Denver, CO

SAFE passage won't eliminate need for specialty cannabis banks

Matt Whittaker

By Matt Whittaker / NewsBreak Denver

(ARVADA, Colo.) A Colorado pioneer in the cannabis banking industry says specialty lenders serving marijuana businesses will still have a role to play even if federal legislation opens the playing field to a wider number of financial institutions. 

Despite many states legalizing weed in some form, the drug is still illegal at the federal level, where banking laws are set. That leaves banks dealing with marijuana businesses open to the risk of being charged with money laundering or aiding and abetting a federal crime.

While there is a loophole allowing marijuana banking if the lender files specific paperwork with each transaction, that requirement is so onerous that most banks simply stay away from the industry.

The Secure and Fair Enforcement (SAFE) Banking Act, introduced in the U.S. House of Representatives by Colorado Democrat Ed Perlmutter, aims to shield financial institutions that want to provide banking services to cannabis businesses. 

The bill, which has passed the House several times in some form but has never been considered by the Senate, says proceeds from legitimate state-legal cannabis businesses aren’t automatically unlawful just because they come from cannabis. If passed, federal regulators couldn’t limit depository insurance for banks that provide services to legitimate marijuana businesses.

But the bill’s passage wouldn’t mean demand for specialty cannabis banks will dry up, said Sundie Seefried, CEO of Arvada-based Safe Harbor Financial. Just like not all banks are willing to deal with the complexities of money services businesses like check cashing establishments, not every bank is going to want to wade into the cannabis industry, Seefried said during a webinar last week.

Even if the SAFE Act passed, federal regulations require banks to keep funds from illicit markets out of the system, she said. Not all banks will have the expertise to know how to identify money earned in state-legal regulated markets versus that gained from illegal cannabis operations, she said. 

“We have to watch for the illicit players,” she said.

Matt Karnes, founder of cannabis research and consulting firm GreenWave Advisors, which hosted the webinar, agrees that specialty cannabis banks will continue to see demand if the SAFE act passes. 

“Passage doesn’t mean that every bank will then be willing to bank cannabis companies,” he said. “As a first mover, Safe Harbor has a deep understanding of the complexities associated with operating in the cannabis industry and over the years has built a credible and necessary compliance platform that remains relevant, even with the eventual passage of SAFE Banking.”

Safe Harbor started out with 10 test accounts in Colorado in 2015 and has grown to more than 600 accounts. Since its inception, it has processed more than $12 billion in transactions with companies operating in 20 states with regulated cannabis markets.

Safe Harbor is in the process of going public via a special purpose acquisition corporation called Northern Lights Acquisition Corp., which is headquartered in Denver. Northern Lights shareholders are scheduled Friday to hold a special meeting about approving the deal.

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Matt Whittaker writes about natural resources industries, including oil and gas, mining, renewable energy, agriculture and cannabis. He's been based in the Denver metro area since 2013. You can follow him on Twitter @mattswhittaker.

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