The House passed the SAFE Banking Act. What now for the $10 billion dollar a year legal cannabis industry?

Imran Khaliq
4 min readDec 30, 2019


Who is solving the $10 billion dollar a year banking problem for the legal cannabis industry? For a moment it looked like we might get bi-partisan support for a federal solution to the banking problem which keeps state legalized businesses out of the federally insured banking system. Over the years, cannabis has been decriminalized and legalized for medicinal or recreational use in 33 States of the United States. Since 2018, Canada legalized it at the national level and is the first G7 country to bring cannabis businesses to publicly traded stock markets.

So while Canada beat us to the bong, in between impeachment inquiries, Congress is trying to catch up. In September 2019 Congress the House passed the “The Secure and Fair Enforcement Banking Act of 2019” or the “SAFE Banking Act” of 2019 by a 321–103 vote in the House of Representatives. If enacted into law, the SAFE Banking Act would end the restrictions and penalties on federally insured banks that take deposits from state licensed growers and sellers of cannabis products. This would bring billions of dollars out of the gray or black market into the legal banking system and increase federal and state tax revenues.

Meanwhile, industry is not waiting. The North American market is currently transacting over $10 billion a year in state legalized cannabis sales, projected to reach $250 billion by 2025. Large publicly traded American companies are entering the market and making strategic acquisitions in the space, including Constellation Brand’s $4 billion investment in Canopy Growth and Altria’s $1.8 billion investment in Cronos.

It goes without saying that transactions in marijuana from seed-to-sale require legal digital transactions over a financial network that provides the same access to credit and secure end-to-end draws and deposits in fiat currency that other businesses enjoy. Yet, it is estimated that over 90% of cannabis businesses remain out of the banking system due to federal regulations that have not been reconciled with state laws.

The federal government has not been totally oblivious to this issue, however. In 2009, the Department of Justice (DOJ) under the Obama administration, issued the “Cole Memo” which identified eight specific priorities that should serve as the basis to take prosecutorial action against businesses and individuals who were not compliant with state law or not properly reporting transactions under the federal Bank Secrecy Act (BSA).

The DOJ acknowledged that, “financial institutions that conduct transactions with money generated by marijuana-related conduct could face criminal liability under the BSA, for, among other things, failing to identify or report financial transactions that involved the proceeds of marijuana related violations of the [Controlled Substances Act].” But the Cole Memo also seems to indicate that there is a save haven for businesses who are state compliant and meeting the eight priorities.

So while the proposed legislation in Congress does not remove marijuana from from its dubious Schedule 1 Classification under the “Controlled Substance Act”, recent guidance by the DOJ and FinCEN, suggests that the feds may lay off as long as the states are properly regulating the businesses, which appears to be the desired approach by the majority of law makers.

Oddly, legalization of marijuana is one of the few things the majority Democrats and Republicans now agree on. Even, Republican Senate Majority Leader Mitch McConnell, a longtime opponent of reforming marijuana laws, was seen attending at least two days’ worth of meetings with cannabis industry executives, small-business owners and advocates in Southern California, in order to discuss potential cannabis-related banking reform. Trump has made comments that he would probably back a similar a bill called the STATES Act, sponsored by Elizabeth Warren (D) and Cory Gardner (R). Even the DOJ head, Bill Barr, apparently prefers to keep DOJ resources focused elsewhere and has publicly vocalized his support for a federal solution.

However, the legislative uncertainly and lack of decisive federal action has not appeased the financial institutions, and federally insured banks are reluctant to take deposits from cannabis businesses so long as it remains illegal under federal law and implicates the BSA and other money laundering concerns.

Based my interviews with businesses in Humboldt County, California and Nevada, Colorado and Washington State, most businesses are not confident that there is a federal solution in the offing. As a result, there is a growing weariness and distrust that the federal government will provide a solution to this problem, especially when that same government waged a harsh “war on drugs” and cracked down on this industry in the 80’s and 90's.

Reminiscent of a “Better Call Saul” or “Breaking Bad” episode, cannabis businesses are still largely transacting in cash and using armored vehicles for large cash transactions, hauling brief cases of cash to state tax authorities or using shady front businesses. Private security and armed guards still protect large farms, instead of local authorities. As a result, many businesses in states like California, Washington and Nevada are operating in a gray area by using other business fronts, LLC’s and accounts so it is not obvious whether the business is growing or selling marijuana or operating some other sort of business. This puts both the businesses and the banks doing business with them at risk.

This practice is not sustainable over the long term, not should it be. Indeed, without proper reconciliation between state and federal laws, and a federal government in constant gridlock, cannabis businesses will continue to be kept out of mainstream banking and capital markets.

Originally published at



Imran Khaliq

Imran Khaliq is a Managing Director of Quantum Counsel IP Group, having worked as a lawyer and general counsel in previous roles.