As the U.S. House of Representatives was passing HR 1595, the Secure and Fair Enforcement Banking Act of 2019 (SAFE Banking Act), the California Department of Business Oversight (DBO) issued guidance to state-chartered financial institutions regarding the transaction of business with cannabis-related business enterprises.

The SAFE Banking Act, as approved in the House, finally allows cannabis businesses access to federal banks, credit unions, and other financial institutions. The Act’s provisions insulate ancillary businesses that do business with the growing cannabis industry from criminal charges of money laundering and other financial misconduct.

State Senate Majority Leader Bob Hertzberg, D-Van Nuys, author of a California bill that would create a separate category for banks and credit unions to handle money generated by transactions with cannabis businesses, postponed his state’s version of similar legislation until next year. It “needs work,” according to the Senator. The California bill passed a Senate floor vote and the Assembly Business and Professions Committee before moving to the Assembly Appropriations Committee.

The DBO’s guidance was issued as a comprehensive questionnaire to help California financial institutions conduct their own risk assessments to ensure compliance with federal guidelines. Commissioner of Business Oversight Manuel P. Alvarez said, “If financial institutions choose to serve the cannabis market, they must understand risks and build out their compliance infrastructure accordingly. “By making this questionnaire available to our licensees, we hope it can serve as an additional resource for banks and credit unions as they roll out their cannabis banking programs.”

One thing that didn’t change with cannabis legalization was the way marijuana vendors sold their product. The cannabis industry still deals primarily in cash, and large amounts of cash attract criminals like bees to honey, thus posing a significant public safety risk, among other issues.

The lack of banking access for cannabis businesses has frustrated consumers, businesses, and law enforcement alike. The number of legal cannabis businesses has increased since California began issuing licenses in 2018. Nevertheless, many cannabis-related businesses have encountered difficulty trying to obtain basic banking services from financial institutions rightfully concerned about complying with federal law.

The DBO questionnaire addresses financial institutions’ cannabis program governance and compliance with the federal Bank Secrecy Act (BSA), with a focus on the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) guidance on cannabis banking, which is tracked by the questionnaire.

To correspond with Proposition 64, the DBO also reaffirmed that it would not file regulatory actions against state-chartered banks or credit unions solely for establishing a banking relationship with state-licensed cannabis businesses.

“We stand ready to assist our licensees to make sure they properly develop their cannabis banking initiatives,” said Commissioner Alvarez. “We will not be an obstacle to banks and credit unions that adhere to federal expectations regarding cannabis-related businesses and responsibly manage their risk.”

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to [email protected] or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

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