A California bill that would create a separate category for banks and credit unions to handle cannabis cash moved through an Assembly committee Tuesday, inching closer to the governor’s desk after having already received the Senate’s stamp of approval.
Of the 19 members of the Assembly Business and Professions Committee, 12 voted to move the bill on to the Assembly Appropriations Committee
The bill would “bolt onto the existing structure of banks and credit unions a process whereby we can create a limited charter” for financial institutions to handle the cash produced by California’s legal cannabis industry, according to its author, Sen. Robert Hertzberg, D-Van Nuys. While California voters legalized cannabis statewide last year, because cannabis is still outlawed at the federal level, many banks and credit unions won’t deal with cannabis industry customers especially since much of the banking system is federally regulated and insured, he said.
Many companies have to resort to using cash, creating a public safety threat, according to Hertzberg. “Senator (Mike) McGuire informs me … there’s $2 billion buried in Northern California in barrels,” he said.
He acknowledged the measure is an “interim deal” until the federal government changes its rules on the status of cannabis and banks handling the proceeds.
And there is federal movement on the issue.
One U.S. Senate bill, the STATES (Strengthening the Tenth Amendment Through Entrusting States) Act, would allow states to determine the best approach to cannabis regulations within their borders without federal interference. It would also take cannabis off the federal controlled substance list.
The other, the Secure And Fair Enforcement Banking (SAFE) Act, is in the U.S. House of Representatives. It would open banking services to cannabis businesses in states where it is legal.
Hertzberg said his bill would create a “closed loop” in California. As an example, accounts would be backed by private insurers instead of the Federal Deposit Insurance Corp.
The model would also differ from the traditional interest-and-loan model of banks. Institutions operating under the new charter could not loan out cannabis money, and banks would instead directly charge fees for their services.
Hertzberg offered the idea as an alternative to “cockamamie” attempts last year to create a publicly owned bank for the cannabis industry. A feasibility report prepared by the Cannabis Banking Working Group said the idea would take too much time and money to execute.
Edward Franco of the California Cannabis Industry Association spoke at the hearing in support of the bill, highlighting a member company in Santa Rosa that was forced to transport up to $1 million each month in cash.
“They spent about a million annually in staffing and transport fees,” Franco said. “Not to mention fees related to cashier’s checks.”
Staff Writer Chase DiFeliciantonio covers technology, banking, law, accounting, and the cannabis industry. Reach him at firstname.lastname@example.org or 707-521-4257.