State-Sponsored Cannabis Banking Proposal Gains Momentum
A legislative proposal to create a limited-service banking system for the California cannabis industry crossed an important hurdle last week when the State Senate Bank and Financial Institutions Committee unanimously approved the bill.
Senate Bill 930’s author State Sen. Robert Hertzberg (D-Van Nuys) introduced the bill on Jan. 25, 2018 to address the fact that the federal prohibition on marijuana makes traditional banking difficult for most California cannabis businesses. It would provide for “cannabis limited charter banks,” that could issue certified checks to pay state and local taxes, rent and vendors serving cannabis businesses. The bill is fairly general and would likely change and become more detailed were it to be approved by the State Legislature.
U.S. Treasury Department guidelines allow federally-chartered banks to serve cannabis clients, but require such banks to maintain records and issue special reports specifically on cannabis accounts. As a result, most commercial cannabis operators have chosen to transact in cash. This causes numerous practical challenges, including the need to transport and store large amounts of cash and the inability to write checks or make direct electronic deposits.
SB 930 addresses some of the banking issues facing cannabis businesses, but not all. The bill notes that cannabis limited charter banks will not be prohibited by the state from “obtaining private insurance,” but does not create a state-backed financial insurance option that would replace the Federal Deposit Insurance Corporation. In addition, the bill would limit payment options to paper checks, because electronic fund transfers are regulated by the federal Electronic Fund Transfer Act, placing any electronic transfers under federal authority.
Under SB 930, the California Department of Business Oversight would oversee the new limited banking system, but the department has not taken a position on Hertzberg’s bill. Last year, the department discussed setting up a network of financial institutions that would guarantee to federal banking regulators that the accounts they hold are subject to special tracking, oversight and transparency, but nothing concrete has come of those discussions.