Leveling the Playing Field: How the SAFER Banking Act will Impact Payments in the Cannabis Industry

By Nan Siler, Vice President Payment Operations at Finix

The US cannabis industry is a fast-growing space that is expected to reach $100 billion in sales by 2030. Despite cannabis’s steadily increasing popularity and legalization across states for both medicinal and recreational uses, it’s still classified as a Schedule I drug under the Controlled Substance Act at a federal level. Because of this, the majority of financial institutions consider it too high of a risk to support cannabis businesses, creating endless barriers that prevent the industry from reaching its full potential in the US.

There are now nearly 15,000 cannabis dispensaries in the US but they, and many other state-legal cannabis businesses, struggle to access essential financial services like obtaining a bank account, processing payments through standard acceptance methods like debit or credit cards, securing a mortgage, and finding insurance.

These limitations force the industry to rely on cash-only transactions, which not only complicates daily operations but also heightens security risks, making cannabis businesses prime targets for theft and violence. This reliance on cash also holds back business performance: according to research from Green Wednesday, dispensaries offering debit payments processed 59% more transactions compared to cash-only models. This discrepancy demonstrates how critical access to financial services are for the industry. Under the current restrictions, cannabis companies face greater challenges in running their businesses effectively and are at increased risk of unintentional non-compliance with government regulations.

Although banks can technically work with cannabis businesses in states where it’s been legalized, there is still major resistance. Without cannabis being legal federally, the risks are high. If there is any criminal activity within the business, whether intentional or not, the government can prosecute any and all associated organizations, even banks and processors who have no direct oversight into daily operations.

To further understand banks’ reluctance, we have to understand the impact of the US Department of Justice’s initiative, Operation Choke Point. In 2013, federal officials investigated US banks and their business with industries considered to be a reputational risk or high risk for fraud and money laundering, such as payday lenders, firearm dealers, ammunition sales, and others. Officials pressured banks to terminate accounts with these companies or risk federal investigation, leading banks to stop servicing these industries to avoid regulatory scrutiny and leaving many businesses without bank sponsorship or access to capital.

The initiative ended in 2017 with the introduction of the Financial Institution Protection Act, which prevents federal banking agencies from ordering banks to close a customer account without valid reasons unrelated to reputation risk, but the scars of Operation Choke Point are still seen years later. The precedent of the US government forcibly shutting industry-wide operations created fear amongst financial institutions working with businesses that, while fully legal in their home state, aren’t federally legal.

If a bank is working with a cannabis business that is later proven to be guilty of illegal activity, the government can seize the business and bank’s assets. That theoretical threat of forfeiture is enough to make most banks wary of working with this potentially high-risk industry. Without access to banking services, cannabis businesses struggle to find solutions for storing, sending, and receiving funds, critical functions for any business.

The Secure and Fair Enforcement Banking Act (SAFER) was introduced to Congress in 2017 to expand access to traditional banking services by providing protections from certain criminal, civil and administrative penalties for federally regulated financial institutions that work with state-sanctioned cannabis businesses. These protections extend to lenders, insurers, payment processors and others who would otherwise be at risk of regulatory repercussions or threat of forfeiture.

The act has been a topic in the industry for years, with financial institutions watching and waiting for progress. In 2023, the act finally made it out of the Senate Committee on Banking, igniting action in the finance industry to prepare to navigate the post-SAFER Banking Act landscape.

When passed, the SAFER Banking Act will add a much-needed layer of protection for banks, but the varying legality of cannabis between state and federal governments will continue to create challenges for effectively servicing these businesses. One of the biggest obstacles will be finding new technology to manage payment processing. It will be relatively straightforward to determine which businesses are eligible for bank accounts and insurance policies based on the states they are operating within, but managing digital payments adds a layer of complexity that many finance platforms will need to overcome. Geography blocking and tracking solutions that allow sales in select states will be essential to remaining compliant, and while a lot of banking platforms will struggle to build these functions on older infrastructure, some payment processors already have these tools developed.

Fortunately, many payment processors are familiar with operating in high-risk industries, like gambling, that require significant upfront review, registration with credit and debit card brands, and ongoing compliance reviews. These processors work closely with credit card brands to support these businesses. For instance, oversight programs like the Visa Integrity Risk Program and the Mastercard Registration Program for Speciality Merchants ensure businesses comply with ethical and legal standards when working with high-risk industries. These programs can be developed well in advance of the SAFER Banking Act passing to include controls that mandate compliance with local laws and provide protections for both financial institutions and their customers, further supporting the transition to a regulated environment.

Ultimately, the SAFER Banking Act has the potential to be a major growth catalyst for cannabis businesses and completely revolutionize the industry — not only from a payments perspective, but across all aspects of financial operations. Developing oversight programs, geofencing solutions, and compliance measures today will make it easier for financial service organizations to expand into a lucrative new market once the SAFER Banking Act passes, and help an industry that’s been trapped in financial purgatory unlock its full potential and operate alongside other industries.