BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AJR 25|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
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THIRD READING
Bill No: AJR 25
Author: Lackey (R), et al.
Introduced:6/25/15
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.
ANALYSIS:
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
physician.
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
customers.
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
taxes.
Background
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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Comments
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
unknown.
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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