Failure to Enact the SAFE Banking Act a Missed Opportunity

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By David J. Petersen

For years, Oregon Senator Jeff Merkley has championed the SAFE Banking Act, a federal bill that would make banking services available to cannabis businesses in states where cannabis is legal. The bill has passed the House seven times in the last four years with Republican support, and Merkley is confident it would pass the Senate if put to a vote. But last-minute procedural maneuvers by Minority Leader Mitch McConnell caused the Act to be pulled from the $1.7 trillion omnibus spending bill this month, despite prior assurances to Merkley from Majority Leader Chuck Schumer that it would be included.

The failure of the bill to advance is a big loss for the cannabis industry in Oregon. Currently, the industry is forced to mostly operate in cash, which creates numerous roadblocks in our largely cash-free economy. Transactions in cash are obviously riskier than using banks, and less efficient. Otherwise unnecessary investments must be made in safes, cash counters and complex security systems. All-cash businesses are more prone to theft, particularly by employees. And without access to banks, cannabis businesses cannot obtain lines of credit, attract institutional investors or use payroll management services. While a few banks have experimented with banking cannabis businesses, the challenges and risks usually meant these experiments were short-lived.

Specific to real estate, the lack of legal banking for cannabis businesses prevents most transactions from utilizing title insurance and escrow services. To this author’s knowledge, only a handful of title companies will issue title insurance on properties used or intended for cannabis, and only in certain locations. None of them will handle escrow for a transaction, as any movement of money in and out of escrow requires use of the federal banking system. And while hemp is legal, the common association of hemp with cannabis makes many hesitant to handle hemp transactions either.

This forces cannabis and hemp transactions to either bear the risks of closing without escrow, or to utilize the services of a few attorneys across the state willing to handle escrow. Those attorneys are few and far between as most malpractice insurance will not provide coverage should they make a mistake. Lack of title insurance leaves buyers at the mercy of their own title research before closing a transaction. While the seller may have given title warranties in the deed conveying the property, claims under the deed can be difficult to bring and are only as good as the solvency of the seller.

With Republicans taking control of the House in January, it is hard to see a path for the SAFE Banking Act to see the light of day again in the near term. If so, then cannabis and hemp businesses will continue to face roadblocks to successful real estate transactions, and other business practices, not faced by other legal businesses in their respective states.