The cannabis industry faces further banking hurdles in California, with proposed legislation to establish state-licensed banks stalled in committee. It will not cross Gov. Jerry Brown’s desk by the Aug. 31 deadline for each House in the State Assembly to pass bills.

Sen. Bob Hertzberg (D-Van Nuys) introduced SB 930, which would create a new, limited-purpose state charter for privately financed banks which the California Department of Business Oversight would regulate.

This bill would have allowed cannabis firms to deposit money in a state-licensed bank, popularly known as a “Green Bank,” which would then issue checks to the firms for use in daily business activities —such as paying taxes, local fees, and employees’ salaries.

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“I was extremely disappointed to learn that SB 930 was halted,” said Sen. Hertzberg in a statement. “This is a serious public safety issue that deserves swift resolution. We’ve got barrels of cash buried all over the state, businesses being ransacked, and it’s clear that the federal government won’t act. It’s a shock to me that the state government may not act this year either - especially after this bill passed through nearly every step with bipartisan support and little to no opposition.”

As the banking industry is federally regulated, financial institutions have been hesitant if not outright unwilling to handle money from the sale of marijuana, a federally classified Schedule I drug.

Wells Fargo under heat for cannabis stance

Wells Fargo, the fourth largest bank in the U.S., recently came under heat for closing Florida agriculture commissioner candidate Nikki Fried’s account due to her receiving campaign contributions from lobbyists in the medical marijuana industry.

Michael H. Gray, a Wells Fargo assistant vice president for corporate communications upheld the company’s decision in an email. "It is Wells Fargo's policy not to knowingly bank or provide services to marijuana businesses or for activities related to those businesses, based on federal laws under which the sale and use of marijuana is illegal even if state laws differ,” he wrote. “We continually review our banking relationships to ensure we adhere to strict regulatory and risk guidelines."

The bank’s actions have implicit implications, not only for cannabis companies but for politicians who accept campaign contributions from people involved with the marijuana industries.

"This is yet another clear signal to Congress that they need to address the banking issue for the cannabis industry," Mason Tvert, a spokesman for the Marijuana Policy Project, said in a statement. "It is absurd enough that state-regulated businesses are being denied standard banking services, but it is absolutely ludicrous that political candidates and nonprofit advocacy organizations are also being affected. There is no rational reason for Congress to go another session without fixing this growing problem, which has serious societal implications.”

[Exclusive: Wells Fargo closed my client's account over cannabis-related issues too]

After meeting with cannabis companies and discussing the financial restrictions that the burgeoning cannabis industry faced in California, Sen. Hertzberg introduced SB 930, stating “If the risk of federal intervention is eliminated, cannabis businesses will feel more confident about opening an account with our limited state charter."

The bill also proposed allowing the Green Banks to have private insurance in lieu of insurance provided to federally chartered banks by the FDIC. Additionally, Hertzberg proposed that the Green Banks have an advisory board which would include the State Treasurer, State Controller, and the Chief of the Bureau of Cannabis Control.

SB 930 enjoyed the legislative support of Fiona Ma, CPA for the California State Board of Equalization, both the city and county of San Francisco, and the Cannabis Distributors Association, among others.

Source: FinCEN

Show the legislators the money

Unfortunately, many pieces of potential legislation fall short of the finish line due to the amount of funding that would be required to implement them. SB 930, though penned with the best of intentions, is no different.

The California Department of Finance, an organization that serves as Gov. Brown’s chief fiscal advisor, is tasked with reviewing all legislation for potential fiscal impact. The Department of Business Oversight estimated that the creation of Green Banks would cost the state $2.1 million in the first year, and $2 million in ongoing funds to maintain oversight of 12 participant banks. A price-tag which the finance department balked over.

The department also opposed the bill as the cannabis limited charter institutions formed under SB 930 could be considered to be laundering money in violation of federal law. The bill didn’t provide specific requirements for operating limited charter institutions, and the actual implementation of the Green Banks remained hazy in the bill’s current language.

Source: FinCEN

Will Green Banks ever get the green light?

According to FinCEN, as of March 2018, 411 banks and credit unions actively operate accounts for cannabis businesses, an increase of more than 20 percent since 2017. Unfortunately, those numbers dipped slightly since U.S. Attorney General Jeff Sessions announced his stance on revoking the Cole Memo.

In spite of the increase in the number of states legalizing recreational marijuana use, financial institutions servicing cannabis retailers, growers, and processors still run the risk of federal investigations for money laundering and other laws.

As for Green Banks in California, the marijuana industry will have to see what the next legislative session holds in store; however, while this particular piece of legislation will not wind up on the governor’s desk, this measure was one of a handful of proposals to address the banking crisis for the pot industry.

State Treasurer John Chiang formed a Cannabis Banking Working Group which published a report in 2017, “Banking Access Strategies for Cannabis-Related Businesses”. Based on their findings, Chiang argues that the best way to solve the cannabis banking problem is through a series of actionable steps.

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The first step would be to determine and implement a safer method of handling the payment of taxes and fees in cash, minimizing risks to stakeholders. Second, California and local governments should develop a database of compliance and regulatory data for financial institutions that provide banking services to cannabis businesses.

Additionally, Chiang’s workgroup recommends conducting a feasibility study of a public bank or a state-backed financial institution, such as the Bank of North Dakota, that provides banking services to the cannabis industry. The working group concludes that a multistate consortium of state government representatives and other stakeholders should be established to remove federal barriers to cannabis banking.

“In the end,” Chiang writes, “ it became apparent that a definitive solution to the cannabis banking quandary will remain elusive until the federal government removes cannabis from its official list of dangerous drugs or Congress approves safe harbor legislation protecting financial institutions that serve cannabis businesses from federal penalties.”

While SB 930 didn’t receive the green-light, it has at least brightened the spotlight on cannabis industry’s need for a reliable banking source.