California is now closer than ever to providing the state with legal cannabis banking services. The California State Senate recently passed a bill that allows private banks and credit unions to apply for state charters to explicitly handle cannabis financial transactions. With this legislation, these limited-purpose charters would allow the private banks and credit unions to offer depository services to licensed cannabis businesses. The State Assembly and California’s governor Gavin Newsom still need to approve the legislation before it becomes law.
This new legislation is important because cannabis is still considered a Schedule 1 drug on the federal level, which means that federally regulated banks are not allowed to touch cannabis money. If a federally regulated or traditional bank decides to do business with a state licensed cannabis company, then it risks criminal prosecution. The charges that can be brought to the bank are both money laundering and “aiding and abetting;” this in turn leads the cannabis industry to do most of its business in cash. The thought of doing every aspect of a business in cash is incredibly inconvenient for the dispensaries, as ordinary business practices such as processing payroll, paying vendors, and even auditing for taxes becomes harder and more time consuming.
In California, there are nearly 900 bank branches that could be converted easily into banks that handle cannabis cash. This new bill will make that a possibility, assuming that it gets approved. There was a previous bill almost identical to the current one that the State Assembly effectively killed last August. However, there is a new governor in town now who might be more amenable to the banking laws that could help the cannabis industry. Although the bill does not allow a full range of commercial banking services, it will permit a few select services such as paying government fees, taxes, rent, and vendor invoices.
California is not the only state looking to provide legal cannabis banking services. Attorneys general from 38 states and territories have asked congressional leaders to pass the SAFE Banking Act. This act would protect banks and credit unions from legal concerns if they handle cannabis money. Puerto Rico was one of the U.S. territories to sign a letter requesting the Senate to allow banks to do business with state-legal marijuana companies.
The SAFE bill has 206 cosponsors from both parties, and passed a U.S. house committee in March. For the time being. the current California bill is awaiting its fate in the State Assembly. Although cannabis entrepreneurs want the bill to be passed, ultimately what they would want is for the government to remove cannabis from its list of illegal substances, which would then void the bill.