing of cannabis as is authorized under state law.
  • “Service provider” includes any business that sells goods or services to a cannabis-related legitimate business, including sale or lease of real or any other property, legal or other licensed services or any other ancillary service, relating to cannabis.
  • “Depository institution” includes any depository institution as defined by the FDIC, a federal credit union as defined under the FCUA, and a state credit union as defined under the FCUA.

In order to provide assurance to the cannabis industry, the SAFE Banking Act also clarifies that the proceeds from a transaction conducted by a cannabis-related legitimate business or service provider are not considered proceeds from an unlawful transaction under federal law merely because the transaction was conducted by a cannabis-related legitimate business or service provider.

Additionally, a depository institution or insurer that provides a financial service to a cannabis-related legitimate business or service provider – and any officers, directors and employees of that depository institution or insurer – cannot be held legally responsible under federal law solely for providing such service or investing any income from such service.

The protections of the law also extend to a Federal Reserve Bank and its officers, directors and employees, including protection from criminal, civil and administrative forfeiture with respect to collateral for a loan or other financial service provided to a cannabis-related legitimate business or service provider by a depository institution or to a depository institution.

For the accounting profession, the relevant clause may be:

SEC. 3. PROTECTIONS FOR ANCILLARY BUSINESSES.

For the purposes of sections 1956 and 1957 of title 18, United States Code, and all other provisions of Federal law, the proceeds from a transaction involving activities of a cannabis-related legitimate business or service provider shall not be considered proceeds from an unlawful activity solely because—

(1) the transaction involves proceeds from a cannabis-related legitimate business or service provider; or

(2) the transaction involves proceeds from—

(A) cannabis-related activities described in section 14(4)(B) conducted by a cannabis-related legitimate business; or

(B) activities described in section 14(13)(A) conducted by a service provider.

and

“(vi) SERVICE PROVIDER.—The term ‘service provider’ has the meaning given that term in section 14 of the SAFE Banking Act of 2019.

and

(13) SERVICE PROVIDER.—The term “service provider”—

(A) means a business, organization, or other person that— (i) sells goods or services to a cannabis-related legitimate business; or (ii) provides any business services, including the sale or lease of real or any other property, legal or other licensed services, or any other ancillary service, relating to cannabis; and

(B) does not include a business, organization, or other person that participates in any business or organized activity that involves handling cannabis or cannabis products, including cultivating, producing, manufacturing, selling, transporting, displaying, dispensing, distributing, or purchasing cannabis or cannabis products.

On the face of it this proposed legislation offers some protection against criminal prosecution to services providers to Cannabis-related legitimate business in States where cannabis-related legitimate businesses are legal. We await further clarification on this issue.  It also means that insurers may not invoke the criminal acts exclusion in the event of a malpractice claim against a professional service provider arising from services to a Cannabis-related legitimate business.

We believe this is a positive move for those professionals that provide services to Cannabis-related legitimate businesses, including CPAs and how that this proposed legislation will pass the Senate and ultimately become law of the land.

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Jorgensen & Company are not attorneys and do not offer any form of legal advice. Consult with appropriately qualified local counsel for more assistance. Rickard Jorgensen is President and Chief Underwriting Officer for the CPAGold™ program and may be contacted at (201) 345 2440 or rjorgensen@jorgensenandcompany.com.

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