California voters — probably the least receptive in the nation to policy edicts from the Donald Trump administration — got an unusual and unexpected bit of good news last week, when the president announced that he “probably will end up supporting” legislation to let states set their own cannabis policy. We’ll take it, but we’re not holding our breath. There’s probably no greater hindrance to a successful legal cannabis marketplace in California than long-held resistance from the federal government.
To that end, we have introduced state Senate Bill 930, which works around the barriers the federal government has erected by allowing state-chartered banks and financial institutions to provide services to cannabis businesses.
Los Angeles is the largest cannabis market in the state, with Mayor Eric Garcetti estimating it would bring in $30 million in tax revenue for the city. Yet because of the continued struggle for financial certainty, businesses that want to enter the market are unable to pay taxes. This means that L.A. can’t collect revenue that could go toward funding public health services and law enforcement.
As a result of this banking freeze, cannabis businesses are forced to deal in all cash, causing logistical nightmares when paying taxes and transferring money. Imagine carrying a duffel bag full of cash to the nearest bank or government finance office because you have no access to electronic payment methods. Unfortunately, this is a reality for many cannabis businesses, creating an atmosphere conducive to violence against owners, their employees and the offices accepting the money.
This unnecessary danger stems from the inability of the industry to secure traditional means of payment and monetary security, pushing many legitimate businesses to circumvent the system altogether. Cannabis banking is thus in the interest of the public; rather than relegate new and potential entrepreneurs to the unregulated, untaxed illegal marketplace, we must find ways to expand access to financial services. Creating state-run banking institutions helps solidify the promise of Proposition 64, which California voters supported wholeheartedly at the ballot box.
Our bill works because it focuses on California-chartered banks, which — unlike federally-chartered banks — can operate under a closed-loop system with private deposit insurance. Once in place, these banks will allow cannabis businesses to finally be able to take advantage of modern technology through fintech and secure transactions, rather than passing around actual cash.
Providing secure transaction methods for facilitating large payments is a simple first step to creating a functioning legal cannabis marketplace in California. State-chartered banks will enable much-needed access to the financial infrastructure necessary to run a modern business. Further, establishing transparent banking guidelines may nudge existing (and hesitant) banks in the right direction, allowing cannabis enterprises to begin navigating the complicated compliance processes.
Almost two years after Proposition 64’s passage, our state’s homegrown $8-20 billion industry is still operating mostly in cash, with a majority of operators not paying taxes. Let us finally bring the economic future that California voters approved to fruition. Not only will cannabis banking help business owners adjust to this new regulated market, it will substantially help bring marijuana out of the shadows and improve public safety. While a great deal of work remains to be done in California to respect the will of voters by expanding safe and legal access through local government licensing, this bill is a big step in the right direction to address the public safety challenges associated with a multi-billion dollar industry operating all in cash. That was a core goal — and purpose — of Prop. 64, and Senate Bill 930 will help make that a reality.