California cannabis charter banks bill moves forward while the nation calls for federal action

May 23, 2019

California’s bill that would establish state-chartered cannabis banks has passed its first legislative hurdle and lives to see another committee hearing.

Senate Bill 51 has passed through the state Senate and is headed to the second house, the State Assembly, for the second round of committee hearings, possible amendments, and then hopefully on to Gov. Gavin Newsome for a signature or veto.

SB 51 would allow private banks or credit unions to apply to the state for a limited-purpose charter which would enable them to provide banking services to state-licensed cannabis businesses, including growers and retailers. The bill was approved by a vote of 35 to 1.

“As policymakers, we have a duty to further the will of the voters while protecting the public safety of our constituents,” California Senate Majority Leader Robert Hertzberg said upon his introduction of SB 51. “This measure is by no means the ultimate solution, but it’s just one small step in the right direction to get some of this money off the streets and into bank accounts.”

What is the current banking situation for licensed cannabis businesses?

Like many licensed marijuana entrepreneurs across the nation, cannabis businesses in the Golden State must operate primarily with cash due to current federal policies classifying marijuana as a Schedule I drug.

[California legislature considering legislation that would create state-chartered banks for cannabis businesses]

“It’s hard to imagine an industry that at this point is as large as, like, craft beer that does not have banking as we have come to know it,” Executive Director of the Marijuana Policy Project Steve Hawkins told CNBC.

SB 51 would create special checks which cannabis businesses could use as a way to pay taxes, both state and local, as well as fees and rent. By allowing these businesses to operate with checks as opposed to cash-on-hand for such normal business transactions as paying rent.

“It will help improve commerce incrementally, but you won’t be able to get a loan from one of these banks,” Attorney Robert Selna of the California-based law firm Wende, Rosen, Black & Dean said in an interview. “It will help cannabis companies pay the rent, but how it corresponds with federal law is still a question.”

There is some question as to whether California banks will participate in this charter program, considering that federal law hasn’t quite caught up with the cannabis industry.

“Congress will have to act because there’s all the interstate ramifications of banking that just really cry out for federal lawmakers to do something in this space,” Hawkins said.

The on-going demand for federal action

In March of this year, the House Financial Services Committee passed the Secure and Fair Enforcement Banking Act (the SAFE Banking Act), a bill that would guarantee the protection of banks that partner with cannabis businesses, provided that marijuana was legal in the state of operation.

In addition to the SAFE Banking Act, the National Association of State Treasurers issued a legislative resolution stating that they would support Congress-passed legislation allowing banks to provide services to state-licensed marijuana businesses. Even state Banking Associations are calling for congressional action.

On Monday, banking associations from all fifty states and one U.S. territory wrote to the Senate Banking Committee, demanding that bipartisan legislation be enacted which would allow financial institutions to serve marijuana businesses without possible penalties by federal regulators.

[AGs press Congress on banking legislation]

“As a result of congressional inaction and the lack of regulatory clarity, legal cannabis businesses must operate on an all cash-basis, subjecting their employees and the general public to serious risk of criminal activity and harm. These businesses also must remit payments for state taxes and licensing fees in cash, denying the states the efficiencies and safety of more modern payment methods. This, in turn, significantly increases state compliance auditing costs since operating on an all-cash basis leaves no paper trails for auditors to follow,” they wrote.

One of the major complaints from the banking associations was that the SAFE Banking Act has not had any legislative movement since it passed out of the House Financial Services Committee in March.

“Although we do not take a position on the legalization of marijuana, our members are committed to serving the financial needs of their communities⸺including those that have voted to legalize cannabis,” the members said. “We believe federal action is necessary and support for a solution would allow banks to serve cannabis-related businesses in states where the activity is legal.”

[Transitioning the cannabis business into a cashless one: A conversation with CannaTrac CEO Tom Gavin IV]

Sen. Mike Crapo, the chairman of the federal Senate Banking Committee has stated that he won’t bring the SAFE Banking Act before his panel unless the Justice Department addresses the cannabis banking issue.

Perhaps individual states will tackle marijuana banking laws, forcing Congress to make a move on the SAFE Banking Act. Until then, state-licensed cannabis entrepreneurs will have to continue to wait for banking access while maintaining business as usual.

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