A new law in California will provide safe harbor for banking institutions doing business with cannabis companies. It also makes it far easier to start this process—for both the bank and the business—than ever before.
Essentially, the law states that financial services and banking institutions are not acting criminally when engaging with a licensed cannabis business. By virtue of the license, that business is operating legally within the state of California. This clears up a fundamental issue that persists in the age of federal prohibition.
Read the full text of the bill below.
In order to get the ball rolling on a new financial relationship, California cannabis businesses may request that the state licensing authorities share information with the banking institution in question.
This has been one of the major sticking points for cannabis banking: the measure of transparency needed to conduct a financial relationship. Due to Financial Crimes Enforcement Network (FinCEN) guidelines issued in 2014, banking institutions are faced with onerous regulations that complicate access to a cannabis business’s license information. In short, it’s difficult to ascertain and prove whether a cannabis business is what its owners say it is, so banks have largely stayed on the sidelines of this issue.
The language in A.B. 1525 allows the state’s regulators to act as a referee, in a sense, that can help provide vital information to the banks right away.
In a year otherwise slammed by a global pandemic and raging wildfires across the state of California and elsewhere, cannabis banking hasn’t exactly achieved priority status. But with Gov. Gavin Newsom’s signature on Sept. 29, the bill became law.
“This bill has the potential to increase the provision of financial services to the legal cannabis industry, and for that reason, I support,” Newsom wrote in a signing message.
Ryan Bacchas, president of the California Cannabis Coalition said that business owners should begin carefully planning their banking goals. This is the time for proper, detailed accounting and transparency.
"One of the main things: Look into credit unions and banks or financial institutions that are based here in California or founded here in California and not necessarily branched out nationally," he said. Banks of all stripes are covered by the law; they won’t be penalized by the state of California for doing business in the cannabis space. But outside state borders, the IRS still looms large.
Even more to the point: Established California-based institutions are already on the ground. They can more easily grasp the cannabis landscape, which by any standard is unique.