They do have the ability to drop the banner from inside the plane. But sometimes the system fails.
It could just be pilot error not dropping the banner soon enough or being afraid of where the banner would fall and not realizing it was too late to recover after dropping the banner. There's some unique aerodynamics that happen when towing a banner. The planes wing was already partially stalled and the only thing keeping the plane from departing controlled flight into a spin was the massive amount of drag created by the banner. Once the banner was let go the high power setting and high angle of attack caused an immediate stall spin. To get out of that situation the pilot would have needed to immediately cut the power and lower the nose while they drop the banner and even then it's questionable they could have recovered at such a low altitude. Add to that in this situation your instinctual response is to add full power and pitch the nose up which is exactly the opposite of what you need to do. Banner Towing is incredibly dangerous in the accident rate is high especially compounded by the fact that many banner tow pilots are inexperienced because it's one of the few jobs you can get as a commercial pilot with low total hours. So you see a lot of aspiring airline pilots taking this job for a summer because it's a good way to build hours. Personally I'm surprised banner towing is still legal considering the dangers it poses to people especially over populated areas like this. I have been in one near mid-air collision in my life and it was with a banner tow pilot who was not paying attention and cut me off in the traffic pattern when we were within a hundred feet of the ground.
It looks like this guy never got to a stable airspeed then lost too much altitude not realizing what was happening until there was nothing he could do besides just slowly glide to death.