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California's new banking regulation does little to assist the hashish trade

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Last week, California Governor Gavin Newsom (D) signed a handful of cannabis bills. The biggest changes include updates to the state's banking laws. Although positive overall, AB 1525's potential is severely limited.

As everyone in the industry already knows, cannabis professionals have long struggled to get access to banking and other financial services for their businesses. AB (Assembly Bill) 1525, signed by Governor Newsom last Tuesday, removes any penalties previously imposed on banks for working with legal cannabis companies.

In its bank statement signing statement, Newsom instructed state cannabis regulators to establish rules to protect the privacy of marijuana companies that use financial services, and requested that data be kept confidential and only "to provide financial services to assist licensees " be used . ”

"This bill has the potential to increase the provision of financial services to the legal cannabis industry," Newsom wrote in a signing statement, "and that is why I support it."

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Very little help

Newsom isn't wrong, this bill definitely has that potential, but it will only be that until cannabis becomes legal at the federal level. Regardless of state laws, banks that are federal agencies have been reluctant to work with cannabis customers because the facility is Schedule 1.

As a reference, a List 1 narcotic is categorized in this way, as there is a "high risk of abuse and no recognized medical value". Despite decades of research in other countries or the fact that medical cannabis is already accepted in 33 states. It is also worth noting that cocaine, which has some anesthetic properties but is known for its high tendency to abuse, is classified as Appendix II. Alcohol and tobacco are not planned at all. Yes, it's the ultimate hypocrisy.

Regardless of our opinion on the matter, the finding is that since cannabis is a List 1 narcotic drug, exchanging money for a cannabis deal is putting banks at risk of federal money laundering charges.

"Until cannabis itself is removed from the list of dangerous substances and the DEA is no longer willing to ask for a forfeiture on someone who has to do with it, the majority of banks will continue to stay away," says Chris Garcia, buyer of the Berkeley Pharmacy Hi Fidelity.

The Cole Memorandum

In 2013, the Cole Memorandum was issued with U.S. Deputy General James Cole. This should hamper enforcement of these types of laws against state-licensed and fully legal cannabis companies. In 2014, the Financial Crimes Enforcement Network (FinCEN), an office of the Treasury Department, issued guidelines on how banks could partner with cannabis companies.

In 2018, then Attorney General Jeff Sessions, a well-known opponent of any form of cannabis reform, revoked the Cole Memorandum. Although FinCEN states that the established guidelines for the cannabis industry will remain in place, most banks are aware of this financial gray area and feel uncomfortable.

Final thoughts

The cannabis companies that choose to operate within the company will have to file extensive reports and pay astronomical fees, and even then, most financial institutions will only work with large, well-established companies. According to Tom DiGiovanni, CFO at Harborside Collective, around 60 US financial firms are actively working with the cannabis industry.

FinCEN reports that as of September 2019, 563 banks and 160 credit unions were providing some form of banking services to marijuana-related businesses. although how much service they are willing to provide is incredibly variable.

CLICK HERE to read the full text of CA AB 1525

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Beth Edmonds