SB 51 Cannabis Banking Reform Progresses in California

SB-51 Overview

Many cannabis businesses in California remain unbanked due to the perceived risks of banking with cannabis companies. Despite FinCEN guidance and different levels of SARs reporting available to banks, many still steer clear of cannabis companies, viewing it as too risky. The result is that even though over 500 banks have filed cannabis related SARs recently, thousands of cannabis companies in California are still operating on a cash-only basis. To address this issue, California’s State Senator Bob Hertzberg has re-introduced a bill that would enable limited-purpose banking through private banks and credit unions. Senate Bill 51 would create the Cannabis Limited Charter Bank and Credit Union Law and a corresponding advisory board to oversee all financial activity related to cannabis businesses opting to use these state-chartered cannabis banks.

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Cannabis Banking Services: What Will Be Offered?

By offering depository services, such licensed banks will only be able to work with cannabis businesses and other banks licensed under the Cannabis Limited Charter Bank and Credit Union Law. The bill would allow these banks to issue certified checks and conduct payroll for certified California employees, pay state and local taxes and fees, pay rent, and invest in California’s economy. The introduction of such a law is one of several recent measures taken by state legislators to effectively regulate commercial cannabis activity and help identify the legality of financial transactions. With the vast majority of cannabis sales occurring in the illicit market of California, it is advantageous for legislators to integrate cannabis businesses into state commerce as quickly as they can. The bill itself is timely, as the United State House Committee on Financial Services recently passed the Secure and Fair Enforcement Banking Act in March, providing protection to banks who seek involvement with licensed cannabis businesses. Furthermore, a resolution was just issued by the National Association of State Treasurers who plan to support congressional legislation allowing banks to work with such businesses.

Integrating with the State

When this bill was introduced over a year ago as SB 930 in collaboration with Senator Hertzberg, Board of Equalization Member Fiona Ma said, “Now is the time for California to take action. (…) (T)he cannabis industry is poised to become one of the largest cash-based industries in California projected to generate $8-20 billion dollars a year.” The risks of leaving a market of such a scale to operate as cash-only are undeniable and only fosters the growth of an illegal market. The fact that tax revenue gained from cannabis excise taxes in California is only forecasted to be $288 million (compared to the overzealous projections of over $1 billion in taxation from 2016) should be enough of a indication that integrating commercial cannabis into California’s economy has not been anywhere near as lucrative as the state expected it to be once Prop. 64 passed.

What’s Next?

SB 51 was approved by a vote of 35 to 1, but it still needs the approval of the State Assembly and Governor Newsom in order to become law. In any case, the bill will not permit the Department of Business Oversight to issue any state sanctioned cannabis banking licenses before July 2020. We will also be tracking the SAFE Banking Act as it makes its way through the federal legislature. Stay tuned for updates.

Lauren Estevez is an attorney who advises international, multi-state and California cannabis brands, operators, and investors. She is nationally recognized as a subject matter expert in Cannabis Law and her work has been featured on CNBC, Bloomberg Law, and SXSW. The National Law Journal awarded Lauren the recognition of Cannabis Law Trailblazer in 2019. Lauren is the founder of LME Law.