A May 2019 Update on Cannabis and Banking

Even for states that do not allow recreational cannabis, a majority of states and several U.S. territories have legalized at least the medical use of marijuana. Industry analysts estimate 2017 sales at $8.3 billion and expect those totals to exceed $25 billion by 2025. Due to federal restrictions, however, those revenues are handled outside of the regulated banking system. Businesses are forced to operate on a cash basis, which contributes to a public safety threat. Of course, it also makes paying or tracking taxes more difficult. While income from the sale of cannabis products is considered ill-gotten gains by the federal government, that income is still taxable. The Internal Revenue Service specifically states in Publication 525, Taxable and Nontaxable Income, that “(i)llegal income, such as money from dealing illegal drugs, must be included in your income on Form 1040, line 21, or on Schedule C or Schedule C-EZ (Form 1040) if from your self-employment activity.”

Enter Congress:Senate Bill 1152, the Secure and Fair Enforcement Banking Act or the SAFE Banking Act

This federal bill prohibits a federal banking regulator from: (1) terminating or limiting the deposit insurance or share insurance of a depository institution solely because the institution provides financial services to a legitimate marijuana-related business; (2) prohibiting or otherwise discouraging a depository institution from offering financial services to such a business; (3) recommending, incentivizing, or encouraging a depository institution not to offer financial services to an account holder solely because the account holder is affiliated with such a business; or (4) taking any adverse or corrective supervisory action on a loan made to a person solely because the person either owns such a business or owns real estate or equipment leased or sold to such a business.

As specified by the bill, a depository institution shall not, under federal law, be liable or subject to forfeiture for providing a loan or other financial services to a legitimate marijuana-related business.

California’s Attorney General Becerra joined 38 other Attorneys General* in urging Congress to pass the federal Secure and Fair Enforcement (SAFE) Banking Act to give licensed cannabis businesses access to the federal banking system.

Read their letter, dated May 8, 2019, here.

California has proposed state legislation as well, including Senate Bill 51, the Cannabis Limited Charter Banking and Credit Union Law, which would be administered by the Department of Business Oversight. That bill would provide for the licensure and regulation of cannabis limited charter banks and credit unions for the purpose of providing banking services to cannabis businesses. It currently has a hearing set for May 13 in the Senate Appropriations Committee.

*Alaska, Arizona, Arkansas, Connecticut, Colorado, Delaware, the District of Columbia, Guam, Hawaii, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nevada, New Jersey, New Mexico, New York, North Dakota, the Northern Mariana Islands, Ohio, Oklahoma, Oregon, Pennsylvania, Puerto Rico, Rhode Island, the U.S. Virgin Islands, Utah, Vermont, Virginia, Washington, West Virginia, and Wisconsin.