SENATE COMMITTEE ON
BANKING AND FINANCIAL INSTITUTIONS
Senator Steven Bradford, Chair
2017 - 2018 Regular
Bill No:
Author:
Version:
Urgency:
Consultant:

SB 930
Hertzberg
April 9, 2018 Amended
No
Eileen Newhall

Hearing Date:

April 18, 2018

Fiscal:

Yes

Subject: Financial institutions: cannabis

SUMMARY This bill authorizes the creation of limited charter banks and credit unions,
as specified, and authorizes the use of special purpose checks issued by these
institutions for specified purposes, including the payment of state and local taxes, rent,
and goods and services, and the purchase of state and local securities, as specified.
EXISTING LAW
1) Provides for Proposition 215 (The Compassionate Use Act of 1996), which exempts
from specified criminal penalties the possession or cultivation of medical marijuana
by patients and primary caregivers; and Proposition 64 (The Control Regulate, and
Tax Adult Use of Marijuana Act of 2016), which provides for the licensure and
regulation of commercial adult marijuana activities by various state agencies.
2) Provides for the Medicinal and Adult-Use Cannabis Regulation and Safety Act
(Business and Professions Code Section 60000 et seq.) and its implementing
regulations (California Code of Regulations Title 16, Division 42, Section 5000 et
seq.), administered by the California Bureau of Cannabis Control.
3) Provides for the Department of Business Oversight (DBO) and gives DBO authority
to administer the Financial Institutions Law. The three divisions of the Financial
Institutions Law that are relevant for purposes of this bill include Division 1, related to
administration, enforcement, and liquidation and conservation (Financial Code
Section 99 et seq.); Division 1.1, the Banking Law (Financial Code Section 1000 et
seq.); and Division 5, California Credit Union Law (Financial Code Section 14000 et
seq.).
THIS BILL
1) Contains findings and declarations related to passage of Proposition 64 in 2016,
authorizing the recreational use of cannabis, and to passage of Proposition 215 in
1996, authorizing the medicinal use of cannabis; the significant challenges that
cannabis businesses have accessing traditional banking services; the regulatory and
public safety issues arising from cannabis businesses’ lack of access to banking
services; and the responsibility of the state, consistent with the will of California
voters, to provide a mechanism to help lawful cannabis businesses gain access to
banking services.

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2) Establishes a new Division 2.5 within the Financial Code (Section 11000 et seq.)
called the Cannabis Limited Charter Banking Law (CLCBL), administered by DBO.
3) Defines the terms banking services, cannabis business, and cannabis limited charter
bank, cannabis limited charter credit union, and board for purposes of the CLCBL,
as follows:
a) Banking services means the provision of depository services with respect to
cash or other funds, including the acceptance and maintenance of deposit
proceeds, and the issuance of special purpose checks, as specified.
b) Cannabis business is defined as a person licensed to engage in commercial
cannabis activity pursuant to Division 10 of the Business and Professions
Code and an ancillary business or profession that serves such a licensed
person.
c) Cannabis business limited charter bank (CLCB) means a person that receives
a cannabis business limited charter bank license from DBO.
d) Cannabis business limited charter credit union (CLCCU) means a person that
receives a cannabis business limited charter credit union license from DBO.
e) Board means the Cannabis Limited Charter Bank Advisory Board.
4) Authorizes CLCBs and CLCCUs to issue special purpose checks, which are valid
only for specified purposes. Requires each special purpose check to include the
following text, in at least 12-point type: “This check is issued by [insert name of
CLCB or CLCCU] and may only be deposited or cashed at this CLCB/CLCCU or
another CLCB/CLCCU that agrees to accept the check.”
5) Allows special purpose checks to be used only for specified purposes, but
clarifies that no individual or entity, whether private or public, is required to
accept a special purpose check issued by a CLCB or a CLCCU. Special
purpose checks may only be used to:
a) Pay fees or taxes to the state or a local jurisdiction.
b) Pay rent on property that is associated with the account holder’s cannabis
business.
c) Pay a vendor located in California for expenses related to goods and services
associated with the account holder’s cannabis business.
d) Purchase bonds or interest-bearing notes or warrants backed by the full faith
and credit of the state, or bonds or warrants of any local jurisdiction, as
specified.
6) Requires persons wishing to form as a CLCB or CLCCU to obtain a license from
DBO, as specified, and to comply with all requirements of Division 1 of the
Financial Institutions Law (which generally cover administrative and enforcement

