Cannabis Banking California Insight

The California cannabis industry has not come this far without feeling some growing pains. But, besides state law overregulating this industry, even a business operating with California law in mind has a serious obstacle to overcome.

Of course, we’re talking about the banking situation.

The Cannabis Industry Banking Dilemma

The financial relationship between cannabis operations and the finance industry has been strained. Due to the legal implications put in place at the federal level, banks and credit unions have not been able to provide safe harbor for these operations.

But as legal cannabis has expanded, more banks and credit unions have begun providing services that aim to enhance legal business in this industry. Even without the full support of President Joe Biden, California law has become more progressive for the legal cannabis space.

In this article, we discuss how California state laws regarding the financial industry have changed. While a business operating in cannabis used to have to operate on a cash basis, we see California opening the industry with its bill, the SAFE Act.

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cannabis banking california insight

Banking Options for Cannabis Businesses

Recently, the House approved a cannabis banking bill that has the potential to expand California’s cannabis industry. This legislation lets banks provide financial services to cannabis businesses in states that have already legalized cannabis.

The bill clarifies that the money earned by legitimate cannabis businesses is not illegal, directing federal regulators to create rules regarding how they will supervise cannabis banking activity.

Historically speaking, many banks have refused to work with cannabis companies. It’s even been a challenge to find a credit union willing to work with cannabis!

These financial institutions justifiably feared they could violate federal laws by working with cannabis operators, despite the existence of the legal cannabis industry.

With this being the case, few options – besides operating on a cash basis – were available for cannabis companies. Only a few financial institutions were willing to offer banking services, which meant many had to conduct business in cash.

What is the Safe Banking Act 2021?

The SAFE Banking Act of 2021 was a bill that the American Bankers Association lobbied aggressively to pass. This group wrote the following to lawmakers:

“Banks find themselves in a difficult situation due to the conflict between state and federal law, with local communities encouraging them to bank cannabis businesses and federal law prohibiting it. Congress must act to resolve this conflict.”

Through the SAFE Banking Act, the cannabis industry obtains access to banking services and other financial services. Financial institutions no longer have to fear that they’ll get penalized for providing these banking services to legitimate cannabis businesses.

Now that the SAFE Banking Act has passed, California cannabis businesses have more options for financial services than ever before. Rather than being limited to a handful of financial institutions and credit unions, those operating in the state’s cannabis industry have more accessible options in the banking industry.

California cannabis industry association on banking

California Cannabis Industry Association on Banking

Giving businesses the ability to access loans and other banking services is essential for any company. But for a cannabis business operator, these services have been hard to come by.

Due to the Controlled Substances Act that the federal government put in place, state financial institutions and credit unions have been hesitant to take on cannabis clients.

Handling marijuana-linked money is scary for other financial institutions, including many California banks. But despite many banking institutions refusing to work with adult-use and medical cannabis business operators, California law has enabled more access to banking services for the marijuana industry.

CCIA Partnership with North Bay Credit Union

The California Cannabis Industry Association has also announced its exclusive partnership with the North Bay Credit Union. Through this partnership, CCIA members have direct access to banking, which has allowed licensed cannabis businesses the opportunity to get the banking services they need.

The struggle to pay staff and vendors without access to financial institutions encouraged this partnership. Even though many cannabis companies operate compliant businesses, they lacked access to banking.

The CCIA, a state and federally registered nonprofit trade association, lost its third bank account in a year during 2017. The association then decided to partner with the NBCU to gain access to the financial services it had been denied.

Through this partnership, members of the CCIA were able to bypass the financial institutions that refused to provide marijuana companies with wire transfers, ACH processing, and other banking services. Now, members of the CCIA have various banking options, including access to:

  • Checking accounts
  • Online bill payment
  • Wire transfers and ACH processing

Even the employees of CCIA members have access to these services if they join as individual members of this credit union.

Financial Crimes Enforcement Network Marijuana Banking Update

According to the Financial Crimes Enforcement Network (FinCEM), the number of financial institutions banking for licensed cannabis businesses has shown a slight decline since the 1st Quarter FY2020 (December). This began with the release of FinCEN’s guidance for providing financial services to those operating hemp-related businesses.

However, it’s possible that the COVID-19 pandemic is increasing this decline for the following reasons:

  • Many adult-use cannabis and medical marijuana dispensary operations have ceased operations because of government-imposed quarantine restrictions.
  • Even though the 90-day window for filing Suspicious Activity Reports is still in place, more financial institutions lack the staffing needed to file these reports efficiently. This has caused delays.

Cannabis Industry Banking FAQ

Can dispensaries in California use banks?

Since financial institutions are at risk while offering services to dispensaries, many choose to avoid working with them.

Thus, many California dispensaries have not been able to use direct deposit, checks, and credit card transactions. But what’s worse is how many dispensaries have had to resort to solely accepting cash or cryptocurrency.

Will banks finance cannabis?

Traditional banks are not willing to lend to Cali cannabis businesses. With this being the case, federal legalization could change this. But with the Safe Banking Act’s passing, cannabis businesses can now find reliable capital sources.

Concluding on Cannabis Banking in California

Whether you operate in Santa Rosa or Los Angeles, banking has likely been an issue for you if you operate a cannabis business. But with the passing of the Safe Banking Act, the industry now has more options than ever before.

Since the passage of this bill, more financial institutions have begun offering services to cannabis companies. But it’s important to be aware that many individuals within these institutions still have mixed feelings about supporting dispensaries.

Nevertheless, California cannabis business owners should keep their eye on the future. With more banks finally willing to work with them, prospects are looking brighter than ever before.

Interested in scaling your California marijuana business? Your experts at Northstar are ready to help!

Contact us now to learn how our financial services will expand your operations and minimize your tax liability in California.

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