Proposition 64 approving production, distribution, sale, and possession of adult recreational cannabis—passed by California voters in November 2016— ushers in a new era in the state.
When the measure takes effect January 1, 2018, adult recreational use of cannabis will join medical use as a legal practice in California. But a shadow hangs over Proposition 64. Cannabis possession and sale remain federal crimes, a conflict that threatens to frustrate the will of California voters.
One of the consequences of the clash between state and federal law is that California’s legal cannabis businesses are largely locked out of the banking system. Because cannabis is still illegal under federal law, an overwhelming majority of financial institutions do not serve the cannabis industry. As a result, cannabis businesses are generally unable to write checks, make and receive electronic payments, or accept credit and debit cards.
The cannabis industry operates chiefly in cash, just as it did when it was in the illegal market. The lack of access to banking services is not just a California problem—it is a major concern in each of the 29 states and the District of Columbia that have broadly legalized medical use, or both medical and adult recreational use, of cannabis The cannabis industry’s inability to get basic banking services is an urgent public policy issue requiring concerted action by state and local governments, the cannabis industry, and financial institutions.
Ensuring cannabis industry access to banking services is in the public interest for three reasons:
• Large amounts of cash make cannabis businesses, their employees, and their customers targets of violent crime.
• State and local government agencies that collect tax and fee payments in cash from the cannabis industry incur added expenses, demands on staff time, and risks to employee safety.
• Normal access to banking services is an essential part of taking the cannabis industry out of the shadows and establishing it as a transparent, regulated, tax-paying part of the California economy. Banking relationships can help law enforcement officials and regulators distinguish legal cannabis businesses from illegal market operators.
To address the problem of cannabis industry access to banking services, State Treasurer John Chiang convened the Cannabis Banking Working Group (CBWG), composed of representatives of state and local government, and the cannabis and financial services industries. The group held six public meetings throughout California between December 2016 and August 2017, and heard from nearly 50 panelists. Based on the facts gathered by the CBWG, the State Treasurer’s Office believes the best way to approach the problem of cannabis and banking is to think in terms of a series of steps, each of which involves greater access to banking services.
The starting point is the current situation, in which the cannabis industry operates predominantly in cash, with only sporadic banking access. The end point is federal legalization of cannabis or, if that is not achievable, legislation shielding financial institutions that serve the cannabis industry. Federal reform would let cannabis businesses open accounts, make deposits, and handle payments normally, like other regulated businesses. Strategies short of federal reform are not solutions. Rather, they are stopgap measures to protect public safety, improve revenue collection, and help establish a regulated cannabis industry until federal law is changed. shielding financial institutions that serve the cannabis industry.
Source: State of California
