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Everything You Need To Know About California Cannabis Banking Bill

California legalized recreational marijuana in 2016, opening a booming industry. The Cannabis Banking Bill (SAFER Banking Act) aims to provide legal protections and access to financial services for state-legal cannabis businesses.

However, a significant hurdle persists for cannabis businesses (CRBs) — access to traditional banking services. Despite being legal at the state level, federal law labels cannabis as a Schedule I controlled substance, putting CRBs in a financial bind.

The Problem: Cash-Only Cannabis

Federal prohibition prevents most banks and credit unions from working with CRBs. It is because banks that deal with federally illegal businesses risk losing their federal deposit insurance.

As a result, CRBs are forced to operate primarily in cash. It creates a host of problems. These are the evils the California Cannabis Banking Bill wanted to remedy.

Large amounts of cash on hand make CRBs vulnerable to theft and robberies. The knowledge of easy access to a large sum makes them more likely to target the business.

Also, robberies often involve threats or violence.  Employees could be injured during an attempt to steal the cash. Additionally, some insurance policies might limit coverage for stolen cash on the premises.

It takes time to track income and expenses accurately, leading to potential tax problems.

Since cash transactions aren’t automatically recorded electronically, there’s a higher risk of forgetting or intentionally omitting income from tax filings. These concerns can be lessened with the legal Cannabis Banking Bill.

Unfortunately, it can lead to tax deficiencies and penalties from the authorities. It’s also possible to fabricate or inflate cash expenses to reduce taxable income. However, tax authorities often scrutinize businesses with high cash expenses and low profits.

Cash-based businesses need help to secure loans for expansion or investment.

Traditional lenders rely primarily on credit history and financial statements to assess risk.  Since cash transactions are less transparent, CRBs might have a limited credit history and need help demonstrating their true profitability.

Lenders might perceive CRBs as riskier due to the potential for unrecorded income or difficulty tracking cash flow. It can result in higher interest rates or loan denials.

The banking bill for cannabis also aims to widen customer options. Customers cannot use debit or credit cards, hindering convenience and potentially limiting sales.

Many customers, especially younger generations, prefer the ease and security of debit or credit cards over carrying cash.  Being limited to cash can be inconvenient and lead some customers to choose competitors who offer multiple payment options.

People often spend more money on cards than cash.  Customers might be less likely to make impulse purchases or more significant unplanned buys without the option to swipe a card.

The California Landscape

California has addressed these issues through the California Cannabis Banking Bill.

The Department of Cannabis Control (DCC) offers a program where CRBs can authorize the DCC to share information with potential financial institutions. It can make them more comfortable serving CRBs.

However, this program is voluntary, and many banks must be more confident. Some credit unions and fintech companies have emerged to serve the cannabis industry, but their services are often limited and come with higher fees.

The Federal SAFE Banking Act

At the federal level, there have been attempts to address this issue. The Banking Bill for Cannabis has been introduced in Congress several times. This act would provide “safe harbor” protections to banks that service CRBs operating legally under state law.

The SAFE Banking Act has bipartisan support but has yet to be passed. Opponents argue that it facilitates illegal drug activity and could lead to increased money laundering.

The Road Ahead

The future of cannabis banking in California remains uncertain. Here are some possibilities:

This game-changer would allow CRBs full access to the traditional banking system.

Specialized financial service providers may emerge to cater specifically to the cannabis industry.

Aside from the California Cannabis Banking Bill, some have proposed creating state-backed or state-chartered banks to serve CRBs. However, this is a complex solution with legal and regulatory hurdles.

The Impact

Increased access to banking would have a significant impact on the California cannabis industry:

Reduced reliance on cash would make CRBs less vulnerable to crime.

Accurate financial records would streamline tax filing for CRBs and the state.

Access to loans would allow CRBs to invest in expansion and innovation.

Banking would bring greater accountability and oversight to the industry.

More accessible tax collection could increase California’s revenue.

The lack of banking access is a significant obstacle to the legal Cannabis Banking Bill. While there are challenges, potential solutions exist.

Federal legislation like the SAFE Banking Act or innovative financial service models could pave the way for a more secure and transparent cannabis market in California.

cannabis banking bill

Get Help from the Experts

Get a free consultation and see how Safe Harbor Financial can unlock secure banking solutions for your cannabis business. We’re here to help and offer guidance.

Are you confused about the impact of California’s Cannabis Banking Bill on your business? Safe Harbor Financial can help navigate the complexities. Don’t wait. Contact us today!

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