There’s a lot of cash in cannabis. Literally.
Legal cannabis businesses often deal in problematic paper money due to hurdles securing lines of credit and loans. So long as cannabis remains federally illegal, many banks have opted to avoid the industry. Congressional bills aiming to provide banking solutions have stalled, but cannabis businesses in California and beyond have a vocal advocate on their side: California Treasurer Fiona Ma.
Ma has played a significant role in the push for banking services for the cannabis industry. In February 2019, she testified before the U.S. House Committee on Financial Services to try to persuade lawmakers to pass the SAFE Banking Act, which would allow banks and financial institutions to work with cannabis businesses without fear of federal pushback. In September of 2019, the SAFE Banking Act became the first standalone piece of cannabis legislation to pass in the House of Representatives. (Read Cannabis Wire’s resource page on cannabis and banking.)
This July, Ma and other state treasurers wrote a joint letter to leaders in Congress about the urgency of including language from the SAFE Banking Act as part of a larger COVID-19 relief package, known as the HEROES Act. The letter highlights a number of ways that COVID-19 affects state-licensed cannabis operators, including the public health concerns related to conducting curbside pickup using cash considering the potential of cash transactions for spreading COVID-19, and how the lack of access to federal relief funds for cannabis businesses also affects non-cannabis businesses and workers that rely on the cannabis industry. Republicans who control the Senate have publicly opposed this inclusion.
California has the largest legal cannabis market in the country. The state has struggled for years to find a way for cannabis entities to legitimately manage their finances. A feasibility study report on a “state-backed financial institution serving the cannabis industry,” commissioned by then-State Treasurer John Chiang’s office in 2018, emphasized that dealing in cash makes cannabis businesses and their employees targets of violent crime, and puts a strain on state and local agencies that must collect taxes and fees from them. Both Ma’s congressional testimony and the report cited “duffel bags” of cash that cannabis operators would bring to state offices for tax collection, and the lengths these employees go to travel with so much paper money.
In 2018, California lawmakers introduced a bill that would provide a temporary banking infrastructure for licensed cannabis businesses. It was later pulled by its sponsor, Sen. Bob Hertzberg, as Cannabis Wire previously reported. This year, one bill, AB 1525, seeks to protect financial institutions in California from facing legal consequences if they choose to provide services to cannabis businesses, while another bill, AB 310, seeks to set up a state bank that could end up helping the cannabis industry, even though it does not explicitly mention cannabis. Both bills have been slowed by COVID-19, and the legislative session ends this month. (Governor Gavin Newsom has until September 30 to sign bills that make it to his desk).
Cannabis Wire spoke with Ma about what COVID-19 has meant for the California cannabis industry, her efforts to push safe banking legislation forward, obstacles to state banking, and what real social equity would look like for small cannabis business owners in the state. (This interview has been lightly edited for clarity.)
Cannabis Wire: From the perspective of the state Treasury Department, what would you say are the most significant hurdles for California’s cannabis business owners right now?
Fiona Ma: Well, because of the COVID-19 pandemic, parts of government have either slowed down or workers are working remotely, so all of the permitting processes have slowed down significantly. One of our big initiatives was to streamline—there’s about five different agencies that a cannabis client has to go through, depending, and so the governor will streamline all of those processes under one agency instead of having people go through five different agencies that aren’t always talking to each other. So, that has been put on hold till next year. That’s definitely one of our major barriers, is the amount of bureaucracy and red tape it takes even at the state level. In California, you cannot get a state permit without getting your local permit. Now, in California, some of the governments, the local governments, completely shut down, like not doing business, not open to the public, not answering their phones. So, folks who are waiting for a local permit in one of those jurisdictions, they’ve just been put on hold. That’s one thing.
The good news is that cannabis is considered an essential business in California. So, since March 16 and the governor’s stay at home order, cannabis businesses have been able to stay open, which has been a godsend, I think, for the industry.
Cannabis Wire: There was the letter that you and other state treasurers sent to Congressional leaders, and you wrote about the urgency of passing safe banking legislation. Can you characterize the conversation surrounding the letter when you were crafting it, and also how it was received?
Fiona Ma: I went and testified on the SAFE Banking Act, the first hearing in Congress, back in February of 2019. That was the first-ever hearing that the cannabis industry has had in all of Congress. I was there with about eight other individuals testifying before [U.S. Representative] Maxine Waters’ subcommittee. It was a very positive first step in having the bill heard. And since then, [Colorado Representative Ed] Perlmutter has been very dogged and pushy—in a good way—to try to get it through at least the House of Representatives.
And there was finally a vote, and it was an overwhelmingly positive vote, with some Republicans that joined, so he was feeling really good about the momentum. And then, of course, we’ve been waiting to have a meeting or hearing at the Senate level, and that still hasn’t happened. And then the pandemic happened. So that’s what’s been happening. And of course, you know, we’re Democratic treasurers representing states where medical and adult use have passed. So for us, it is the will of the voters to legalize cannabis and make it mainstream. So those are the treasurers that signed on.
For a number of reasons, the SAFE Banking Act is a priority. Obviously, the lack of banking access is making it really difficult for not only the industry but also for our taxing agencies. It’s still very hard for our auditors to even ascertain whether people are paying the right amount of cash. And we’re depending on folks to be honest. The honesty system is what we’re depending on right now.
