SAFE Banking is Imperative for the Marijuana Industry in the United States … Here’s Why

Last Updated on August 22, 2021

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Will the SAFE Banking Act help the marijuana industry in the United States grow? Many advocates believe so.

The SAFE Banking Act passed the House of Representatives in April of this year. “Secure and Fair Enforcement” yields the legislative acronym SAFE, as in “SAFE Banking.”

The state-legal marijuana industry in the United States is fractured into separate markets for each of the authorizing states, each with its own complicated laws and regulations governing what can be bought and sold and by whom. 

Bullishness with regard to the growth of this industry requires a belief that there will be change, and that the arena of that change will move now to the federal government. Such change might come in the form of  HR 1996, the SAFE Banking Act of 2021. 

Marijuana in the United States

The growth of this industry, and the benefits it may give to the broader economy as taxpayer and employer, are hampered by a number of factors. The most obvious of these is that marijuana remains a Schedule I substance under the U.S. Controlled Substances Act.

The state-legal businesses continue to operate. In 2013, then Deputy Attorney General James Cole issued a memorandum urging federal prosecutors to refrain from targeting marijuana operations that are legal in the state in which they are conducted.

Marijuana Stocks in Canada: Buy or Sell?
The marijuana industry was one of the few categories that did better during the pandemic. The obvious reason: consumers were stressed. Photo credit:

The following year, the Rohrabacher-Farr amendment became the law as part of an omnibus spending bill. It prohibited the U.S. Justice Department from spending funds in ways that interfere with the implementation of state medical cannabis laws.

In 2018, President Trump’s first Attorney General, Jeff Sessions, rescinded the Cole Memo. Nonetheless, Rohrabacher-Farr has been renewed each fiscal year, through the Trump and into the Biden period. It offers some protection for marijuana in the United States, directly for medicinal use, and by a less direct impact for the adult-use marijuana industry, too.  

None of this has changed the fact that the the United States government still  says marijuana is a substance with a “high potential for abuse” and “no currently accepted medical use in treatment in the United States.” 

Why There Are Challenges

The Schedule I listing has meant that there is no place for cannabis growing or marketing entities on the major U.S. exchanges. Instead of the NYSE or NASDAQ, such companies have had to list in Canada, or on over-the-counter exchanges. That has limited the size of the investor base on which they have been able to draw.

They would, of course, love to uplift to the big exchanges were that possible. 

But for so long as it isn’t, institutional participation as investors in the marijuana industry seems likely to remain minimal. At present it is just 4%

Until Now, Banks Kept Their Distance

As a related difficulty: the U.S. banking industry, which is regulated and insured by the federal government, has kept its careful distance from cannabis. This has had dramatic consequences. It means that a retailer will generally run an all-cash business. That, in turn, means that there is a lot of cash sitting around on the premises of such a retailer, and — crooks are on to this fact.  

Bullishness in this industry in essence requires that something change as to the law, whether on banking or on the Schedule I listing or both. 

A direct attack on Schedule I does not seem to be in the cards. President Biden has never favored such a move: it isn’t clear that he would even sign it were a de-scheduling bill presented to him: it is certain that he will not push for it. 

Yet the President has said that he favors allowing states to legalize. He may well take the view that the full implementation of that choice requires that marijuana shops be allowed to move beyond the barely-tolerated burglar targets of the present.

SAFE Banking is a plausible next step for the rationalization of the law on this subject. Uplisting and descheduling will probably each have to wait.