‘Big Win’: CA Pot Operators Welcome New Banking Law

Tracy Brenner is familiar with the frustrations that cannabis operators can experience when trying to access banking services.

Brenner, who opened her Lotus River dispensary this year in Lompoc, a city on California’s Central Coast, initially started a business account with Wells Fargo; the bank shut it down almost immediately after her name appeared on the state’s list of cannabis licensees. She began exploring smaller banks and credit unions that seemed amenable to working with cannabis companies, but they presented their own challenges.

“They were charging a fortune,” she said. One institution wanted 2% of every deposit. “The fees were really high and it doesn’t make sense. Just because we’re cannabis, we should pay more?”

It’s because of those experiences – which are common throughout the federally illegal industry – that Brenner and several others in and around the California marketplace lauded Gov. Gavin Newsom this week for signing AB 1525. The new law removes state penalties for banks that work with cannabis operators and also allows the state, with the operators’ permission, to share licensing info with banks to streamline reporting and facilitate services.

Though the bill has limits, particularly as it relates to fees and federal compliance, several California cannabis professionals said they consider it a positive step forward.

Cultivator Autumn Shelton, who co-founded Autumn Brands in Santa Barbara County, said the move was a long time coming.

“It still to this day is ridiculous that people in this industry can’t get banking,” she said. “So anything that we can do to bring awareness, and any bills that can go into play, whether it’s at the California level or the federal level, … especially in a time of a pandemic, is really important and a big win for the industry.”

Focus on fees

On his approval of AB 1525, Newsom said he signed the bill because it “has the potential to increase the provision of financial services to the legal cannabis industry.”

While the bill does not include any language related to fees, some business owners hope the bill will create a larger field of banking options, reasoning that more competition will drive down fees.

Mario Delis, the chief sales officer for 420 Kingdom, a delivery service in the Bakersfield area, said banking has always been an issue at his business. He said it took the company months to find a bank that would work with it, “and when we finally did get a bank, they were completely price-gouging us.”

He accused the bank of charging the business $2,500 per month simply to maintain an account, and said the bank was also taking 1% of every gross deposit. That adds up quickly when deposits typically amount to tens of thousands of dollars.

“Most checking accounts are $25, not $2,500,” he said. “So [the new law] is great news.”

Brenner, owner of the Lotus River dispensary, said she was personally looking forward to being able to bank relatively worry-free. 

“We don’t want to deal with a lot of cash,” she said. “We’d love to be able to pay our employees with direct deposit. But when the fees are so high at some of these banks, it doesn’t even make sense. If you’re paying three grand a month in fees, that’s just dumb.”

Delis, who noted that about 80% of his company’s clients pay in cash, said the potential safety aspects of the law also shouldn’t be overlooked.

Carrying around less cash, he said, leaves workers less susceptible to attempted thefts, or worse.

“It just makes it better, because if we did get robbed, we might lose $5,000 instead of $100,000,” he said.

Feds still a concern

While AB 1525 was welcomed by many, there are also significant concerns about how much it can actually do given that most banks are federally insured.

Hilary Bricken, an attorney with Harris Bricken, wrote in a blog post this month that it was “admirable” of California to affirm that banks aren’t committing crimes by serving cannabis clients, but she said the federal law is still a problem.

She noted that banks and other ancillary service providers to the cannabis industry still face the prospect of federal criminal prosecution due to marijuana’s status as a Schedule I drug in the Controlled Substances Act.

“The bill is more symbolic than anything, so don’t get super excited,” she wrote of AB 1525.

Congress this week passed the SAFE Banking Act, which would provide federal protections for state-legal markets, as part of its latest coronavirus relief package. But the proposal is expected to face an uphill battle in the Senate. The SAFE Banking legislation has already passed the House twice, last fall and in May, but has not yet received a vote in the Senate.

Shelton, of Autumn Brands, shared in some of the concerns about the disconnect between the California and federal governments. She noted that she was able to find a banking institution that she is pleased with, but she acknowledged that many in the industry weren’t as fortunate.

Accessing standard banking services, she said, is a big deal.

“Being able to have a bank account almost legitimizes you to be able to really be running a business,” she said.