Although cannabis is legal in California, it remains illegal under federal law. This controversy hamstrings cannabis businesses, as they are unable to use the services of federally regulated banking institutions and must do business in cash, creating risks for them and everyone they do business with — including local governments. Most banks avoid doing business with the cannabis industry to avoid federal regulations and penalties tied to cannabis, although a few banks and credit unions have taken the risks associated with serving this market.
In California, some of that risk was mitigated by last year’s A.B. 1525 (Jones-Sawyer, D-Los Angeles), which provided a state-law haven for banks servicing cannabis businesses. Codified as California Business and Professions Code section 26260, the statute affirms that banks which serve cannabis businesses have not committed a crime under California law. As this statute indicates, California is one of the nation’s leaders in cannabis legislation, plowing fresh legal ground.
Now, after an earlier version stalled out in Congress in 2019, the Secure and Fair Enforcement (SAFE) Banking Act (H.R. 1996) is back. The SAFE Banking Act passed the House in April 2021 and is currently pending in the Senate Committee on Banking, Housing, and Urban Affairs. This bill would create a federal safe harbor for banks that service legal cannabis businesses. It states that proceeds of legitimate cannabis businesses are not proceeds of unlawful activity and are not at risk of seizure under anti-money-laundering laws.
What would the SAFE Banking Act mean for Californian cities and counties? As the costs and risk of cannabis commerce fall, local governments are likely to see an uptick in cannabis business activity. The impact on local small cannabis business will be significant. Right now, cannabis is primarily a cash-based business, but safer banking means that loans for expansion or better equipment, and other financial benefits would be more accessible.
Public health might also see a small improvement from the Act. Cash-based businesses cannot emphasize contact-free payments as other businesses do. The epidemic demonstrated the value of minimizing unnecessary contact, such as cash-handling, between those not of the same household. With the Act, more cannabis businesses can make the transition to no-contact forms of payment, decreasing risk of disease transmission.
Another benefit for local governments is in tax collection — passage of the Act would save local governments (and the State) the burdens of counting and securing large amounts of cash that also create a risk of opportunistic crime.
A minor decrease in air pollution and road congestion due to vehicles transporting cash from businesses to recipients might also result.
Without banking services, the cannabis industry cannot grow. Whether or not a city or county allows the sale of cannabis, the Act may be worthy of broad support among California’s local governments for the reasons noted above.
This is a developing story. As always, we’ll keep you posted!