On Tuesday, the California State Assembly’s Committee on Business and Professions approved a bill that seeks to establish limited charter banks and credit unions for cannabis-related businesses.
In its analysis of the measure, the Committee pointed to a survey conducted by the California Growers Association, which indicates that more than two-thirds of its membership is unbanked. The bill’s proponents, who underscore the cash-only nature of the business, maintain that it will streamline revenue collection and improve public safety.
With twelve out of nineteen Committee members in favor, the measure now makes its way to the Appropriations Committee. The bill, which is labeled urgent, will take effect immediately if signed into law.
Senator Bob Hertzberg (D- Van Nuys), who introduced the bill, opened his comments during the hearing by pointing to earlier attempts at alternative banking systems in California. When crafting his bill alongside State Treasurer Fiona Ma, he said, the goal was to “create an interim bridge that works within the system . . . that’s as conservative as possible and not too complex,” as opposed to “coming up with a cockamamie public bank idea, which would take forty years to get implemented and would never work.”
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If implemented, Hertzberg’s bill will allow for special purpose checks, the use of which would be limited to the cannabis industry, including fee and tax payments to local and state government agencies, as well as rent and compensation of vendors located in California. The bill also calls for the creation of an advisory board, comprised of the Treasurer, the Controller, and the Chief of the Bureau of Cannabis Control. According to the measure, the division will become inoperative if the federal government removes cannabis from its list of controlled substances or enacts legislation to protect institutions that provide financial services to cannabis-related businesses.
Representing State Treasurer Ma, Kasey O’Connor, who serves as legislative director at her office, said that “Unlike most businesses, cannabis businesses arrive to our government offices with duffel bags full of cash to fulfill their tax obligations.” As a result, O’Connor added, “Standard oversight and accountability measures, like audits, become very difficult for us.”
O’Connor also underscored the security risks posed by this “volume of cash.” The Treasurer’s office, she said, has documented cases of cannabis business owners being run off the roads and robbed at gunpoint. Such incidents, she added, are almost inevitable, “because everyone knows that this industry operates in cash, they know when they’re making their tax payments.”
In an effort to “heighten public safety and increase the tax collection,” she added, the Treasurer has been “very involved in trying to find a viable way to bank the cannabis industry.” Ultimately, Ma’s office deemed Senator Hertzberg’s bill “ a necessary, real solution to get the cash off the streets.”
During his comments, Hertzberg noted that even government employees involved in the collection of cannabis industry funds have taken to bulletproof glass and bodyguards to protect themselves, including calling on the California Highway Patrol to escort them when taking the money to the bank. His bill, Hertzberg acknowledged, would require charter banks and credit unions involved in the cannabis industry to pay hefty private insurance costs (since they cannot be insured by the Federal Deposit Insurance Corporation). “But it’s a heck of a lot less than security guards,” he said.
Hertzberg’s bill, which enjoys the support of cities and counties throughout the state—including Alameda, Sacramento, Los Angeles, and Santa Monica—is opposed by the Sheriff’s Office of Siskiyou County, a region on the northernmost edge, connected to Oregon.
Among industry leaders, Eaze Solutions, Inc. is a registered supporter of the measure. Though, while the company has noted that the current financial climate “leaves many cannabis businesses unable to operate in a normal business fashion using checks, credit cards, or electronic transfers,” Hertzberg’s bill would not enable charter banks or credit unions to offer common banking services.
“I believe, based on every instinct, every piece of political knowledge that I have that [Governor Gavin Newsom] will sign” the bipartisan bill, said Hertzberg. But he’s keeping his fingers crossed, he said, because “you never know.”
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