What is the SAFE Act?

The cannabis industry has faced many financial challenges. Businesses have a hard time getting loans and processing payments because legal limitations do not allow banks to interact with their companies. The Secure and Fair Enforcement Act, or SAFE Act, aims to change all that. Read on to find out what benefits it provides.

SAFE Act 1
SAFE Act 1

What is the SAFE Act?

Cannabis is legal in many states, but it is still illegal on a federal level. As a result, banks cannot do business with cannabis companies without facing penalties. Marijuana businesses are unable to receive funding and have difficulty processing payments.

There are financial institutions that offer banking services to cannabis companies, but many charge high fees.

If the SAFE Act passes, cannabis companies will be able to do business with banks without penalties, restrictions, or high fees. It would make it easier for marijuana businesses to accept credit cards. It would allow them to qualify for mortgages and loans.

Key Components of the SAFE Act

The SAFE Act would make three key changes in cannabis banking laws as follows:

  1. It would not allow federal deposit insurance providers to withhold coverage from a bank that offers services to a legal cannabis company.
  2. Proceeds from a legal cannabis company would not be considered unlawful. Therefore, the income would not be considered money laundering.
  3. Banks would not have their assets seized for offering loans to compliant cannabis companies.

How Would the SAFE Act Benefit the Cannabis Community?

The SAFE Act makes it easier for cannabis companies to do business. It also helps them qualify for loans. Here are some other benefits it provides:

  • Improves Safety: Cannabis businesses that are unable to process credit cards must deal in cash only. They must hold on to large quantities of cash making them vulnerable to fraud and theft. The SAFE Act would minimize cash on the premises and reduce crime risk.
  • Improves Transparency: When banks work with cannabis companies, they can track activity and confirm that businesses comply with anti-money laundering laws. It improves accountability and transparency in the industry.
  • Stimulates Growth: The SAFE Act would create opportunities for investing, expansion, leasing, and acquisition. It would bring growth to the cannabis industry and related industries.

Will the SAFE Act Pass?

Business people shaking hands together
Business people shaking hands together

The SAFE Act has been considered by legislators time and time again. But it has never passed the Senate.

It has passed the U.S. House of Representatives seven times since 2019. Instances include the SAFE Act’s consideration as a standalone bill as well as the legislation combined with other bills.

But the Senate has never ruled on the SAFE Act.

According to filibuster rules, 60 Senators must agree on a bill before it can progress to a floor vote. But Republican Senators continue to vote it down.

Problems with the SAFE Act

Republicans are known for their conservative views. However, some Republican senators support the SAFE Act. They believe they can get 10 Republican votes in favor of the SAFE Act, enough to pass it through to the Senate. However, some critical issues must be addressed.

For example, the act does not address section 280E of the IRS code that prevents cannabis businesses from deducting business expenses from their taxes. This restriction would prevent cannabis companies from growing and scaling. If the Banking Act aims to improve cannabis businesses, it should ensure they are eligible for the same tax write-offs as other businesses.

The Act also lacks regulatory guidance. As a result, banks would still face administrative issues such as the filing of Suspicious Activity Reports for every transaction they make with cannabis companies. Banks would be unlikely to want to do business with cannabis companies, even if the bill passes.

Banks may be more likely to do business with cannabis companies if they were incentivized by grants and tax breaks. Many pieces of legislation include those incentives, but they are not included in the SAFE Act. If these issues aren’t addressed, nothing will change, even if the SAFE Act passes.

A Big Picture Approach to Cannabis Reform

Several other laws are being considered that would push cannabis reform forward and make the SAFE Act unnecessary. They include:

Federal Legalization: Cannabis is currently legal in several states. But it is illegal on a federal level. Lawmakers are currently pushing legalization because it would set regulations for the industry and make it safer. It would reduce the legal costs of punishing criminals for marijuana-related crimes. It would limit social inequalities.

Selective focus shot of cannabis on a white background
Selective focus shot of cannabis on a white background

Cannabis legalization would also ease banking restrictions. If cannabis is no longer federally illegal, banks would not be concerned about facing penalties when dealing with marijuana companies.  

Unfortunately, it looks like marijuana legalization will not happen any time soon. Experts argue that it simply isn’t a priority for most politicians.

Joe Biden has taken steps to make marijuana more acceptable. He has excused people that were federally convicted of marijuana-related crimes. He is also working on changing cannabis from a Schedule I drug to a Schedule III drug. He is our best hope for marijuana legalization.

But the elections are coming soon, and most Republicans are against marijuana legalization. If a Republican candidate takes office, the chance of making pot federally legal will be close to zero.

Descheudling/Rescheduling: Marijuana is currently categorized as a Schedule I drug meaning it has a high potential for addiction and little medical value. Politicians have proposed that the drug becomes descheduled. If marijuana is descheduled, it would remove federal marijuana prohibition.

Biden is currently working on rescheduling marijuana so it would be moved from Category I to Category III. This move would make it more accessible to people that need it. However, it would not do much to improve federal banking laws and marijuana business overall.

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