A San Fernando Valley lawmaker has introduced legislation that would allow cannabis business owners to start a limited charter bank in California.
State Sen. Robert Hertzberg said such a financial institution will improve business operations for dispensaries and other suppliers to the industry as well as address public safety issues as the businesses won’t be handling large amounts of cash.
Hertzberg called his bill a simple solution to a problem that will only become worse now that recreational marijuana sales are legal in the state.
“The discussions have been around forming government banks and I think that is too difficult,” Hertzberg said. “Let’s rely on the rules that we have been developing for decades to make sure it works well and then grow it.”
The bill, SB 930, was introduced on Jan. 25. It won’t begin moving through the Senate until later this month.
Banks, even in states where marijuana is allowed, avoid dealing with legal pot businesses because the drug is classified by the federal government as a controlled substance, making its possession basically illegal. Banks that handle marijuana cash could face charges of money laundering.
Twenty-nine states plus the District of Columbia allow medical and adult recreational use of marijuana. So, California is not the only state grappling with the issue of lack of access to banking services. But as the largest market for cannabis in the country, whatever solution the state comes up with may be copied elsewhere.
Hertzberg’s idea is to permit limited charter banks specifically for the cannabis industry, thus relieving several stress factors the industry faces. For one, it allows the business to open a checking account and deposit money into it. Vendors, landlords and taxes could then be paid in a form other than cash. Checks written on the account could only be cashed at the issuing bank, Hertzberg said.
Additionally, a limited charter bank would allow the cannabis industry to purchase state bonds.
“The message is hire in California, invest in California and pay your taxes in California safely,” Hertzberg added.
But a limited charter bank taking in money from the sale of federally controlled drug has two problem areas that Hertzberg sees.
One is that a bank would need insurance but going through the Federal Deposit Insurance Corp., as a regular bank does, would not be an option. Fortunately, there are mechanisms in place to use private insurance carriers, such as some credit unions do, Hertzberg said.