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functions) and with either Division 1.1 of the Financial Code (the Banking Law) or
Division 5 of the Financial Code (the California Credit Union Law), as applicable,
but further provides that any requirement of any of those laws that is inconsistent
with Division 2.5 does not apply to that CLCB or CLCCU.
7) Requires CLCBs and CLCCUs to obtain and maintain private insurance for
themselves and their assets at all times they are engaged in banking services,
and authorizes CLCBs and CLCCUs to do all things and assume and discharge
all obligations required of them in this regard, which are not in conflict with state
law.
8) Authorizes CLCBs and CLCCUs to charge fees for the services they provide and
authorizes the Commissioner of Business Oversight (commissioner) to review
any fee charged by a CLCB or CLCCU, upon request or whenever the
commissioner deems such review appropriate.
9) Authorizes CLCBs and CLCCUs to enter into agreements to form banking
networks with other CLCBs and CLCCUs for the purpose of helping each other
provide services to cannabis businesses, but expressly forbids a network of this
type from including any institution that is not a CLCB or CLCCU.
10) Requires CLCBs and CLCCUs to adopt policies and practices that allow them to
achieve the principles and goals outlined in the federal Bank Secrecy Act and to
cooperate with the federal Financial Crimes Enforcement Network.
11) Prohibits CLCBs and CLCCUs from engaging in banking activity with any other
financial institution that lacks a California limited purpose charter and from
engaging in any activity other than that required to accept deposits and perform
actions authorized under Division 2.5 of the Financial Code.
12) Provides that the Board is comprised of the Treasurer, Controller, and the Chief
of the Bureau of Cannabis Control as voting members, and the Director of
Finance as an ex-officio, nonvoting member.
a) Holds the Board generally responsible for ensuring that the CLCBL provides a
safe and efficient way to pay state and local taxes and fees, pay rent
associated with the account holder’s cannabis business, issue special
purpose checks, and legally invest in California’s economy.
b) Requires the Board to hold noticed, public meeting at least once a year, or
more often as needed, to review enforcement activity reports from DBO and
to draft recommended legislative or administrative actions for submission to
the Legislature and the Governor, as specified.
c) Requires the Board to provide guidance and education to registered brokerdealers and licensed investment advisors on how to accommodate CLCB and
CLCCU account holders who wish to purchase allowable state and/or local
securities.
13) Makes related conforming amendments to provisions of the Financial Code.

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COMMENTS
1) Purpose: This bill is sponsored by Board of Equalization Member Fiona Ma to help
mitigate several of the problems resulting from cannabis businesses’ access to
banking services.
2) Author’s Statement: The author states, “The use and consumption of medical
marijuana was legalized in California in 1996, and Proposition 64 legalized adult-use
cannabis as of January 2018. However, due to cannabis’ federal classification as a
Schedule I drug, cannabis-related businesses are not able to deposit income with
federally-insured financial institutions. The cannabis industry is expected to generate
between $8-20 billion annually. This is a massive industry that we can only expect
will continue to grow; yet cultivation, distribution, and retail businesses alike have
been forced to operate on a cash-only basis. This is not only impractical from an
accounting perspective, but also presents a significant public safety issue.
“The Department of Finance estimates that the state will collect $600 million in
cannabis taxes in the upcoming year. Unlike most businesses however, cannabis
businesses arrive to government offices with duffel bags of cash to fulfill their tax
obligations. Standard oversight and accountability measures, like audits, become
very difficult when most transactions are completed in cash. Additionally, these
businesses face security risks because of the volume of cash in their possession.”
3) Why Are Cannabis Businesses Locked Out of the Banking System? Virtually
everyone who has attempted to solve the problem this bill’s author and sponsor are
seeking to solve has faced the reality that the vast majority of traditional banks and
credit unions will not knowingly provide banking services to cannabis businesses or,
in many cases, to businesses that serve cannabis businesses. Reluctance to serve
the cannabis industry is based on a minimum of three different laws: the Bank
Secrecy Act, the USA Patriot Act, and the Racketeer Influenced and Corrupt
Organizations (RICO) Act. Together, these laws make it illegal for financial
institutions to handle funds stemming from criminal activity, including violations of
federal drug laws, and subject financial institutions to possible regulatory sanctions
for placing their safety and soundness at risk by failing to take appropriate actions to
avoid illegal activity. The RICO Act additionally subjects all property bought with the
proceeds of illegal activity to forfeiture.
Several problems specific to cannabis banking stem from these federal laws. For
example, neither the Federal Deposit Insurance Corporation nor the National Credit
Union Administration have, to date, been willing to provide deposit insurance to
banks and credit unions that knowingly provide banking services to cannabis
businesses.
No federal clearinghouse has been willing to clear a check known to have been
written by or to a cannabis business. Furthermore, because the payment rails used
to process electronic payments are run by federally-regulated institutions, banks and
credit union will not issue credit or debit cards to businesses they know to be
cannabis businesses, nor process credit and debit card transactions they know to
involve the proceeds of cannabis activity.

