The senate in California passed a bill on Tuesday (April 21) paving the way for the creation of state-chartered banks for the cannabis industry. These banks will help the cannabis industry to get around the banking restrictions resulting from the federal status of marijuana.
Under the bill, credit unions and private banks can apply to the state for a limited purpose charter to provide depository services to legitimate marijuana businesses within the state. This bill was passed with a 35-1 vote and now awaits approval by the Assembly and Gov. Gavin Newsom.
Currently, all marijuana businesses, such as cultivators and retailers, are forced to accept only cash because federally-chartered banks are afraid to accept them as clients. California will therefore exert pressure on the federal government to consider easing its marijuana banking regulations since California is the most populous state in the nation.
Robert Hertzberg, California’s Senate Majority Leader, remarked when introducing the bill last month that while the proposed law wasn’t an ideal remedy to the dilemma facing cannabis banking, it was a good step to take along the journey of treating cannabis businesses as legitimate businesses like all others. The bill would allow money from the cannabis industry to be taken from the streets to bank accounts.
The financial institutions which get the special-purpose charters would print special checks that marijuana businesses can use to pay rent, local and state taxes as well as any other fees. The financial institutions created to work with cannabis businesses will not offer any loans to their clients, so marijuana businesses will still have to get funding using other methods.
The lack of banking services has made it very difficult for regulators and law enforcement to stamp out illegal marijuana businesses since both legitimate and black market activity is cash-based.
It isn’t clear whether financial institutions will warm up to cannabis businesses once this bill becomes law. Banking institutions are wary of working with cannabis businesses because they are exposed to enforcement action by the federal government, so it is not yet clear whether this proposed law will allay their fears.
Currently, more than 30 states have legalized medical marijuana while 10 states, plus the District of Columbia, have legalized recreational cannabis. More are considering bills or petitions to pass their own marijuana laws. The step taken by California will therefore be watched closely since other jurisdictions may follow its lead if the measure produces tangible results.
Organigram Holdings Inc. (TSX.V: OGI) (OTCQX: OGRMF) and Net Element Inc. (NASDAQ: NETE) look forward to the enactment of SB 51 so that cannabis businesses in California can access the limited banking services envisaged in that draft law.
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