In an effort to overcome the banking hurdle faced by the legal cannabis industry, Senate Bill 51 passed legislation to allow state-chartered cannabis banking. The bill still requires the approval of the Assembly and California State Governor Gavin Newsom before it becomes law.
Through the provisions of SB 51, private banks and credit unions would be able to apply for a limited purpose state charter, which in turn would enable those financial institutions to provide depository services to cannabis businesses. Right now, California’s legal cannabis industry is having a hard time staying competitive with the lucrative black market, and many cite barriers to business, like basic banking services, as one of the biggest obstacles to overcome.
In addition to banking issues, the legal marijuana industry is also facing issues with high taxes, and in early May Governor Newsom cut revenue projections for the sector by $223 million. Some see the piece of legislation as a way for a powerful, populated state like California to use its influence to pressure Congress into decriminalizing marijuana at the federal level.
Senate Bill 51 was introduced by California Senate Majority Leader Robert Hertzberg in December 2018, with several amendments made in early 2019. The fundamentals of the bill would allow for pot businesses to pay state and local taxes, rent and other fees using special checks. As described in the bill’s language, entities receiving the checks would not be required to accept these checks as payment, however. Additionally, there is no lending provision in the bill. Access to capital is another woe of the legal cannabis industry, and it remains to be seen how that will play out in the future, pending federal legalization.
The bill includes language that would render the provisions set forth in SB 51 obsolete in the event that ‘the federal government removes cannabis and cannabis-related substances from the federal schedule of controlled substances or enacts legislation that establishes protections for depository institutions that provide financial services to cannabis-related legitimate businesses.’ In the meantime, however, the legislation could serve to help distinguish legitimate businesses from illegal black market operations.
This comes hot on the heels of a California State Treasurer’s Office report issued in December 2018 by a state cannabis panel on banking. The report voiced concern that the large amounts of cash cannabis businesses (through a lack of depository options) have on hand makes them — and by default, their employees and customers — potential targets of violent crime. The same report noted that the global consulting firm Inner City Fund (ICF) International estimates that the state of California could generate a wealth of tax revenue (estimated to be between $1.4 billion and $3.0 billion annually) and has the potential to create over one-hundred thousand jobs, which they estimate could result in another $3.57 billion to $4.52 billion in labor income annually.
There are several pieces of legislation moving through the pipeline that follow the same concept. The efforts at the federal level are a step in the right direction. One of those efforts, the SAFE Banking Act of 2019, sponsored by Colorado State Representative Ed Perlmutter, purports to increase public safety by ensuring access to financial services while reducing on-site cash stockpiles. And in mid-May, the National Association of State Treasurers issued a resolution in support of congressional legislation allowing banks to provide services to legal cannabis-industry businesses.
