When it comes to the cannabis industry, banks and other financial institutions can find themselves in a particularly murky legal waters (see Banking & Cannabis: Where Do Things Stand?). Federal rules dictate that banks and financial institutions that accept deposits from cannabis-related businesses may be liable for penalties, which has led to cannabis-related business in many states being conducted almost entirely in cash. Not only does this result in operational hurdles, particularly when it comes to paying taxes and compensating employees, it can also result in large amounts of cash being stored onsite, which, in turn, can lead to increased crime and an unsafe work environment. As California Senator Robert Hertzberg pointed out, “these business handle significant economic activity, yet they are forced to operate under the table and with little government oversight, as if they’re a black-market operation.”

Historically, under the Cole Memo, the consensus seems to have been that financial institutions would not be penalized in states that have legalized cannabis, unless those financial institutions were willfully ignorant to customer activities that could lend themselves to criminal financial transactions (e.g., the concealment of funds derived from other illegal activity, or the use of marijuana proceeds to support other illegal activity). However, when Attorney General Jeff Sessions rescinded the Cole Memo earlier this year, many players in the cannabis industry were unsure of the implications. Would federal law enforcement begin to crack down on cannabis businesses or financial institutions that were otherwise abiding by state law? As discussed in our prior blog post, Assessing the Sessions Memo’s Impact on Legalized Marijuana, many are confident that Sessions’ rescission of the Cole Memo will not cause any serious hindrance to the industry.

California, however, has decided to take a more proactive approach to the issue. In January, Senator Hertzberg introduced a bill that would allow California-chartered banks, credit unions, and other financial institutions to open checking and savings accounts, as well as issue checks, for marijuana retailers. This is especially important in a state like California, where medical marijuana generated approximately $2 billion in revenue in 2017, a figure projected to increase to $5 billion once adult-use sales are fully underway. Fiona Ma, a member of the California State Board of Equalization, pointed out, “paying your taxes with duffel bags full of cash isn’t safe or efficient for anyone involved.” As one of the leading states in cannabis legalization, this bill could be a roadmap for other states wishing to take a proactive approach to cannabis banking.