Bill Text: CA SB930 | 2017-2018 | Regular Session | Amended

NOTE: There are more recent revisions of this legislation. Read Latest Draft

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Bill Title: Financial institutions: cannabis.

Spectrum: Moderate Partisan Bill (Democrat 8-2)

Status: (Engrossed - Dead) 2018-08-16 - August 16 hearing: Held in committee and under submission. [SB930 Detail]

Download: California-2017-SB930-Amended.html

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Amended  IN  Senate  March 14, 2018

CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Senate Bill

No. 930

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Introduced by Senator Hertzberg
(Coauthor: Senator Wiener)
(Coauthors: Assembly Members Bonta and Lackey)

January 25, 2018

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An act to add Division 2.5 (commencing with Section 11000) to the Financial Code, relating to financial institutions.

LEGISLATIVE COUNSEL'S DIGEST

SB 930, as amended, Hertzberg. Financial institutions: cannabis.

Existing

(1) Existing law, the Financial Institutions Law, regulates the activities of various financial entities, including commercial banks, industrial banks, trust companies, credit unions, and savings and loan associations.

The Control, Regulate and Tax Adult Use of Marijuana Act of 2016, an initiative measure approved as Proposition 64 at the November 8, 2016, statewide general election, authorizes a person who obtains a state license under the act to engage in commercial adult-use cannabis activity pursuant to that license and applicable local ordinances. The Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), Act, among other things, consolidates the licensure and regulation of commercial medicinal and adult-use cannabis activities.

This bill would state the intent of the Legislature to enact subsequent legislation that would establish a state-chartered bank that would allow a person licensed to engage in commercial cannabis activity under MAUCRSA to engage in banking activities in California. create the Cannabis Limited Charter Banking Law, to be administered by the Commissioner of Business Oversight and the Department of Business Oversight. The bill would create the Cannabis Limited Charter Bank Advisory Board and specify its composition, to include the Treasurer, the Controller, and the Chief of the Bureau of Cannabis Control, and commit to it the general responsibility for ensuring that this law functions in a safe and efficient way. The bill would prescribe the powers and duties of the board, including reviewing department enforcement reports, indicating its approval or disapproval of these reports, and, if it elects, issuing its own recommendations, including sanctions. The board would also be required to provide guidance on specified investment activities.

The bill would provide for the licensure and regulation of cannabis limited charter banks for the purpose of providing limited banking and custodial services to cannabis businesses. A cannabis limited charter bank would be authorized to issue to an account holder special purpose checks that would be valid for only specified purposes. The bill would permit these checks to be used for the payment of state and local fees and taxes, payment of rent on property associated with the account holder’s cannabis business, payment of vendors located in California, as specified, and the purchase of state and local bonds, as specified. The bill would authorize a cannabis limited charter bank to obtain insurance and charge fees for its banking and custodial services. The bill would authorize a cannabis limited charter bank to enter into an agreement with another licensee to form a banking network, subject to the approval of the commissioner, to facilitate the provision of cannabis banking services.

The bill would require a cannabis limited charter bank to comply with federal law, including the Bank Secrecy Act, and to cooperate with the Financial Crimes Enforcement Network. The bill would prohibit a cannabis limited charter bank from participating in a federal financial network. The bill would prescribe a framework for the application, licensure, and enforcement of its provisions. By providing that certain examinations may be conducted under oath, the bill would expand the crime of perjury, thus imposing a state-mandated local program. The bill would also make a statement of legislative findings.

(2) The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Digest Key

Vote: MAJORITY   Appropriation: NO   Fiscal Committee: NOYES   Local Program: NOYES  

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Bill Text

The people of the State of California do enact as follows:

SECTION 1.

 The Legislature finds and declares:

(a) In November 2016, California voters passed Proposition 64, the Control, Regulate and Tax Adult Use of Marijuana Act, authorizing recreational use of marijuana subject to specified limits. Medicinal cannabis use has been legal under California law since 1996 with the passage of Proposition 215, the Compassionate Use Act of 1996.

