California gives more cover to firms banking pot businesses
California officials pledged Thursday not to bring regulatory action against state-chartered banks and credit unions solely for serving licensed cannabis businesses, though they noted that depositories are still required to comply with pot banking guidance from the federal government.
The California Department of Business Oversight made the promise at the same time it released new regulatory guidance that is meant to encourage financial institutions to offer bank accounts to companies in the pot industry.
“We will not be an obstacle to banks and credit unions that adhere to federal expectations regarding cannabis-related businesses and responsibly manage their risk,” Manuel Alvarez, the department’s commissioner, said in a press release.
The California guidance is the latest salvo in the long-running effort to bring cannabis — legal in many states but still illegal at the federal level — into the financial mainstream.
Last week, the U.S. House of Representatives voted 321-103 to pass a bill that would bar federal regulators from penalizing financial institutions for serving marijuana businesses that comply with state laws. The legislation’s prospects in the Senate remain uncertain.
Nationally, more than 700 banks and credit unions were providing banking services to marijuana-related businesses in the second quarter of 2019, according to data from the Treasury Department’s Financial Crimes Enforcement Network. But the number of financial institutions that have opened their doors to the cannabis industry on a large scale is thought to be much smaller.
In California, a growing number of state-chartered banks and credit unions are currently serving cannabis-related businesses, and others are considering pilot programs, according to a memo that state regulators sent to financial institutions on Wednesday. A state official declined to provide more specific information about the number of banks and credit unions that have welcomed the pot industry.
Recreational use of marijuana by adults in California has been legal for 22 months.
Dante Tosetti, a special adviser at West Coast AML Services LLC, estimated that 20 banks and credit unions in the nation’s largest state are dedicating resources to marijuana banking. Institutions that have publicly acknowledged serving the industry include North Bay Credit Union in Santa Rosa and Santa Cruz Community Credit Union.
More California banks and credit unions have expressed interest in serving the cannabis industry since Alvarez became commissioner of the Department of Business Oversight in May, according to Tosetti. He predicted that the guidance released Thursday will encourage more financial institutions to get past their concerns.
The California guidance lays out questions that banks and credit unions may want to consider as they seek to provide services to cannabis-related businesses in a way that does not run afoul of federal anti-money-laundering rules.
California officials said that their guidance tracks with what Fincen said five years ago; that federal guidance was also aimed at persuading banks and credit unions that it is possible to serve the pot industry without landing in hot water.
“We stand ready to assist our licensees to make sure they properly develop their cannabis banking initiatives,” Alvarez said in the press release.
Interest groups that favor bringing the pot industry into the banking system comprise a motley crew — law-enforcement agencies, banks, marijuana firms and elected officials in states that have legalized pot. They have argued that cash-only businesses are more likely to be targeted for robberies.
The banking problem has long vexed officials in states where cannabis is legal. A study released by the California state treasurer in December determined that a public bank for the pot industry would face insurmountable hurdles.