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For the aforementioned reasons, if California is going to devise a way for cannabisspecific depository institutions to legally operate in the state, those institutions will
need to be walled off from the traditional banking sector. This bill envisions such an
approach.
4) How Will All of This Work? If this bill is enacted, the author and sponsor envision
that one or more CLCBs or CLCCUs will form in one or more areas of the state.
Once formed and operational, a CLCB or CLCCU will open accounts for California
licensed cannabis businesses and accept cash and special purpose check deposits
from those businesses. CLCBs and CLCCUs will be authorized to engage in only
two activities: 1) accepting and holding deposits for their account holders and 2)
issuing special purpose checks to their account holders. A cannabis business with
an account at a CLCB or CLCCU will be able to use special purpose checks, rather
than cash, to pay taxes and to pay for certain products and services, but only if the
entity to which the cannabis business presents the special purpose check wishes to
accept it. Because traditional banks and credit unions will be unlikely to deposit or
cash special purpose checks, these checks cannot be considered legal tender.
They are, in essence, cannabis scrip, which can only be exchanged with a business
or other entity that agrees to accept them.
If we assume that the state and some local jurisdictions will agree to accept special
purpose checks for the payment of taxes (something not yet authorized or required),
the most obvious advantage to the system envisioned by this bill is the increased
ability of cannabis businesses to pay their state and local taxes, without having to
physically carry large bags of cash into state and local taxing agencies. Other
advantages may flow from the authority granted by this bill, but may be more limited,
at least initially.
For example, in certain geographic areas of the state whose economies are heavily
reliant on cannabis, and whose residents and business owners frequently interact
with cannabis businesses, the special purpose checks envisioned by this bill may be
readily accepted, and, as such, may help take some cash off the streets and mitigate
some of the existing public safety risks that result from cannabis business’s lack of
access to banking services. If everyone has an account at the local CLCB or
CLCCU, being presented with a special purpose check is not a problem; one just
deposits it into one’s account. Even in areas where the economy is less dependent
on cannabis, and where most residents and businesses do not interact with
cannabis businesses, these special purpose checks may help cannabis businesses
interact with one another, without having to exchange large amounts of cash. One’s
out-of-town landlord may not want to accept a special purpose check, but the vendor
that serves multiple cannabis businesses probably will.
However, in other areas of the state whose economies are less reliant on cannabis,
and where residents and businesses interact to a much more limited extent with
cannabis businesses, these special purpose checks may not be readily accepted. If
a landlord receives a special purpose check from a cannabis business but does not
have an account at a CLCB or CLCCU, the landlord has little, if any, ability to
convert that check to cash. Even if the landlord has access to a nearby CLCB or
CLCCU, something that is not assured, it is unclear (see suggested amendments,
below) whether that landlord could turn the special purpose check into cash at a