Also, when we had the Black Lives Matter protests, there were people that were specifically targeting our cannabis dispensaries. And they were able to get the list because it was a public list [of legal cannabis companies operating in CA], so I think the state has taken that list down to protect the dispensary owners. I went to visit one in San Francisco, and they broke in twice to his place, and he’s preparing for the next one. So he’s renovating his building to put more rails and metal guards, gates, boosting up his security system and everything, preparing for the next one. So this is very real to the industry. I can’t tell you how many of them were hit, but I’ve been on calls and they’re like, ‘Oh, yeah, they attacked us or robbed us and looted us and broke in.’
Cannabis Wire: With all those issues in mind, do you have an idea of how the letter was received?
Fiona Ma: It was to Nancy Pelosi, the Speaker, and it’s already passed overwhelmingly in the House. We just wanted to make sure that she kept it in the HEROES Act. And as the House is negotiating with the Senate right now, we just really wanted to make sure that this was top of mind for her, that it was important for the state treasurers to be able to better track, and also collect revenues from, the cannabis industry, and we can’t do that without banking access. So that was really the main message for that letter.
Cannabis Wire: Why have so many of these efforts stalled at the federal level?
Fiona Ma: Because of the US Senate. The chair of the banking committee, and the vice chair, they don’t like cannabis. They come from states that have not passed cannabis legalization, so they’re still just living in the past.
Cannabis Wire: Then we have AB 1525. Do you think this bill will pass this legislative session? If so, what could the implications be for California’s cannabis industry, both short and long term?
Fiona Ma: I don’t think that bill is moving through the legislature, because of its shortened time frame. Also, two members tested positive for COVID-19. So they adjourned and kept members out longer than they were expected. They are just back, and I understand that the legislative leaders on both sides have asked all members just to put up their number one priority bill, and it has to be related to COVID-19. I don’t think that cannabis bill is moving. Otherwise, I would have known about it, I would have testified, I would have sent a support letter. I just don’t think that bill is moving.
Cannabis Wire: Some states, especially California, are really taking it upon themselves to find solutions to these problems. What are some of the conversations you’ve had with other treasurers, regulators, and lawmakers about the idea of a state bank?
Fiona Ma: I’ve been talking with public bank advocates. Last year, Governor [Gavin] Newsom signed a bill [AB 857] that would allow cities or municipalities to explore, and open, if they wanted, their own public bank. So the public bank advocates saw an opening here, because of so many folks who are unbanked, to gut and amend the bill here in the legislature. We’re not sure whether it’s going to be heard or not, and that’s AB 310 by [Assemblymember Miguel] Santiago to basically create a state bank.
At the treasurer’s office, with my predecessor, there were about 14 of us on the cannabis banking work group. We had about an 18 month timeline. We had hearings, we had probably 500 speakers come through, and we had a consultant write a final report that said that creating and standing up a bank, number one, is going to take time. Number two, it’s going to take a lot of resources to ensure and collateralize whatever the loan packages are going to be. Now, this bill is not really going to stand up a consumer depository institution like we know of, like Bank of America or a credit union. The advocates really want to create a bank to support and make available funds for those that are hardest to bank, those that don’t have credit, those that don’t have access to, for example, the PPP [Paycheck Protection Program] or the EIDL [Economic Injury Disaster Loan] loans right now. And presumably, it would also apply to the cannabis industry, even though they did not specifically say that in the bill. But the cannabis industry is one of those industries that faces the same problem as many of the underserved, underbanked, low income community members.
Cannabis Wire: With the proposals that have to do with banking and cannabis, both on a state and federal level, how do they further social equity?
Fiona Ma: That’s the problem. So we have established a social equity program to try to get those that have been most marginalized in the past, maybe arrested or jailed for cannabis, to be able to enter into this industry and basically not have their record held against them. However, when you are talking about a system that is not fair and open, especially in the banking system, well, who has access to banks and loans? And investors? It’s not the poor people, who have been to jail. The people who are able to sustain are those who have been doing this for a long time, have saved up a lot of money, who have access to people who are in the banks because of their past credit, or their investors, and I have found that investors tend to stick together from project to project, and those are the people that are able to make it. But the smaller, more marginalized social equity applicants just can’t make it without some sort of assistance. And so we’re not seeing a very robust social equity program in California as Prop 64 [the adult use ballot initiative passed in 2016] intended.
Cannabis Wire: What are ways that these kinds of programs can be more sustainable and actually have some teeth in the future?
Fiona Ma: One, you need to have access to capital. So, if these folks are trying to start a business, starting a business means having to go and get a property. And you have to put a deposit down. You have to set up all of the utilities because [cannabis businesses] can use a lot of water and electricity. All of this costs money. Social equity applicants don’t have a lot of savings. So they’re going to really depend on some sort of small business loan as starting capital, and it’s not available to them.
Cannabis Wire: Is there anything else that you’re looking toward in the short term in California?
Fiona Ma: The November 3rd election. We need to take back seats in the Senate. And if we’re able to do that, then I’m confident that we will be able to pass some banking access legislation. So that’s what I’m looking forward to, November 3rd.
