CSI Blog

The Need for SAFE(R) (S. 2860/H.R. 2891) Banking Persists

The need for SAFE banking persists even with rescheduling cannabis from Schedule I to Schedule III under the Controlled Substances Act (CSA).

The Need for SAFE(R) (S. 2860/H.R. 2891) Banking Persists

On April 30, 2024, the U.S. Department of Justice confirmed its intent to reclassify cannabis from Schedule I to Schedule III under the Controlled Substances Act (CSA). While this is a welcome move that will better facilitate research and reduce tax burdens for state compliant cannabis businesses, this move alone does little to resolve the issue of cannabis banking.

Schedule III Doesn’t Alleviate Need for Banking Reform

Under a Schedule III classification, cannabis would remain illegal for recreational purposes, and it is likely many medical-only businesses may be unable to, at least as regulations are promulgated, meet the registration requirements associated with manufacturing, producing, or dispensing, Schedule III controlled substances under the CSA. In fact, the Congressional Research Service has noted that upon a move to Schedule III, many cannabis businesses will remain federally illegal.

“While ABA takes no position on the legalization of cannabis, it’s important for policymakers to know that any potential decision to reclassify cannabis has no bearing on the legal issues around banking it. Cannabis would still be largely illegal under federal law, and that is a line many banks in this country will not cross. The solution is the bipartisan SAFER Banking Act, which would allow banks to provide services to the cannabis industry in those states where it’s now legal. Passing that legislation in Congress would address the ongoing legal limbo around cannabis banking, while enhancing public safety, tax collection and transparency.”

- American Bankers Association

As a move to Schedule III does not legalize cannabis at large, banks will continue to be hesitant to work with cannabis related businesses (CRBs) for fear of running afoul of anti-money laundering laws and regulations. Schedule III does not change the anti-money laundering obligations or Know Your Customer responsibilities, and in fact, a change to Schedule III may even generate more cash at some businesses when factoring in the changes to a tax code.

Americans Support Cannabis Banking Policy Reform

• 64% of Americans agree that the SAFER Banking Act’s provisions allowing cannabis related businesses to access the banking system would help improve public safety.

• 54% agree that opening the banking system to cannabis related business would help underserved communities.

- Independent Community Bankers Association on April 25, 2024

The SAFER Banking Act aims to address these issues by providing a safe harbor for financial institutions to work with cannabis related businesses that are operating in compliance with state laws. It would protect banks from federal prosecution or regulatory action for providing financial services to cannabis businesses and would help bring these businesses into the mainstream financial system. Even if cannabis were reclassified to Schedule III, the SAFE Banking Act would still be necessary to provide the financial infrastructure needed to support the legal cannabis industry and ensure its safe and responsible operation.

A Long Road to Regulation

Even though 38 states have legalized medical cannabis programs, and 24 states allow for the adult use of cannabis, it may be months or years before a Schedule III decision is finalized. The Administrative Rulemaking process has several delineated steps that may create delays in the finalization of the rule and any additional agency actions that may happen after finalizations (i.e., an updated “Cole Memo” or FinCen guidance). At present, the proposed rule must go through a public comment period and hearing process and may be challenged in court or before an administrative law judge. While the cannabis industry awaits a final rule confirming Schedule III, the need for banking services does not dissipate and is not directly addressed by a scheduling change.

SAFER Banking is Not Predicated on the Current Schedule I Status of Cannabis

SAFER Banking does not specifically reference cannabis being Schedule I. Rather, the bill references ‘marihuana’ as it is defined in §102 of the Controlled Substances Act (21 U.S.C. 802), without direct reference to which schedule the drug is placed on. This definition under the CSA does not change with a determination by the DEA and HHS that cannabis should be reclassified.

Additionally, there are many pieces of the SAFER/SAFE Banking bills that are not impacted by a schedule change, including: financial protections for hemp businesses (Section 8), as hemp already has received a carve-out from the Schedule I status of cannabis; the directive for FinCEN to update its guidance (Section 6 and Section 7); the treatment of income from a state legal cannabis business for purposes of qualifying for a mortgage (Section 9); and language dealing with the role of regulators ability to weigh reputational risk when closing or restricting depository accounts (Section 10). A change to Schedule III also provides no answers to the reports mandated by the SAFER Banking Act, including barriers to marketplace entry and studies relating to the effectiveness of suspicious activity reports.

“History has demonstrated” that when businesses are effectively integrated with the banking system, that “drives a lot of integrity and quality control,” while “reducing uncertainties and variables” in a way that is “often helpful to the taxpayer” as well as the federal government.

- IRS Commissioner Daniel Werfel on May 7, 2024

Support the SAFE(R) (S. 2860/H.R. 2891) Banking Act

Cannabis Financial Industry Group (CFIG)

For more information on CFIG, please visit www.CFIG.org.