BILL ANALYSIS                                                                                                                                                                                                    Ó

          |SENATE RULES COMMITTEE            |                        AJR 25|
          |Office of Senate Floor Analyses   |                              |
          |(916) 651-1520    Fax: (916)      |                              |
          |327-4478                          |                              |

                                   THIRD READING 

          Bill No:  AJR 25
          Author:   Lackey (R), et al.
          Vote:     21  

           SENATE BANKING & F.I. COMMITTEE:  4-1, 9/10/15
           AYES:  Block, Vidak, Hueso, Lara
           NOES:  Morrell
           NO VOTE RECORDED:  Galgiani, Hall

           ASSEMBLY FLOOR:  67-3, 8/27/15 - See last page for vote

           SUBJECT:   Access to financial institutions

          SOURCE:    Board of Equalization Member Fiona Ma
                     Board of Equalization Member George Runner

          DIGEST:   This resolution memorializes the President and  
          Congress to support legislation that will provide a  
          comprehensive solution to allow banks and credit unions to  
          perform financial services for marijuana businesses.
          Existing law:

          1)Provides for the Compassionate Use Act of 1996 (Health and  
            Safety Code Section 11362.5), added by Proposition 215, an  
            initiative statute approved by the voters on November 5, 1996.  
             Under the Compassionate Use Act of 1996, Health and Safety  
            Code Section 11357, making it unlawful to possess marijuana,  
            and Health and Safety Code Section 11358, making it unlawful  


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            to cultivate marijuana, do not apply to a patient or to a  
            patient's primary caregiver, who possesses or cultivates  
            marijuana for the personal medical purposes of the patient  
            upon the written or oral recommendation or approval of a  

          2)Requires the State Department of Health Services to establish  
            and maintain a voluntary program for the issuance of  
            identification cards to qualified patients and establish  
            procedures under which qualified patients with an  
            identification card may use marijuana for medical purposes.   
            Authorizes the State Attorney General to ensure the security  
            and nondiversion of marijuana grown for medical use, and to  
            set forth and clarify details concerning possession and  
            cultivation limits, as specified (Article 2.5 of Chapter 6 of  
            Division 10 of the Health and Safety Code, commencing with  
            Section 11362.7).

          This resolution:

          1)Contains several findings, including the following:

             a)   Cannabis use is legal for medical purposes in 23 states  
               and for recreational purposes in four states and the  
               District of Columbia.

             b)   While many states have laws permitting various degrees  
               of commercial activity using cannabis, the drug remains  
               illegal under federal law.  The conflict between federal  
               and state laws has left financial institutions serving  
               cannabis-related businesses on uncertain legal ground.   
               Banks and credit unions are concerned that providing  
               financial services for businesses selling a product that is  
               illegal under federal law exposes them to possible charges  
               of money laundering and drug trafficking.

             c)   Federal law, including the Controlled Substances Act,  
               Bank Secrecy Act, and the Annunzio-Wylie Anti-Money  
               Laundering Act, prohibit financial institutions from  
               providing financial services to cannabis and hemp  
               businesses.  Directives from federal regulatory agencies  
               such as the Federal Reserve Board, Federal Deposit  
               Insurance Corporation (FDIC), National Credit Union  
               Administration (NCUA), and Office of the Comptroller of the  


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               Currency also prohibit bankers from accepting deposits from  
               cannabis or hemp businesses.

             d)   In February 2014, the United States Treasury's Financial  
               Crimes Enforcement Network (FinCEN), in coordination with  
               the United States Department of Justice, issued a memo  
               outlining expectations for marijuana businesses seeking to  
               comply with the Bank Secrecy Act.  Despite this progress,  
               remaining uncertainties under current federal law still  
               prevent banks and credit unions from accepting  
               cannabis-based businesses as customers.

             e)   The medical, retail, and hemp agricultural businesses  
               are unable to accept credit or debit cards from customers,  
               because electronic payments are handled through the banking  
               system. Therefore, transactions must be conducted in cash.   
               Further, these businesses cannot deposit cash from sales  
               into financial institutions.  This is a major problem in  
               California, as many businesses now have hundreds of  
               thousands of dollars in cash in their locations, which  
               poses a public safety risk to businesses, employees, and  

             f)   The lack of financial services makes paying taxes to  
               local governments and the California State Board of  
               Equalization (BOE) a challenge, because tax payments must  
               be made in cash by cannabis-related businesses, leading to  
               hundreds of thousands of dollars in cash being brought  
               directly into government offices.  It is difficult for BOE  
               to audit cash-based businesses, especially when records of  
               wholesale transactions are not available.

             g)   Cannabis businesses cannot easily comply with California  
               tax laws, which has led to a significant underpayment of  
               revenue owed the state.  In response, BOE launched the  
               Cannabis Compliance Pilot Project in January, 2015, to help  
               determine both the degree of noncompliance with state tax  
               law and the amount of lost tax revenue.  However, state  
               efforts alone cannot solve the problem.  

          2)Urges the President and Congress to support legislation that  
            will provide a comprehensive solution to allow banks and  
            credit unions to perform financial services for cannabis  
            businesses without federal retribution.   States that the  


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            current system, which requires cash-based transactions, poses  
            a risk to public safety and leads to reduced collection of  

          California is one of 23 states that have decriminalized the use  
          of marijuana for medical purposes.  However, those who cultivate  
          marijuana in compliance with California law and who run medical  
          marijuana dispensaries in compliance with California law are  
          currently shut off from the banking system.  Because the federal  
          government classifies marijuana as a Class I drug, whose  
          cultivation, sale, and possession can constitute felonies, banks  
          and credit unions risk federal regulatory sanctions if they  
          knowingly accept marijuana businesses as customers.

