California cannabis operators again await outcome of SAFE Banking Act
Cannabis company operators hope federal legislation will finally allow them to do business with banks — and stem a counterculture label the $50 billion legal industry finds hard to shake.
The Secure and Fair Enforcement Banking Act making its way through Congress is intended to allow cannabis businesses to open bank accounts even though their product, while legal in California, is outlawed by the federal government. The dilemma has posed both safety and tax issues, which are seen by a collective of bipartisan lawmakers as unfair and unwarranted.
Cotati-based Mercy Wellness, for one, would welcome the SAFE Banking Act.
CEO Brandon Levine called the legislation introduced by Sen. Jeff Merkley, D-Oregon, on April 26 “a step in the right direction” and “the gateway to opening up traditional banking, funding and eventually tax reform” for cannabis operators.
“Over the past 13 years of Mercy being in business, we have been hit with every hurdle you could imagine, including two (Internal Revenue Service) 280e audits, and (we’re) adapting to ever-changing regulations,” Levine said. The 280e audit refers to a provision of the IRS code that prohibits tax deductions for illegal businesses.
Merkley has brought forward new versions of the legislation to make it easier for the traditionally cash-only industry to have bank accounts. The legislation protects banks from being penalized by federal regulators. In turn, the banks won’t penalize the businesses or charge exorbitant fees.
There’s also the safety of workers handling bags of cash to consider. Some have been the targets of robbery and money laundering schemes.
Merkley started this quest in May 2017 with the initial bill that failed, along with subsequent versions. For every congressional session’s version in between, the House of Representatives would pass it, only to have it die in the Senate.
Political and industry insiders say this just might be the one that gets approved.
“We are full steam ahead with the opportunity to get this bill passed in the Senate,” Merkley said.
“It’s not going to be easy, but with diligence and keeping our eye on the finish line, I’m confident and committed to making 2023 the year a bill that ensures all legal cannabis businesses have access to the financial services they need.”
“Cannabis is the fifth-largest cash crop in our state, and not having access to financial services is a serious missed economic opportunity,” said Rep. Mike Thompson, D-St. Helena.
The potential chain reaction
Beyond the safety and convenience issue, a bigger benefit of the SAFE Banking Act may revolve around eliminating the illicit pot market, which appears to be thriving in an all-out competitive war with the legal market.
Currently, 37 states allow for medicinal cannabis, while 21 are collecting taxes on adult recreational use. But that doesn’t mean all the local governments within the state’s and counties’ boundaries enable the businesses to operate. Only about one-third of these city and county jurisdictions in California provide sanctuary for companies to conduct cannabis sales.
In the North Bay, Sonoma and Mendocino counties have legalized cannabis distribution throughout the supply chain — with Santa Rosa listed as an early adopter at its infancy. Napa County has resisted a blanket adoption for legalization. But its county seat, Napa, allows for medicinal dispensaries.
The Perfect Union chain of dispensaries has operated a dispensary in northern Napa over the last few years — but the Sacramento-based company’s wish list doesn’t end there.
“We’re a big advocate for Safe banking, so we’ll be able to bank with any bank,” Director of Government Affairs Angelica Sanchez said, adding that gaining business tax deductions would be a nice bonus for an industry long considered overtaxed. “Then, I think a lot of the local jurisdictions will allow for it legally. Right now, they’re hesitant because it’s not recognized legally.”
The Napa Valley Cannabis Association Board President Stephanie Honig wants to do something about that. A winemaker by trade, Honig hopes this is the year when federal lawmakers assist the industry in finding a safe haven to bank like other businesses. Then perhaps, more local governments will be open to the idea of cashing in on its potential through a local tax structure.
“People are smoking it and using it anyway. If (local governments are) against crime, if they’re against chemicals in the soil, then they should be for legalization and legitimizing it,” she said. Otherwise, the illicit market will continue to thrive, she surmised.