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Recent Changes to Cannabis Banking Offer Limited Help

If you’re anything like me, you were ready to jump for joy when the news broke that Gavin Newsom was signing into law statewide improvements to cannabis banking. The fact that most cannabis companies are unable to work with federal financial institutions is a significant burden for everyone from company owners and employees. I, myself, struggled to file for unemployment this year when I was faced with the challenge of tracking down how much total money I had made at my dispensary job without pay stubs or an electronic trail to reference.

According to local cannabis businesses, however, Newsom is limited in his ability to help an industry dependent on a substance that’s still illegal at the federal level.

Assembly Bill 1525, approved on Sept. 29, removes state-level restrictions on financial institutions for working with cannabis businesses. The bill, officially protecting financial institutions from punishment by the state, may encourage more of these financial entities to begin working in the cannabis industry with confidence.

However, local businesses say the changes won’t affect much. “Until cannabis itself is taken off the dangerous substances list, and the DEA is no longer willing to seek forfeitures for anybody dealing with this substance, the majority of banks are still going to stay away” says Chris Garcia, buyer for Berkeley dispensary Hi Fidelity.  

The DEA classifies all drugs according to their supposed propensity for abuse, and whether the drug has any “acceptable medical use.” Schedule I substances are considered the most dangerous, while Schedule V substances are the least. Cocaine, which has some anesthetic properties but a high propensity for abuse, is categorized as Schedule II. Alcohol and tobacco aren’t scheduled at all. Cannabis, declared to have “no currently accepted medical use” (despite being medically legal in 33 states) is considered a Schedule I narcotic, meaning that it is federally illegal to sell or use in any setting — it’s even difficult for scientists to obtain for cannabis research.

Because cannabis is federally illegal, exchanging or managing money for a cannabis business puts banks in the crosshairs of federal money laundering law. However, in 2013, US Deputy General James Cole issued the Cole Memorandum, which deprioritized the enforcement of such laws against state-legal cannabis businesses. In 2014, The Financial Crimes Enforcement Network (FinCEN), a bureau of the Department of the Treasury, issued guidance on how banks could work with cannabis businesses. 

However, Attorney General Sessions revoked the Cole Memorandum in 2018, and though FinCEN has said their guidance remains in effect, most financial institutions are wary of the legal gray area. Those that operate within it require extensive reporting (and, often, large fees) to feel comfortable, generally only working with well-established, large companies. Tom DiGiovanni, CFO at Harborside, says that approximately 60 financial institutions across the US actively engage with cannabis companies, though finCEN reports that as of September 2019 563 banks and 160 credit unions provided some form of banking services to marijuana-related businesses. 

This is why customers have to pay in cash when they purchase cannabis at most dispensaries. Some companies, however, are able to work with locally-based banks and credit unions, or find other work-arounds which allow them to put ATMs on the premises or transact using debit cards. Some, for example, are affiliated with separate non-cannabis companies with which can manage the ATM, while others use companies acting as debit processing middle men who technically take a cash withdrawal from the customer’s account. Working with a local bank, or making use of these other work-arounds, is often costly and tenuous, and is more commonly found at financially-stable, large companies. It’s worth being said: no dispensary that insists customers pay in cash is doing so by choice. 

The dispensaries SPARC and Harborside are good examples of large companies who are able to be fully banked. Both are highly influential non-profit dispensaries with multiple locations and respected reputations in the industry. Erich Pearson, founder and CEO of SPARC, describes the effect of AB 1525 as “minimal,” while DiGiovanni adds that the bill provides “a small measure of additional comfort for banks.” 

However, the issue isn’t about convenience for the industry, or creating opportunities for state-level institutions. Rather, cannabis companies are concerned because transacting in cash can make businesses vulnerable to theft, and make it more difficult for companies (and their employees) to manage finances and prove their legitimacy. 

“Dealing with cash and knowing you have cash on your premises all the time, it’s a worry,” says Garcia. “Also, it makes it harder for the employees to show that they have a job when everything they do is a cash transaction or a cash deposit.” DiGiovanni adds that allowing cannabis companies to work with federal banks would “undermine the illegal market.” 

Most marijuana activists call for cannabis to be federally de-scheduled so that it is regulated similarly to alcohol and tobacco. Rescheduling cannabis to acknowledge it’s eligibility for medical use would put cannabis under the purview of the FDA alongside pharmaceuticals, also making federal banking available, but throwing the industry into a monied and competitive sphere. 

“Our view is that if alcohol and tobacco can be descheduled like they’ve always been, why can’t cannabis?” asks David Goldman, president of the Brownie Mary Democratic Club, named for cannabis and HIV/AIDS activist Mary Jane Rathbun. “As long as cannabis is federally Schedule I, that’s a big problem,” adds his partner Michael Koehn, secretary for the club. Though neither consider AB 1525 a step backwards, they also say the bill can’t do much for the companies that need financial help. 

Challenging cannabis banking at the federal level isn’t out of the question: multiple coronavirus relief bills which started in the Democrat-controlled House of Representatives included elements of the Secure and Fair Enforcement (SAFE) Banking Act, which would make it easier for cannabis businesses to access federal banking, and which itself had passed through the House twice before. But the Republican-controlled Senate has blocked each of these attempts, with figures like Mitch McConnell criticizing Democrats for including the word “cannabis” more often than the words “job” or “hire.” 

CaNORML, California’s division of the National Organization for the Reform of Marijuana Laws, lists descheduling, expungement, and access to banking as their top federal priorities for 2020. Dale Gieringer, director of CaNORML, says the attainability of federal banking, however, is largely determined by the outcome of the 2020 election. “The federal government could very likely fix this in fairly short order next year if we have a new Senate,” he says.

Cannabis de-scheduling — and with it, cannabis banking — can thus be considered another issue on the long list of items on the ballot this year. Whether Democrats win the Senate, and whether those Democrats are willing to prioritize federal changes to cannabis legislation, ultimately comes down to how Americans vote. 

To paraphrase 45, David Goldman says “we’ll have to see what happens.”