(b) Since 1996, a network of producers, distributors, and dispensaries have developed in California to serve the needs of the medical cannabis community. All of these businesses are expected to expand, and new businesses are expected to join them, in order to serve recreational cannabis users.

(c) Cannabis remains illegal under federal law. The United States Drug Enforcement Administration classifies cannabis as a Schedule I drug. As a result, the majority of financial institutions that take deposits, including banks, thrifts, and credit unions, do not serve cannabis businesses. This status precludes cannabis-related businesses from depositing income in, or engaging in other banking-related activities with, federally insured and regulated financial institutions.

(d) Since most financial institutions will not serve cannabis businesses because of the conflict of federal law with state law, these businesses are unable to open and use checking accounts, make or receive electronic payments, or accept credit or debit cards.

(e) The need for banking services for the cannabis industry is at an all-time high, given that the industry is now expected to generate more than $8,000,000,000 in revenue annually.

(f) The lack of banking services has created both regulatory and public safety issues. State and local governments must be able to audit and perform accounting and other accountability functions affecting cannabis-related businesses. This is made significantly more difficult when the majority of transactions are completed with cash.

(g) With financial services unavailable to cannabis businesses, these businesses are less able to obey the law, pay taxes, and follow California regulations governing cannabis.

(h) Additionally, the lack of access to financial services has created public safety issues for businesses that need to pay high security costs to safeguard their income and their employees, who risk being robbed when managing and transporting cash.

(i) California voters have spoken in support of the new cannabis laws. Without a change in law regarding financial services, businesses providing services that are lawful under state law may elect to remain underground and not become regulated, tax-paying California businesses, as the voters intended.

(j) In furtherance of the will of the voters, the California government has a responsibility to enact appropriate implementing legislation for Proposition 64. The current conflict with federal law creates a significant problem requiring legislative attention. The state has a duty to provide a mechanism to allow these lawful businesses to gain access to banking services that is consistent with the will of California voters.

SEC. 2.

 Division 2.5 (commencing with Section 11000) is added to the Financial Code, to read:

DIVISION 2.5. Cannabis Limited Charter Banking Law

CHAPTER  1. General Provisions

Article  1. Short Title and Construction

11000.

 This division is known, and may be cited, as the Cannabis Limited Charter Banking Law.

Article  2. Definitions

11005.

 For purposes of this chapter:

(a) “Applicant” means a person or entity that submits an application to be licensed by the state to provide banking services to a cannabis business pursuant to this division.

(b) “Banking services” means the provision of depository and custodial services with respect to cash or other funds and the issuance of special purpose checks, including the acceptance and maintenance of deposit proceeds, consistent with the requirements and limitations provided by this chapter.

(c) “Board” means the Cannabis Limited Charter Bank Board.

(d) “Cannabis business” means a person licensed to engage in commercial cannabis activity under Division 10 (commencing with Section 26000) of the Business and Professions Code. The term “cannabis business” also includes an ancillary business or profession that serves a person licensed to engage in commercial cannabis activity under Division 10 (commencing with Section 26000) of the Business and Professions Code.

(e) “Cannabis limited charter bank” means a person or entity that receives a license following the approval of an application pursuant to Chapter 3 (commencing with Section 11040).

(f) “Commissioner” means the Commissioner of Business Oversight.

(g) “Department” means the Department of Business Oversight.

(h) “Licensee” means a cannabis limited charter bank.

CHAPTER  2. Administration

Article  1. The Cannabis Limited Charter Bank Advisory Board

11010.

 (a) There is hereby created the Cannabis Limited Charter Bank Advisory Board. The board shall be comprised of the Treasurer, the Controller, and the Chief of the Bureau of Cannabis Control. The Director of Finance shall serve as an ex officio, nonvoting member.

(b) The board shall be generally responsible for ensuring that the Cannabis Limited Charter Banking Law provides a safe and efficient way to pay state and local taxes and fees, to pay rent associated with the account holder’s cannabis business, to issue special purpose checks, and legally invest in California’s economy, while reducing burdens placed on local government that result from collecting and managing large sums of cash.

