California’s New Banking Bill Does Little To Help The Cannabis Industry

Last week, California Governor Gavin Newsom (D) signed a handful of cannabis-related bills into law. Among the biggest changes are updates to the state’s banking laws, and while overall positive, the potential of AB 1525 is severely limited.

As anyone in the industry already knows, cannabis professionals have long struggled to gain access to banking and other financial services for their businesses. AB (Assembly Bill) 1525, signed last Tuesday by Gov. Newsom, removes any penalties previously imposed on banks for working with legal cannabis companies.

In his signing statement on the banking bill, Newsom directed state cannabis regulators to establish rules meant to protect the privacy of marijuana businesses that seek financial services, urging that data be kept confidential and is used only “for the provision of financial services to support licensees.”

“This bill has the potential to increase the provisions of financial services to the legal cannabis industry,” Newsom wrote in a signing statement, “and for that reason, I support it.”

Very Little Help

Newsom isn’t not wrong, this bill definitely has that potential, but it remains only that until cannabis becomes legal at the federal level. Regardless of state laws, banks, which are federal entities, have been hesitant to work with cannabis clients because the plant’s Schedule 1 status.

For reference, a Schedule 1 narcotic is categorized that way because there is a “high risk of abuse and no recognized medical value.” Despite the decades of research in other countries or the fact that medical cannabis is accepted in 33 states already. It’s also worth mentioning Cocaine, which has some anesthetic properties but is known for its high propensity for abuse, is categorized as Schedule II. Alcohol and tobacco aren’t scheduled at all. Yes, it’s the ultimate hypocrisy.

But regardless of our opinions on the subject, the takeaway here is that, with cannabis being a Schedule 1 narcotic, exchanging money for a cannabis business put banks at risk of getting charged with federal money laundering.  

“Until cannabis itself is taken off the dangerous substances list, and the DEA is no longer willing to seek forfeitures for anybody dealing with this substance, the majority of banks are still going to stay away” says Chris Garcia, buyer for Berkeley dispensary Hi Fidelity.  

The Cole Memorandum

In 2013, the Cole Memorandum was issued U.S. Deputy General James Cole. This was to deprioritize the enforcement of these types of laws against state-licensed and completely legal cannabis businesses. In 2014, The Financial Crimes Enforcement Network (FinCEN), a bureau of the Department of the Treasury, issued guidance on how banks could work with cannabis businesses. 

However, in 2018 then-Attorney General Jeff Sessions, a known opposer of any type of cannabis reform, revoked the Cole Memorandum. Although FinCEN state that the established cannabis industry guidelines will remain in effect, most banks are aware of and uncomfortable working in that financial grey area.

Final Thoughts

The cannabis companies that do choose to operate within it have to submit extensive reporting and pay astronomical fees, and even then, most financial institutions will only work with large, well-established companies. According to Tom DiGiovanni, CFO at Harborside Collective, there are roughly 60 U.S. finance companies that actively work with the cannabis industry.

FinCEN reports that as of September 2019, 563 banks and 160 credit unions provided some form of banking services to marijuana-related businesses; although how much service they are willing to provide is incredibly variable.