New York, the financial capital of the country, will soon launch a cannabis industry expected to generate billions of dollars in new economic activity. But there is still no guarantee, at the state or national level, of access to banking services.
In response to the tension created by federal prohibition as cannabis is legalized in states across the country, the Secure and Fair Enforcement (SAFE) Banking Act was reintroduced in Congress in March. The Act would provide both clarity and safe harbor to financial institutions that want to work directly with legal cannabis and cannabis-related businesses. The U.S. House first passed the Act in an historic vote in 2019, but the bill later stalled in the then-GOP-controlled Senate. And while the House has already passed the Act this year, it still faces a steep climb in the Senate.
One of two cannabis-and-banking-related bills introduced in New York this legislative session, during which Gov. Andrew Cuomo signed a cannabis legalization bill, is S 1055, which would have established a public bank in New York State. But with hours to go this legislative session and no traction for the bill, it’s all but dead. The other bill, S01762 (Assembly legislation A05782), picked up more sponsors, but also quickly fizzled this year.
A public bank would have provided opportunities to the soon-to-be launched state cannabis industry, including a path to financial equity, according to Senator James Sanders, sponsor of S 1055. Sanders represents parts of Queens, New York that include Jamaica, Rosedale, parts of Far Rockaway, and Richmond Hill.
“Even when people of color are equal, if not better positioned economically than their white counterparts, they’re just not getting the loans. And when they do, they’re at higher rates. And so these are some of the reasons that prompted me to say we need to think outside the box,” Sanders told Cannabis Wire. “The box is not working.”
Sanders said he is not “optimistic” about the passage of the SAFE Banking Act.
“This is the Empire State. This is the head of banking in New York and America. We need to have more than a pickup basketball game,” Sanders said. “We need to be serious about this, and public banking provides the most serious opportunity in the short term.”
Specifically, Sanders’ bill would have created a public bank that would have been able accept funds from any source, including “twenty percent of a cannabis revenue fund as part of the state’s social and economic equity plan.”
Further, “fifty percent of all public deposits made into the public bank shall prioritize lending in unbanked and underserved communities that have an income lower than eighty percent of the median income of the county in which the applicant resides, has a minority-owned or women-owned business or is a disadvantaged farmer.” (The italics are added; this is how New York’s adult use law defines an equity applicant.)
Senator Liz Krueger, one of two key sponsors of the Marijuana Regulation And Taxation Act (MRTA), which Cuomo signed in March, is also chair of the Senate Finance Committee. Krueger said that there simply isn’t “enough momentum” behind a public banking bill, adding that, “It’s a good idea who doesn’t have a mass lobbying effort behind it, but has a lot of opponents.”
“I think it’s always been a heavy lift to try to do a public banking bill in New York state, because we’re pretty much the base state of such a huge percentage of state regulated banks and nationally regulated banks. So I think banks define themselves, really, since [Alexander] Hamilton, as being a base business for New York,” Krueger said.
“They clearly don’t want a public bank that they would see as having the advantages of lower taxes and perhaps exemptions from some rules and regs they think they have to follow. And they have a very powerful lobbying base here.”
Krueger added that she hasn’t heard many complaints from the state’s existing medical cannabis industry regarding a lack of banking services, or from other state regulators and policymakers dealing with patchwork solutions in lieu of a shift in federal bank policy. So where does that leave the future of New York’s adult use cannabis industry?
“I think at the moment, we would face the same issues other states are wrestling with,” Krueger said. “I don’t hear that it’s an impossible situation.”
New York isn’t the first state to consider a public bank as a solution for its cannabis industry. Last year, California’s Assembly Bill 310 didn’t explicitly mention “cannabis” or “marijuana,” but the bill would have created the California Infrastructure and Economic Development Bank (I-Bank), a state bank that could have been utilized by members of the cannabis industry. Existing law would have allowed this state bank to engage in financial activities like making loans or issuing bonds, as Cannabis Wire reported at the time. The bill did not make it to Gov. Gavin Newsom’s desk, though he did sign a bill that aimed to provide state-level protections to banks working with the industry.
A 2018 Feasibility Study in California found that the creation of a cannabis public bank would be “too risky.” At a hearing at the state capitol, former California State Treasurer John Chiang, also then-chair of the Cannabis Banking Working Group (CBWG), presented the results of the study, which found that the “establishment of a public cannabis bank would pose too great of a legal and financial risk to the State of California.”
While the announcement about the findings “may not lay out the path some of us had hoped,” Chiang said during the hearing, “it did reinforce the inconvenient reality that a definitive solution will remain elusive until the federal government takes action — they must either remove cannabis from its official list of banned narcotics or approve safe harbor legislation that protects banks serving cannabis businesses from prosecution.”
California Treasurer Fiona Ma told Cannabis Wire in an interview last year that she has had conversations with public bank advocates, but emphasized the importance of a federal solution.
Ma told Cannabis Wire that in 2019 she joined treasurers in other states with cannabis laws to testify on the SAFE Banking Act, because “it is the will of the voters to legalize cannabis and make it mainstream.”
“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,” Ma told Cannabis Wire.
