On September 23, 2021, the U.S. House of Representatives passed the SAFE Banking Act (SBA) for the fifth time since 2019. The bill prevents federal authorities from prosecuting financial institutions that serve cannabis businesses operating legally at the state level. The legislation, strategically included as an amendment to the National Defense Authorization Act, still faces uncertain prospects in the Senate where senior Democrats support tying the bill’s approval to more comprehensive cannabis legislation reform. 

Marijuana legalization at the federal level would clearly be the first best solution. Cannabis prohibition interferes unduly with individuals’ right to consume substances that cause no harm to others. Enforcing prohibition is also costly to federal taxpayers. State-level experiences with marijuana legalizations, however, should temper exaggerated claims by both marijuana advocates and critics.

Data on legalizations across states hints at no substantial departure from pre-legalization trends in marijuana consumption or prices. Effects on other outcomes, such as suicides, crime, and road safety are either unclear or small. Nevertheless, legalizations have had small but positive budgetary impacts. California now collects over $50 million from marijuana sales monthly. 

But if marijuana legalization does not seem to change the status quo by much, this is all the more reason not to prohibit its use. Absent clear negative consequences, government should not meddle with individuals’ choices to consume substances. 

As with state experiences, federal legalization would probably not have dramatic consequences, but it would spare federal funds dedicated to marijuana prohibition enforcement. It would also render the SAFE Banking Act moot. The Bank Secrecy Act requires financial institutions to report on any transaction suspected to involve funds derived from illegal activities. If marijuana were not illegal under the Controlled Substances Act, banks would not be liable under the BSA or federal anti-money laundering legislation. 

In the current scenario, banks face legal uncertainty when dealing with legitimate cannabis businesses. Informal guidance from the Department of Justice takes a soft approach on the matter, but it does not shield financial institutions from federal prosecution (and could be easily reverted by administrative fiat). Moreover, existing jurisprudence (Gonzales v. Raich 2005) holds that federal law prevails over state law when it comes to marijuana prohibition.

Short of legalization, the SBA would be better than nothing. It would prompt banks to offer financial services to legitimate cannabis businesses. Access to banking services could bring more ease to consumers and businesses, at least in some states, enabling more payment options without worries about legal ramifications. As a result, marijuana stores would also likely carry less cash, reducing risks of theft. Access to the banking system would render cannabis money more traceable, hindering tax avoidance. 

More important, the SBA would give some autonomy back to the states regarding marijuana policy. State-level experimentation regarding drug policy is an important mechanism to help policymakers figure out what are the best policy levers with which to deal with legalization, especially given that data on outcomes are unclear. Federal prohibition hampers this process, but the SBA would be a step torward giving states more leeway. 

Political commentators are better suited than we are to ascertain the prospects of the SBA act in the Senate. The act, however, would be an improvement over the status quo, even if full legalization would be better still.