High hopes as the US House of Representatives passes historic marijuana reform legislation which allows banks and other financial institutions to work with state-legal cannabis industry.
Currently, thirty-three states and the District of Columbia have passed laws legalizing marijuana for medical and/or adult-use. However, marijuana remains federally illegal and is classified as a Schedule I drug. Federal illegality creates a number of issues for the state-legal cannabis industry and those wishing to get involved in any way in the industry, including those wishing to insurer or reinsure the industry.
On September 25, 2019, the House of Representatives passed, on a bipartisan basis, HR 1595, The Secure and Fair Enforcement Banking Act of 2019. Better known as The SAFE Banking Act, the primary purpose of the act is to prohibit federal banking regulators from penalizing banks that provide services to state-legal cannabis businesses. Cannabis businesses do not have adequate banking options; although some community banks or other non-federally insured banks do participate in the cannabis industry, the industry has a shortage of banks willing to work with it, forcing many state-legal cannabis businesses to operate on a cash basis, increasing the risk of theft and making all financial transactions more complex.
Although the primary purpose of the SAFE Banking Act addresses the shortage of banks willing to work with the industry, thanks to lobbying efforts of various insurance industry groups, the SAFE Banking Act that passed the House would:
- Protect insurers, agents, and brokers from being held liable pursuant to a federal law or regulation solely for providing insurance to state-legal cannabis businesses; and
- Protect those insurers, agents, and brokers that work with states or Indian countries that have legalized cannabis.
Thus, for insurers and reinsurers seeking to enter the legal cannabis space, the SAFE Banking Act would provide a welcome safe-harbor against the most severe and common types of penalties that could potentially arise based on participation alone.
Procedurally, the Senate has been considering a companion bill that was previously introduced and referred to the Senate Committee on Banking, Housing and Urban Affairs. The Senate companion bill does not currently have the language providing a safe harbor for insurers contained in the House bill, but if it were to pass in its current form, that issue would be negotiated between the House and the Senate. At present, the Senate companion bill has thirty-three cosponsors (of which, five are republicans), which provides some optimism that it enjoys enough bipartisan support for a favorable vote. Unfortunately, our analysis, combined with what we are hearing in DC, suggests that the SAFE Banking Act will not get a vote in the Senate this year. We will be keeping a close eye on this legislation and expect that it will be reintroduced in 2020 if it does not receive a vote this year.
For more information on Congress’ legislative initiatives with respect to the cannabis industry and related businesses, see Robin Dusek’s article on the CLAIM Act that recently appeared in Property Casualty 360. https://www.propertycasualty360.com/2019/09/18/how-the-claim-act-will-affect-insurers/?amp=1