The prosperous cannabis industry has long faced significant barriers to obtaining financial services. For example, as of June 2020, only 695 banks and credit unions were servicing marijuana-related businesses, according to the latest report from the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. This despite the fact that the North America legal cannabis market was worth $16 billion in 2020.
A large percentage of cannabis clients pay in cash, and that, combined with a lack of banking options, has frequently left business operators stuck with huge quantities of cash on hand. This, in turn, makes them become bigger and easier targets for theft and fraud, not to mention potentially giving rise to tax evasion issues for the less scrupulous. Greater access to banking institutions directly equates to a more stable financial structure and fewer opportunities for cash management to go wrong.
With adult-use and medical cannabis now legalized in several new states, the number of cannabis businesses in need of a bank will only increase. The good news is that recent changes to the law in California and expanded guidance for credit unions, combined with a Democratic election sweep, are likely to mean more banking choices for the industry.
California Assembly Bill 1525: A little legal and financial relief
California Governor Gavin Newsom recently signed Assembly Bill 1525 into law. The bill accomplishes two major objectives:
- It provides safe harbor for California banking institutions doing business with cannabis companies by legally affirming that banks and other entities (specifically, licensed armored car services and professional accounting services) are not committing a crime under California law by serving cannabis clients and removing state penalties for banks or other entities that work with cannabis operators.
- It makes it easier for cannabis businesses to be assessed for loans and other services and financial institutions to comply with federal reporting requirements. The bill achieves this by allowing licensed cannabis businesses to sign a waiver permitting state or local licensing and regulatory authorities to share their “application, license, and other regulatory and financial information” with a designated financial institution “for the purpose of facilitating the provision of financial services for that licensee.” The hoped-for outcome is to ease the banks’ burden of ensuring that federal requirements are being met by allowing the state to share licensing information with the operators’ agreement.
One banking challenge that cannabis businesses regularly face is exorbitant monthly account fees or banks that take a percentage of each deposit. Although AB 1525 does not address fees specifically, the hope is that by removing some of the most significant barriers to doing business with the cannabis industry, a wider range of banking options will become available and lead to a more competitive environment.
But most banks are federally insured, and marijuana is still classified as a Schedule I drug in the federal government’s Controlled Substances Act. AB 1525 does not provide protection against the prospect of federal criminal prosecution for California banks. As such, in spite of this bill, banks may still balk at providing financial services to…
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