Cannabis Federal Legislative Update

Cannabis Federal Legislative Update

April 18, 2019

The friction inherent in the divide between state and federal treatment of cannabis has been a major impediment to the growth and evolutionary development of the industry on a national integrated scale. Access to banking and financial markets, in particular, has been an issue for many businesses in the cannabis industry, as a result of the reluctance of many institutions in the banking sector to provide banking services to cannabis-related businesses and service providers. This is understandable, given the regulatory and compliance burdens (and uncertainty with regard to criminal liability) under the Bank Secrecy Act and relevant federal anti-money laundering laws and regulations, as well as other federal criminal statutes. Recent developments in Congress, however, suggest that there is bipartisan support among federal lawmakers to provide a way forward. Two pending bills-the Secure and Fair Enforcement Banking Act of 2019, H.R. 1595 (the "SAFE Banking Act") and the Strengthening the Tenth Amendment Through Entrusting States Act (the "STATES Act")-take slightly differing approaches, but the end result of both, if enacted, would be significant, and sweeping, cannabis reform at the federal level.


The SAFE Banking Act was approved by the U.S. House of Representatives' Financial Services Committee on March 28, 2019, by a vote of 45-15, and has now advanced to the full House for consideration. While narrow in scope, the SAFE Banking Act would provide a safe harbor from federal money laundering violations and other regulatory enforcement actions to depositary institutions and insurers that provide financial services to "cannabis-related legitimate businesses" (which are generally defined as persons or entities that engage in a cannabis-related business in compliance with applicable state law) and such businesses' service providers. Additionally, the SAFE Banking Act would prohibit federal banking and financial regulators and law enforcement agencies from taking punitive actions against depositary institutions and insurers, as well as their officers, directors and employees, solely on the basis of providing financial services to cannabis-related businesses. This means, for example, that federal deposit insurance would become available for such banking services provided to cannabis-related legitimate businesses. Furthermore, and perhaps more significantly, the SAFE Banking Act would enable cannabis-related businesses to move away from a cash-only business model, allowing them access to safer and more traditional financial services, including, among others, payments and transfers via credit cards, debit cards, check or electronic funds transfer, thereby greatly increasing safety and security for various cannabis industry participants. Finally, this bill provides that proceeds from transactions conducted by a cannabis-related legitimate business generally would not be considered proceeds from unlawful activities under applicable federal anti-money laundering laws.


Similarly, but with a much broader effect, the STATES Act, was re-introduced in both the House and the Senate on April 4, 2019. The STATES Act would amend the Controlled Substances Act (the "CSA") to provide that, generally, the CSA would not apply to state-legal marijuana-related activities conducted in compliance with other relevant law, and significantly restrict or eliminate federal enforcement against such activities. Additionally, the STATES Act would prevent the application of federal money laundering and criminal or civil asset forfeiture laws to proceeds from state-legal marijuana (i.e., cannabis) businesses operating in compliance with relevant state law and not otherwise in violation of federal law. Most importantly, broadly speaking, because of the changes to the CSA, the STATES Act, if enacted, would provide sweeping change at the federal level, going even further than the SAFE Banking Act. While it does not expressly address the financial services sector or the Bank Secrecy Act, it would appear that the STATES Act, by amending the CSA, extends its protections from federal violations substantially further than the SAFE Banking Act. Thus, the STATES Act would cover an even broader range of financial service providers in the financial services sector, and open the doors to the full panoply of financial services for state-compliant marijuana- and cannabis-related businesses that other legal participants in the U.S. economy currently enjoy.


Despite broad bipartisan support, both proposed bills described above face significant legislative headwinds, particularly in the Senate. While the march of state legalization continues to accelerate and there has been a growing acceptance and normalization of cannabis-related business activities and related services, significant hurdles still remain at the federal level. Neither bill explicitly legalizes cannabis at the federal level or preempts state law; in addition, both bills rely upon compliance at the state level-by the state-legitimate cannabis business, as well as by the third-party service providers. Nevertheless, both bills represent an important step forward at the federal level, increasing the likelihood-and inevitability-that sweeping federal cannabis legislation will eventually be enacted.


If you have any questions about this Alert, please contact

Eliott Frank at 212.573.8148, efrank@sadis.com or Ron Geffner at 212.573.6660, rgeffner@sadis.com.

Please feel free to discuss any aspect of this Alert with the members of our Cannabis Team whose names and contact information are provided below.

A.J. Alexis Gelinas

551 Fifth Avenue, 21st Floor
New York, NY 10176
Phone: 212.573.8159
Fax: 212.573.6662
agelinas@sadis.com

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Douglas R. Hirsch

551 Fifth Avenue, 21st Floor
New York, NY 10176
Phone: 212.573.6670
Fax: 212.947.3796
dhirsch@sadis.com

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Eliott Frank

551 Fifth Avenue, 21st Floor
New York, NY 10176
Phone: 212.573.8148
Fax: 212.573.6662
efrank@sadis.com

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Jennifer Rossan

551 Fifth Avenue,
21st Floor
New York, NY 10176
Phone: 212.573.8783
Fax: 212.947.3796
jrossan@sadis.com

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Paul Marino

551 Fifth Avenue,
21st Floor
New York, NY 10176
Phone: 212.573.8158
Fax: 212.947.3796
pmarino@sadis.com

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Robert Cromwell

551 Fifth Avenue, 21st Floor
New York, NY 10176
Phone: 212.573.8034
Fax: 212.947.3796
rcromwell@sadis.com

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Ron S. Geffner

551 Fifth Avenue, 21st Floor
New York, NY 10176
Phone: 212.573.6660
Fax: 212.573.6662
rgeffner@sadis.com

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Yelena Maltser

551 Fifth Avenue, 21st Floor
New York, NY 10176
Phone: 212.573.8429
Fax: 212.573.6662
ymaltser@sadis.com

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The information contained herein was prepared by Sadis & Goldberg LLP for general informational purposes for clients and friends of Sadis & Goldberg LLP. Its contents should not be construed as legal advice, and readers should not act upon the information in this Alert without consulting counsel. This information is presented without any representation or warranty as to its accuracy, completeness or timeliness. Transmission or receipt of this information does not create an attorney-client relationship with Sadis & Goldberg LLP. Electronic mail or other communications with Sadis & Goldberg LLP cannot be guaranteed to be confidential and will not create an attorney-client relationship with Sadis & Goldberg LLP.