California is done waiting on the federal government. As the federal Secure and Fair Enforcement Banking Act (“SAFE Banking Act”) remains stymied in the U.S. Senate, California is proceeding with its own banking reform. Specifically, the California Senate recently passed Senate Bill 51 (the “Cannabis Limited Charter Banking and Credit Union Law”), which would allow private banks and credit unions to apply for charters that would explicitly permit them to handle cannabis transactions. Senate Bill 51 will now go to the California House and, if successful there, to Governor Gavin Newsome, a supporter of cannabis legalization.
California’s goal is necessarily limited. Even if California authorizes banks to serve the cannabis industry, most, if not all, national and multi-state banks will remain on the sidelines. Those entities have proven unwilling to enter the cannabis market as long as marijuana remains illegal at the federal level. But the law will encourage California-chartered banks and credit unions to enter the market, and that alone could go a long way to mitigate one of the most problematic issues for the industry: the use of cash for nearly all transactions. The use of cash is a serious public safety concern, as it makes cannabis businesses and their employees targets for violent crime. It also is inefficient from both a business and tax-collection perspective. Allowing cannabis companies to access even the most basic financial services provided by the state-chartered banks and credit unions would be a significant boost for the industry, even without some of the more sophisticated financial services provided by national banks.
The prospects for Senate Bill 51 are not certain in the California House. A nearly identical bill died in that chamber last year. Yet with a massive marijuana market and little movement at the federal level, California lawmakers will continue to feel pressure to do something to ease the burdens on cannabis companies. Senate Bill 51 would be a notable step in that direction.