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CLCB, and similarly unclear how much that landlord would be charged for doing so.
The fewer CLCBs and CLCCUs that form under the authority created by this bill, the
harder it will be for cannabis businesses wishing to use special purpose checks in
lieu of cash to find people and businesses to accept them.
It should also be noted that, even though this bill authorizes different CLCBs and
CLCCUs to enter into banking networks with one another, this authority does not
extend to electronic transmission of money from one to another. This bill does
nothing to grant CLCBs or CLCCUs access to federal payment rails, access that
cannot be granted as long as cannabis remains illegal at the federal level.
The idea in this bill holds promise, but its success will be heavily dependent on the
number of CLCBs and CLCCUs that form, on their geographic locations across the
state, and on their abilities to devise ways to accept and deposit checks issued by
their brother- or sister- CLCBs and CLCCUs.
5) Will Private Insurance Be Available? What About Sufficient Collateral to Ensure
Liquidity? Several of the unanswered questions surrounding the limited purpose
depository institution charter authorized by this bill include the level of private deposit
insurance and collateral DBO will require, the extent to which insurers authorized to
do business in this state will provide the required insurance, the cost of that
insurance, and the extent to which limited charter banks and credit unions will have
access to required amounts of collateral. No cannabis business, regardless of how
desperate it is to move away from an all-cash business model, is likely to deposit its
money in an institution that might not fully insure its deposits, nor in one that cannot
promise instant liquidity, when it wishes to withdraw its funds.
6) Should This Bill Spell Out the Specific Requirements to Which CLCBs and CLCCUs
are Subject? This bill opts to use general control language to describe the
requirements to which CLCBs and CLCCUs are subject rather than spelling out each
and every requirement in detail. For example, Financial Code Section 11021,
proposed to be added by this bill, states that a CLCB and CLCCU shall comply with
all requirements of Division 1 of the Financial Code, and with either Division 1.1
(CLCBs) or Division 5 (CLCCUs), except that, to the extent any requirement of those
laws is inconsistent with a provision of the Cannabis Limited Charter Banking Law,
the provisions of the cannabis law shall prevail. The challenge posed by this broad
language is its lack of specificity. Which requirements are inconsistent? Should
they be ignored or should they be modified to remove the inconsistency? How?
Section 11040 contains similar, unclear control language.
Both of these control sections substitute for a much lengthier alternative, which
would provide far greater clarity and certainty to entities seeking to become licensed
as CLCBs and CLCCUs. This alternative would entail drafting two new, cannabisspecific articles of law, one based on the Banking Law and the other based on the
Credit Union Law. Although lengthy and time-consuming to draft, these two
cannabis-specific articles would clarify the specific rules applicable to both types of
limited charter depositories. Amendments are suggested (see Section 9b of this
analysis) to replace this bill’s control sections with cannabis-specific articles of law.

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7) Support:
a) Board of Equalization member Fiona Ma is sponsoring SB 930 as a significant
step toward integrating cannabis-related businesses into the California economy
in a safe and transparent manner.
b) The California Cannabis Industry Association, Cannabis Distributors Association,
Cannabis Growers Association, Southern California Coalition, Service
Employees International Union, Black American Political Association of
California, Rural County Representatives of California, California Asian Pacific
Islander Chamber of Commerce, and several others support the bill, because it
would allow cannabis-related businesses to perform routine financial transactions
in a much safer manner.
8) Opposition: None received.
9) Amendments:
a) This bill creates the Cannabis Limited Charter Banking Law and authorizes
limited charter banks and limited charter credit unions to form under that law. It
is questionable whether a credit union will want to form under a law called a
“Banking Law.” Both for clarity and in the interest of encouraging, rather than
discouraging credit unions from forming under the new cannabis law, staff
suggests renaming Division 2.5 as either the “Cannabis Limited Charter Banking
and Credit Union Law” or the “Cannabis Limited Charter Depository Institution
Law.”
b) Financial Code Section 11040 requires applicants wishing to become licensed as
CLCBs or CLCCUs to form under either the Banking Law or the Credit Union
Law, as applicable, and to comply with all requirements imposed by those laws,
except to the extent any requirement is inconsistent with the provisions of the
Cannabis Limited Charter Banking Law. The language of Financial Code Section
11040 is inconsistent with the requirement, explained earlier in this analysis, that
CLCBs and CLCCUs be wholly separate from their traditional counterparts. A
CLCB cannot form under the Banking Law and be wholly separate from a
traditional bank formed under the Banking Law.
The clearest solution to the problem posed by the language of Section 11040 is
its deletion and substitution with two, separate articles, one based on the
Banking Law and one based on the Credit Union Law, each of which expressly
deletes and/or modifies language in Division 1.1 and Division 5 that is
inconsistent with the Cannabis Limited Charter Banking Law. In this way, a
CLCB would be required to form under the article patterned on, but distinct from,
the Banking Law, and a CLCCU would be required to form under the article
patterned on, but distinct from, the California Credit Union Law.
c) The uses to which special purpose checks may be put would benefit from tighter
definitions.
For example, this bill authorizes the use of a special purpose check to pay rent

