Extras on Excise: California Bill Proposes Banks for Marijuana Businesses


California’s quest to generate more revenue through the legalization and taxation of recreational marijuana has highlighted the difficult plight marijuana businesses face when it comes to collecting and remitting taxes to the state. Marijuana businesses are unable to access typical banking services due to marijuana remaining illegal at the federal level. As such, businesses have no or limited access to certain services, such as banking services from the majority of banks and credit unions, deposit insurance from the Federal Deposit Insurance Corporation or the National Credit Union Administration, check clearing from federal clearinghouses, and the issuance of business credit or debit cards. However, California lawmakers, along with a few members of the U.S. Senate, are attempting to change the status quo.

In an effort to address the lack of banking services available to marijuana businesses, S.B. 930 was introduced on Jan. 25, 2018, and recently passed the California Senate. The bill would establish the cannabis limited charter banking and credit union law (CLCL), administered by the Department of Business Oversight (DBO). The CLCL would allow the formation of cannabis limited charter banks (CLCB) and cannabis limited charter credit unions (CLCCU), which once licensed under the DBO, would be able to issue special purpose checks to fit certain needs of marijuana businesses. Special purpose checks would be used to:

  • pay state or local fees and taxes;
  • pay rent for marijuana business properties;
  • pay California vendors for expenses related to a marijuana business’s goods and services; and
  • purchase state and local bonds or interest-bearing notes or warrants.

The bill would ideally make it easier for marijuana businesses to pay their state and local taxes, without having to physically handle large amounts of cash, according to S.B. 930’s senate floor analysis.

However, there are some foreseeable problems for CLCBs and CLCCUs. For example, special purpose checks may not always be readily accepted, and not enough CLCBs or CLCCUs could be formed, which would make it harder to use special purpose checks. Additionally, there would be no access to electronic transmissions of money between businesses, and businesses would still be required to purchase their own deposit insurance. The benefits of S.B. 930 will remain unclear until the bill is enacted and the use of CLCBs and CLCCUs begin.

On the federal level, Sens. Cory Gardner (R-Colo.) and Elizabeth Warren (D-Mass.), sponsored and introduced to Congress the Strengthening the Tenth Amendment through Entrusting States (STATES) Act. The bill, an attempt to give states the power to govern marijuana laws without federal interference, comes in the wake of the Department of Justice’s Jan. 4, 2018, rescission of former DOJ guidance on state-licensed marijuana sales. Gardner and Warren believe that the “Act would resolve state-federal conflicts over the drug, remove barriers to development, and enact a common-sense, ‘states’-rights’ approach to marijuana regulation,” as the Daily Tax Report: State reports. The passage of this bill would surely have some states feeling more at ease with their marijuana legalization and regulation programs.

Track the progress of California’s S.B. 930 and the federal STATES Act with Bloomberg Tax coverage.          

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Is the formation of limited charter banks and limited charter credit unions the best way to address the lack of access to traditional banking services for marijuana businesses? 

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