11011.

 In light of the particular challenges arising from cannabis business activities, the department shall submit reports of enforcement activities to the board for review annually or as the board may require. The board shall indicate its approval or disapproval of the enforcement reports and the resulting recommended actions. The board may also issue its own recommendations in this regard, including sanctions.

11012.

 The board shall provide guidance and education to registered broker-dealers on how to accommodate account holders of cannabis limited charter banks in purchasing, holding, and selling any of the investments described in paragraph (5) of subdivision (b) of Section 11050.

Article  2. Licensing

11020.

 (a) A person may act as a cannabis limited charter bank after obtaining a license pursuant to this division.

(b) A cannabis limited charter bank license is not transferable or assignable.

11025.

 A cannabis limited charter bank shall comply with federal law, including provisions commonly referred to as the Bank Secrecy Act, and shall cooperate with the Financial Crimes Enforcement Network.

Article  3. Enforcement

11030.

 The commissioner may, as often as the commissioner deems appropriate, examine the affairs of each cannabis limited charter bank for compliance with this chapter. The commissioner shall appoint suitable persons to perform the examination. The commissioner and his or her appointees may examine the books, records, and documents of the cannabis limited charter bank, and may examine the bank’s officers, directors, employees, or agents under oath regarding the bank’s operations.

CHAPTER  3. Application

11040.

 An applicant that desires to be licensed to act as a cannabis limited charter bank pursuant to this division shall submit a completed application to the department in a form prescribed by the commissioner that satisfies the requirements of this chapter.

CHAPTER  4. Authorizations

11050.

 (a) A cannabis limited charter bank may issue to an account holder special purpose checks that shall be valid for only the purposes specified in subdivision (b). The following text shall be printed on each check in at least 12-point type, with the name of the issuing bank included: “This check is issued by [insert name of bank] and may only be deposited or cashed at this cannabis limited charter bank or another cannabis limited charter bank that agrees to accept the check.”

(b) A special purpose check issued by a cannabis limited charter bank may be used for the following purposes:

(1) To pay fees or taxes to the state or a local jurisdiction.

(2) To pay rent on property that is associated with the account holder’s cannabis business.

(3) To pay a vendor that is located in California for expenses related to goods and services associated with the account holder’s cannabis business.

(4) To purchase the following:

(A) Bonds, interest-bearing notes, or interest-bearing warrants of this state for which the faith and credit of this state are pledged for the payment of principal and interest.

(B) Bonds or warrants, including, but not limited to, revenue warrants, of any county, city, metropolitan water district, California water district, California water storage district, irrigation district in the state, municipal utility district, or school district of this state.

(c) State and local government offices are authorized to accept a special purpose check issued by a cannabis limited charter bank.

11052.

 A cannabis limited charter bank may obtain private insurance for the cannabis depository institution and its assets. Private insurance shall not be unsatisfactory to the commissioner. In seeking and retaining private insurance, a cannabis limited charter bank may do all things and assume and discharge all obligations required of it that are not in conflict with state law.

11054.

 A cannabis limited charter bank may enter into an agreement with one or more other licensees in order to form a banking network. That agreement shall be subject to the approval of the commissioner. The network shall be for the purpose of assisting each other in providing services to cannabis businesses and each other. A network of this type shall not include any institution that is not a licensee under this division.

11056.

 A cannabis limited charter bank may provide accounts to people and entities other than cannabis businesses, as defined by the department.

11058.

 A cannabis limited charter bank may charge fees for the banking and custodial services that it provides.

CHAPTER  5. Prohibited Practices

11100.

 A cannabis limited charter bank shall not participate in a federal banking network.

SEC. 3.

 No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.

SECTION 1.

It is the intent of the Legislature to enact subsequent legislation that would establish a state-chartered bank that would allow a person licensed to engage in commercial cannabis activity under Division 10 (commencing with Section 26000) of the Business and Professions Code to engage in banking activities in California.