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on a property that “is associated with” the account holder’s cannabis business.
The term association is extremely broad and could include properties with
extremely loose, possibly indirect associations. If the intent of the author is to
limit this provision to the payment of rent on properties leased by or on behalf of
the cannabis business, the language on Page 15, lines 31 and 32 should be
modified accordingly.
Similarly, this bill authorizes the use of a special purpose check to pay a vendor
located in California for certain expenses. The term “located in California” would
benefit from further clarification. At a minimum, this language should refer to
businesses physically located in California. However, the language may also
benefit from clarification to address businesses, which have physical locations in
California, but which have centralized billing operations located outside the state.
If a cannabis business purchases goods or services from a vendor that is
physically located in California, but is required to remit payment to the vendor’s
centralized billing operation in another state, it is highly unlikely that the vendor
will be able to convert the special purpose check into legal tender and thus highly
unlikely that vendor will accept the check.
d) This bill’s author may also wish to amend his bill to add authority for a CLCB or
CLCCU to cash a special purpose check it previously issued on behalf of one of
its account holders, which is presented to it by person or entity that is not an
account holder. In this way, a landlord that receives a special purpose check for
payment of rent, who does not wish to open an account at the institution that
issued the check, can convert the special purpose check into cash at the issuing
special purpose depository institution.
e) This bill authorizes the commissioner to review fees charged by CLCBs and
CLCCUs but is silent on the authority of the commissioner to demand that a
CLCB or CLCCU modify its fees pursuant to an order of the commissioner. If this
bill’s author would like DBO to have that authority, an amendment will be
necessary to provide it.
f) The following technical and clarifying amendments are suggested:
i)

Financial Code Section 329(a)(1)(G): Insert an inadvertently omitted
reference to limited charter credit unions.
Page 8, line 27, after “bank”, insert: or credit union

ii)

Financial Code Section 11052: Specify that the private insurance, which
CLCBs and CLCCU must hold, must be in an amount acceptable to the
commissioner.
Page 16, line 13, after insurance, insert: in an amount acceptable to the
commissioner

iii)

Financial Code Section 11054: Clarify that the network must consist solely
of limited charter licensees.

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Page 16, line 21, after “other” insert: limited charter
iv)

Financial Code Section 11056: Use language of the sort used in other laws
administered by DBO.
Page 16, line 29, strike “as defined by the department” and insert: pursuant
to rules that may be adopted by the commissioner.

g) Finally, staff suggests that thought be given to expressly granting DBO
emergency rulemaking authority to speed up the issuance of regulations
necessary to implement the bill. The bill might also benefit from a delayed
operative date, to give DBO time to issue regulations, before entities are
authorized to begin applying for limited charter licenses.
10) Prior and Related Legislation:
a) SB 148 (Weiner), from the 2017-18 Legislative Session, would have authorized
the Board of Equalization and counties to collect cash payments from cannabisrelated businesses for the payment of taxes. Held on the Senate Appropriations
Committee Suspense File.
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
Board of Equalization Member Fiona Ma (sponsor)
Board of Equalization Member George Runner
Black American Political Association of California
California Asian Chamber of Commerce
California Cannabis Industry Association
California Growers Association
Cannabis Distribution Association
California NORML
CMG/Caliva
City of Los Angeles
City of Santa Monica
Fresno Councilmember Oliver Baines, III
River Distributing Company
Rural County Representatives of California
Service Employees International Union, Local 1000
Southern California Coalition
Truth Enterprises (lbs Distribution, Apex Agriculture, Woodland Reserve, Puff Pre-rolls)
WeDrop
Opposition
None received
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