U.S. lawmakers in a House committee approved a bill that would grant federal protection for banking and financial institutions serving marijuana dispensaries and ancillary businesses. Los Angeles cannabis business lawyers recognize this paves the way for wider discussion in Congress. For California marijuana businesses, this could be a major step toward physical and financial security.
Why Cash Sales Are Problematic for California Cannabis Companies
Conducting all-cash transactions poses potential risks by making companies a target of robberies, forcing investment in extensive security for on-site sales and delivery personnel. There is also greater risk of accounting errors and audits – a very uncomfortable place for any cannabis owner considering the IRS is a federal agency and, despite California’s approval of the operations, the drug remains illegal under federal law.
The U.S. House Financial Services Committee approved the measure 45-15, just after amending it slightly to extend further protection to insurance companies and also to allow easier access for women and minorities seeking to stake a claim in the industry.
Marijuana free-market advocates called the vote “historical and critical,” one that will bolsters the budding industry and is in the public’s best interest as well. A cannabis business with accurate books and less cash on hand is going to better ensure all taxes are paid and communities are safer.
As it stands, most large banks and other financial institutions that are federally-backed are reticent to wade into these waters – despite this being a multi-billion-dollar industry – because of the complex web of federal regulations written to deter banks from being a party to criminal enterprises. Those that do can be charged with money laundering. The law requires banks to file so-called “suspicious activity reports” as a means to assist federal law enforcement in detecting covert criminal operations. But this stops making sense when we’re talking about marijuana dispensaries that are licensed by the state. It’s not as if the federal government doesn’t know these facilities are in operation.
The U.S. Treasury Department’s Financial Crimes Enforcement Unit did in 2014 release clarification on the Bank Secrecy Act as it pertains to institutions serving state-legal cannabis operations, indicating banks can work with dispensaries and ancillary businesses, but they have to comply with a heavy set of regulations and reporting requirements. Many have largely found it’s not worth the risk. However, as The Brookings Institute reports, an estimated 360 banks and credit unions are working with marijuana businesses nationally – and they collectively file about 2,000 suspicious activity reports a month pertaining to these business relationships. Most are mere formalities to ensure federal compliance.
House Committee Approval Just the Beginning
Los Angeles cannabis banking attorneys and industry advocates have long been vocal about the need for a means for marijuana businesses to have access to legal banking and insurance coverage, but this is the farthest those discussions have ever gotten.
This proposal, formally known as the SAFE Banking Act, was introduced by two Democrat representatives from Colorado and Washington State as well as two Republican representatives from Ohio. The bipartisan nature of the bill makes the prospect of eventual passage more encouraging.
The bill is now slated to go to the House of Representatives, according to Forbes Magazine. The bill has the support of the American Bankers Association. They are hopeful it would improve security, generate tax revenue and boost job numbers.
The Los Angeles CANNABIS LAW Group represents growers, dispensaries, collectives, patients and those facing marijuana charges. Call us at 949-375-4734.
Additional Resources:
Marijuana Banking Bill Approved By Congressional Committee, March 28, 2019, By Tom Angell, Forbes Magazine
More Blog Entries:
Can California Cannabis Market Avoid Abundance Crash-and-Burn? March 19, 2019, Los Angeles Cannabis Banking Attorney Blog