A Step Away From the Cash Carrying Days for Cannabis Businesses

As of February 1, 2021, licensed cannabis businesses in California gained another avenue, albeit narrow, to secure financial services.

Safe Harbor for Financial Services

Prior to AB 1525, California banks and other financial institutions faced penalties for transacting with cannabis businesses. On September 29, 2020, Governor Newsom of California signed into law AB 1525 (now California Business and Profession Codes § 26260), creating a safe harbor for financial institutions, armored car services, and accountants (Financial Businesses), which provide financial services to cannabis businesses that are legal under state law.

On February 1, 2021, California’s Office of Administrative Law approved emergency regulations on information sharing with financial institutions, consistent across the Bureau of Cannabis Control, the California Department of Food and Agriculture, and the California Department of Public Health. Now Financial Businesses can provide their services to licensed cannabis businesses without penalty under California law. Cannabis businesses and financial institutions may request that state or local licensing authorities share the cannabis businesses’ license and other pertinent financial information, to facilitate the provision of financial services. The licensee authorization for release of information form and financial institution request form is used by all three state cannabis licensing authorities to streamline information sharing.

Cash Carrying Fears

In a predominantly cash industry, cannabis entities face a high risk of burglary, theft, and fraud. There are myriad stories in this regard, from break-ins at distribution centers to robberies at dispensaries. For instance, in Oakland, on this past election night, multiple cannabis businesses were the target of a caravan of armed robbers in Oakland, due to the perfect storm created by the intense national election and the cash nature of the cannabis businesses. With the advent of legal cannabis banking, the perception of cannabis businesses being cash-heavy will hopefully shift and a reduction in crime will follow.

What Now?

Even after the enactment of AB 1525, relatively few banks and credit unions are open to cannabis clients in California. California financial institutions’ hesitance is mirrored nationwide, with only 515 banks and 169 credit unions known to provide banking services to cannabis-related businesses.

However, with this information-sharing framework, cannabis businesses should have an easier path in seeking and retaining financial services. The safe harbor in AB 1525 brings transparency and stability to the cannabis industry just when the industry is catching its stride. As a result, California cannabis businesses have a new capacity to grow their businesses and solidify their place in the (legal) state economy.

Broader legalization efforts at the national level are gaining traction, too. Cannabis reform seems more likely than ever, both with respect to national cannabis legalization via the recently introduced MORE Act, and the Safe and Fair Enforcement (SAFE) Banking Act, reintroduced in the House of Representatives on March 18, 2021. The SAFE Banking Act would provide a federal safe harbor for national financial institutions and insurance companies. Senators Merkley and Daines are planning to introduce similar legislation in the Senate. Per Rep. Perlmutter, a co-sponsor of the SAFE Banking Act, as of January 2021, the legal cannabis industry supports 321,000 jobs across the country, fueling the momentum for the passage of the Act.

Takeaways

Through the enactment of AB 1525, California removed a major roadblock to safe, legal banking options available to cannabis-related businesses. Federal law is poised to follow, but until there is clear black letter law at the national level authorizing cannabis banking, which seems unlikely so long as cannabis remains a scheduled substance, national financial institutions will likely remain on the sidelines.