          Although federal regulators, including the U.S. Department of  
          Justice, FinCEN, and the FDIC, have issued guidance intended to  
          assuage bankers' fears about providing banking services to  
          marijuana businesses that are operating in accordance with the  
          laws of their states, the guidance has had little effect.   
          According to an August, 2014 speech by FinCEN's director, less  
          than 1% of all banks and credit unions nationwide provide  
          banking services to cannabis businesses.

          The challenges faced by financial institutions seeking to serve  
          cannabis businesses were recently illustrated, when the Federal  
          Reserve Bank of Kansas City rejected an application from Denver,  
          Colorado-based Fourth Corner Credit Union to open a master  
          account, and the NCUA denied the credit union's application for  
          deposit insurance.  Although the credit union holds a charter  
          from the State of Colorado, it has effectively been denied the  
          ability to operate by the actions of the Federal Reserve Bank of  
          Kansas City and the NCUA.  The credit union, which is seeking to  
          be the first in the nation to cater specifically to the  
          marijuana industry, has sued both federal agencies, but the  
          lawsuits remain pending.  

          Within California, there are anecdotal accounts of certain  
          credit unions being willing to open accounts for local cannabis  
          businesses, but the vast majority of cannabis businesses  
          operating in accordance with California's medical marijuana laws  
          remain unbanked.  


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          The widespread inability of cannabis businesses in California to  
          access the banking system has created several practical  
          problems.  For example, these businesses are at increased risk  
          of theft due to the large amounts of money they hold.   
          Furthermore, because they lack access to the banking system,  
          they are not only unable to obtain bank accounts, but cannot  
          obtain debit or credit cards or business loans, and cannot  
          process debit or credit cards that their customers might want to  
          use to purchase cannabis products.  

          Cannabis businesses also pose problems for California's tax  
          agencies, which do not typically deal in cash.  The sponsors of  
          AJR 25, BOE Members Fiona Ma and George Runner, believe that a  
          significant amount of tax revenue goes uncollected, due to the  
          lack of electronic bank records.  Ms. Ma and Mr. Runner launched  
          the Cannabis Compliance Pilot Project in January, 2015, in an  
          effort to quantify the degree of tax compliance among cannabis  
          businesses, and identify the corresponding lost tax revenue.

          At the present time, it appears that a solution to these  
          problems must come from the federal government.   Senator Jeff  
          Merkley from Oregon and Congressman Ed Perlmutter from Colorado  
          have introduced legislation in the current Congress titled  
          Marijuana Businesses Access to Banking Act of 2015 (S. 1726 and  
          H.R. 2076), but the future success of that legislation is  

          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:NoLocal:     No

          SUPPORT:   (Verified9/10/15)

          Board of Equalization Member Fiona Ma (co-source)
          Board of Equalization Member George Runner (co-source)
          California Cannabis Industry Association 
          California Chapter of the National Organization for the Reform  
          of Marijuana Laws
          California Credit Union League


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          OPPOSITION:   (Verified9/10/15)

          None received

          ARGUMENTS IN SUPPORT:  Board of Equalization Members George  
          Runner and Fiona Ma are co-sponsoring AJR 25 as an important  
          step toward improving industry compliance with existing tax  
          laws.  BOE, which is responsible for collecting sales tax, has  
          provided seller's permits to medical cannabis-based businesses  
          since 2005.  However, due to the lack of electronic bank records  
          stemming from these business' lack of access to banking  
          services, BOE estimates that millions of dollars in tax revenue  
          goes uncollected every year.  "As long as financial institutions  
          are unable to provide access to their services, legitimate  
          cannabis-based businesses will be unable to take advantage of  
          bank accounts, debit or credit cards and business loans.  They  
          will continue to complete all business transactions in cash,  
          making audits nearly impossible.  Not only does this reduce tax  
          revenue, it is also a serious public safety concern."  

          The California Credit Union League writes, "Credit unions and  
          banks face significant regulatory uncertainty when considering  
          banking the cannabis industry.  Furthermore, credit unions and  
          banks may have problems with their federal and state regulators  
          and access to the U.S. Federal Reserve.  Federal legislation  
          providing guidelines to financial institutions on how to  
          efficiently serve the cannabis industry would mitigate the  
          regulatory uncertainty facing financial institutions."

          ASSEMBLY FLOOR:  67-3, 8/27/15
          AYES:  Achadjian, Alejo, Baker, Bigelow, Bloom, Bonilla, Bonta,  
            Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu,  
            Cooley, Dababneh, Dahle, Dodd, Eggman, Gallagher, Cristina  
            Garcia, Eduardo Garcia, Gipson, Gomez, Gonzalez, Gordon, Gray,  
            Hadley, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer,  
            Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis,  
            Mayes, McCarty, Medina, Melendez, Mullin, Obernolte,  
            O'Donnell, Olsen, Perea, Quirk, Rendon, Ridley-Thomas,  
            Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond,  
            Ting, Wagner, Weber, Wilk, Williams, Wood, Atkins
          NOES:  Travis Allen, Gatto, Harper
          NO VOTE RECORDED:  Brough, Brown, Cooper, Daly, Frazier, Beth  


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            Gaines, Grove, Nazarian, Patterson, Waldron

          Prepared by:Eileen Newhall / B. & F.I. / (916) 651-4102
          9/10/15 23:17:22

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