California cannabis operators are looking hopefully at the recently introduced Safe and Fair Banking Act (SAFE), which appears to be gaining momentum in Congress. He died during the last session of the U.S. Senate, but with new members, a new president and a growing trend toward public recognition of cannabis businesses as legitimate, cannabis banking could be more than a pipe dream.

As our Los Angeles cannabis lawyers can explain, the goal is to create a safe and legal way for banks and other financial companies to deal with marijuana that is a legal government business. Currently 47 states, plus Washington DC, have legalized the substance in some form.

Proponents are optimistic that this will be a much less partisan issue than in the past, mainly because of the tax revenue it will generate.

Why cannabis banking remains a nuisance

The banking sector is considered one of the most slippery slopes for cannabis businesses. They are disconnected from traditional bank accounts and offer security, reliability and legitimacy to many businesses. Unlike other businesses, cannabis vendors and many ancillary businesses have no choice but to carry bundles of cash. It’s not only impractical, it’s dangerous. COVID-19 brought a whole new level of danger, and many customers did not want to deal with cash.

Other complications arise from the lack of a bank account. Without a bank account, it is much harder to get a loan.

And this all stems from archaic provisions of federal law. Specifically, US law classifies cannabis as a Schedule I illegal drug (the strictest classification, with a high risk of addiction and no recognized medical use). Banks are regulated by federal laws. So even if a marijuana business is perfectly legal in the eyes of the State of California, it cannot find financial institutions willing to take the risk of laundering money or aiding and abetting federal crimes by doing business with it.

Search for a fault

Currently, there is only one loophole that a few banks (mostly small credit unions) have chosen to use. But, as our Los Angeles marijuana lawyers can explain, the problem is that a financial institution is required to file a Suspicious Activity Report for every transaction. In return, the company gets a slap on the wrist and is charged substantial fees that generally do not apply to other companies. The banks maintain that these fees are necessary to compensate not only for the risk, but also for the extra work they take on.

We have heard reports that some cannabis businesses are opening bank accounts without disclosing the nature of their industry and using a name that would indicate they are operating in another industry. This is not practical because it is only a matter of time before the bank finds out. Accounts can be closed and heavy fines can be imposed.

California Cannabis Industry Association supports new law

Most cannabis companies want to do the right thing – without hurting their bottom line. The California Cannabis Growers Association has been pushing for passage of the SAFE Bank Act for the past two years and is a strong supporter of its reintroduction in Congress, reports the North Bay Business Journal. The executive director of the association reportedly said that this would be of great benefit to law firms.

Even executives at some credit unions that have opened their doors to cannabis businesses say they would welcome the change because it would reduce risk – and the amount of paperwork. Reporting suspicious activity is often time consuming and reporting every transaction is difficult. While it takes one employee to manage two dozen marijuana businesses, that same employee can easily manage another 400 business accounts.

The Bank Security Act would give banks greater protection from federal money laundering laws. It would also prohibit U.S. banking regulators from terminating or limiting deposit insurance or taking other adverse action against a bank for providing financial services to a cannabis business. There is no penalty or prohibition on providing these services.

The Los Angeles-based CANNABIS LAW group represents manufacturers, dispensaries, suppliers, patients, physicians and individuals facing marijuana-related charges. Call us at 714-937-2050.

Additional resources :

Northern California hopes for success with new bank account, 22. March 2021, Susan Wood, North Bay Business Journal.

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