State Bill 51 passed Senate vote on last Tuesday. After approval from California Gov. Gavin Newsom, the law will allow the formation of special state banks and credit unions. These pot banks will be legally able to provide banking services to marijuana businesses.
The passing of this bill is also considered a major landmark in the development of policies that protect cannabis business interests. It is seen as a positive step towards the creation of federal banking laws for pot retailers.
California-based Cannabis Attorney, Allison Margolin told Green Rush Daily she believes the Bill will be signed by Governor Newsom very soon.
”I think the Bill will make the industry even more valuable than it is now. Right now, landlords don’t want to rent to marijuana tenants because they’re not comfortable with the cash nature of their businesses.”
The All-Cash Problem
Legal cannabis has serious banking issues. Although the industry already crossed the $10B benchmark, only 30% of businesses operate with a bank account.
Since the plant is still illegal under federal legislation, most banks refuse to take in cannabis business because they risk trouble with federal law.
Some companies have managed to find temporary workarounds, like using cryptocurrencies to manage payments. Others turn to credit unions or small banks who are willing to risk federal punishment. But these workarounds don’t offer secure long-term solutions and often bring more problems than they solve.
As a result, most cannabis companies today are foced to deal in all-cash.
Having too much cash laying around doesn’t seem like something most people would call a problem. But cannabis companies are definitely not happy. Security is the main concern when all of your company’s earnings are kept and transported in the form of bank notes.
Businesses have to take special considerations and pay extra dollars for security procedures that have been solved ages ago, with the banking system.
Commonplace operations concerning payrolls, tax payments and other administrative procedures have to also be made in cash, deducting time and effort to small and big businesses alike. To top it all off, most retailers dealing with in-store customers (like dispensaries) cannot accept debit, credit cards or checks. This is a major obstacle in conducting regular business.
A Temporary Solution Until Federal Legalization
Democrat State Sen. Robert Hertzberg introduced the Bill last year and California State Senate voted yes on 35 to 1. “This measure is by no means the ultimate solution, but it’s just one small step in the right direction to get some of this money off the streets and into bank accounts,” Senator Hertzberg, who is also State Majority Leader, said.
The Bill will allow for the creation of special state-chartered banks. This banks will trade pot businesses’ cash into checks that will be used to pay taxes, California-based vendor fees and rent. However, cannabis businesses won’t be able to get loans from these banks or access other secondary services.
According to Republican Sen. Jeff Stone, the bill will solve a fiscal issue. According to him, the all-cash situation prevents retailers from properly paying their taxes on fear of getting robbed while transporting the amounts.
“This is as close as we can get until the federal government changes its policy,” said Sen. Bob Hertzberg, who called the current situation a “public safety issue”. Millions of dollars have to be buried and kept in locks at businesses and houses. This is also money that is kept asleep outside of the finance system, failing to contribute to the overall economy.
The Bill will create the Cannabis Limited Charter Banking and Credit Union Law that will be administered by the Department of Business Oversight. However, the Bill itself is set to make the law inoperative “if the federal government removes cannabis and cannabis-related substances from the federal schedule of controlled substances”.
According to Margolin’s experience working with legal marijuana in the Golden State, she expects these banks to be fully operational by 2021 or 2022. California-based cannabis businesses should still expect to deal in all-cash for at least two more years.
