CBA Statement: Businesses Serving the Marijuana Industry Are Not Unbanked – They Cannot Be Banked

Press release

SACRAMENTO – Today the California Bankers Association, (CBA) released the following statement  regarding last week’s California Board of Equalization (BOE) meeting regarding access to banking services by marijuana-related businesses.

“The California Bankers Association was pleased to be invited to a recent stakeholder meeting convened by the BOE focused on marijuana-related businesses and their access to banking services. The BOE has taken an interest in this subject matter due to their experiences with significant all-cash payments hand delivered for the payment of taxes, an approach which they have determined is not ideal on a number of levels for all parties involved.

The meeting offered a balanced discussion on existing federal law, the conflict with state law and the obstacles marijuana-related business encounter when trying to establish traditional banking relationships. Importantly, it was underscored that marijuana remains a Schedule 1 controlled substance under federal law, not unlike heroin. Further complicating matters are numerous other laws and regulations that make banking marijuana-related business impossible. Setting aside the fact that marijuana remains a Schedule 1 drug, consider the laundry list of everyday obligations financial institutions have under the USA Patriot Act to know your customer or the reporting that must be done for cash intensive businesses under the Bank Secrecy Act and Anti-Money Laundering Law. And, we haven’t even scratched the surface on the risk associated with extending credit and the potential for asset forfeiture. To the extent federal law is enforced, a bank extending credit faces the risk of having the property that serves as collateral seized by federal law enforcement.

Categorizing marijuana-related businesses as “unbanked” is unfair. The true unbanked population consists of otherwise law-abiding individuals who don’t understand the importance of mainstream financial services or distrust the banking system. Despite our inability to persuade these law-abiding individuals from embracing deeper banking relationships, we have dedicated considerable resources in developing outreach programs and financial education forums as we would very much like to bank this population. The important distinction is that marijuana-related businesses engage in criminal activity. Simply, it’s not that they are unbanked, it is that they cannot be banked.

Some have proposed that a state bank could provide banking services to marijuana-related businesses. We disagree. CBA has historically opposed the notion of a state bank and we would do so again even if limited to marijuana-related businesses. A proposed state bank would suffer from the same challenges experienced by state and federally chartered banks. Such state bank would find itself in violation of federal law, and as a consequence would find it difficult to secure approval from the Federal Reserve Board relative to access to the payment system and the Federal Deposit Insurance Corporation relative to deposit insurance. A state bank could not exempt itself from federal rules applicable to knowing your customers or reporting suspicious activities flowing from cash intensive businesses. Where the state would generate capital and under what charter and supervision is unclear to us. Accordingly, we urge that the idea of a state bank be abandoned.

Proponents wishing to address this conflict directly should focus their efforts on amending federal law and declassifying marijuana as a Schedule 1 drug. Assembly Member Lackey has introduced Assembly Joint Resolution 25, which urges the President and Congress to develop a “comprehensive solution to allow banks and credit unions to perform financial services for cannabis businesses without federal retribution.” This resolution acknowledges that the inability to offer banking services to marijuana-related businesses is simply not a business decision by banks and credit unions to avoid this industry.

California banks wish very much to serve our customers and communities, and we play a vital role in advancing the economy. However, we must comply with the law which has only grown more complicated over the past several years. As the debate over offering banking services to marijuana-related businesses persists, we remain committed to partnering with policymakers. While it may be perceived as a nuance, the issue to resolve is not the banking of marijuana-related businesses, rather, it is how the state has placed itself in conflict with federal drug laws.”