California would license special banks to handle billions of dollars generated by the legal marijuana market under legislation buoyed by recent comments from the Trump administration and given initial approval by state lawmakers Wednesday.
The measure gained momentum just days after President Trump indicated that his administration would not crack down on recreational marijuana in states that have voted to make it legal. Selling and growing marijuana for recreational use was legalized by California voters under a state licensing system that began Jan. 1.
Sen. Bob Hertzberg (D-Van Nuys), who introduced the bill, said the president’s policy shift makes it more likely that state-chartered banks would be used by the burgeoning cannabis market, which is projected to grow to $7 billion annually by 2020 in California.
“I’ve spoken to these companies about the problems their businesses face, and until last week, many were under constant threat of getting busted by the feds,” Hertzberg said. “If the risk of federal intervention is eliminated, cannabis businesses will feel more confident about opening an account with our limited state charter.”
The banking industry is federally regulated, and financial institutions have so far been reluctant to handle money from the sale of marijuana because it remains an illegal drug under federal law.
The bill, SB 930, which was recommended Wednesday by the Senate Banking and Financial Institutions Committee, would create a new, limited-purpose state charter for privately financed banks under a program that would be overseen by the state Department of Business Oversight.
The measure would allow cannabis firms to deposit money in state-licensed banks, which would issue checks to the businesses for use in paying rent and state and local taxes and fees, as well as for paying vendors for goods and services provided to their businesses. The pot firms could also buy state and local bonds.
State officials estimate they will collect $600 million in cannabis taxes in the upcoming year, raising a public safety issue, including the possibility of robberies, as business owners carry duffel bags stuffed with cash to state offices. The use of cash also makes it hard for the state to account for and audit transactions, Hertzberg said.
“The question becomes, ‘With that amount of cash, what do you do?’ — because you can’t deposit in a bank,” Hertzberg said during a legislative hearing Wednesday. “We are faced with a significant public safety challenge.”
The measure was also backed by Lindsay Robinson, executive director of the California Cannabis Industry Assn. One member of Robinson’s group has an $800,000 tax bill due next month and plans to pay it in cash, she told lawmakers.
“The threat of violence and theft is extremely real for our members,” Robinson said.
The legislation, which is supported by the Los Angeles City Council, would also allow banks to be privately insured in lieu of insurance provided to federally chartered banks by the Federal Deposit Insurance Corp.
Hertzberg has proposed an advisory board that includes the state treasurer, controller and chief of the state Bureau of Cannabis Control.
The measure is one of a handful of proposals to address the lack of banking services for the pot industry, which has been left with security problems as it holds and transports large sums of cash to pay vendors and state taxes.
State Treasurer John Chiang has launched a study to look at the possibility of creating a state bank to serve the cannabis industry, while Gov. Jerry Brown’s administration has been talking to banks about setting up a network of financial institutions that would guarantee federal banking regulators that the money is subjected to special tracking, oversight and transparency.
All of the proposals had been put under a cloud by recent threats from U.S. Atty. Gen. Jeff Sessions that his office would begin enforcing federal laws against marijuana in states where voters had acted to make it legal.
But last week, Trump personally directed a retreat from that position after discussions with Republican Sen. Cory Gardner of Colorado, a state that has also legalized cannabis.
Gardner had been angered by Sessions’ shift to a more aggressive posture and had held up Justice Department nominees in retaliation, but he agreed to unblock the confirmation process after Trump relented on the policy.
Still, the California Bankers Assn. has been skeptical of any state solution and has said changes in federal law reclassifying marijuana might be needed to alleviate concerns about banks handling money from cannabis businesses.