Recreational weed is now legal in California. So what does that mean?
California’s treasurer and attorney general plan to move forward with plans to create a state bank for the cannabis industry.
Because of the federal prohibition on marijuana, banks generally will not provide accounts to cannabis companies, forcing them to pay taxes and other expenses in cash. The resulting safety problems and accounting complications have been brought to the fore by the Jan. 1 start of legal recreational pot sales in California.
“Cannabis firms are forced to deal almost entirely in cash, creating a rich environment for violent crimes, money laundering and other illegal activity,” said a statement from the office of state Treasurer John Chiang.
Chiang, who is running for governor, and Attorney General Xavier Becerra will conduct a feasibility study to determine the best path forward for California’s estimated $7 billion a year cannabis industry, Chiang announced Tuesday.
Chiang’s office will examine the operational issues raised by having a state bank or credit union. Key questions to answer include whether to operate a brick-and-mortar office or an electronic bank and how the bank would be funded. That part of the study will take the rest of the year to complete, he said.
Becerra’s office will examine the legal issues involved in the proposal and that will take a few months to complete, Chiang said.
The Bank of North Dakota is the only deposit-holding, publicly owned financial institution in the U.S., according to Chiang. It was created in 1919 to provide loans to farmers.
U.S. Attorney General Jeff Sessions earlier this month announced that he was ending a federal policy that was widely viewed as allowing the operation and expansion of legal marijuana in states. Sessions said he would allow federal prosecutors across the country to determine if they want to investigate marijuana cases in states that have approved legal cannabis.
Sessions’ announcement has created more incentive to create a public bank, Chiang said. The state needs to bring operators “out of the shadows” and running legally, so as to not attract federal intervention, he said.
Last year, Chiang put together the Cannabis Banking Working Group to examine the industry’s financial issues. The 18-member task force held hearings across the state before issuing a report in November calling for closer examination of whether to create a state-backed financial institution.
“The obstacles to creating a public financial institution are formidable, including the difficulty of getting deposit insurance, unknown start-up costs, investment likely to measure in the billions of dollars, and the probability of losses for several years or more that taxpayers would have to cover,” the report states.
A critic of Chiang’s proposal latched on to one of the points made by the task force.
“For a state that is already plagued with so many economic problems, despite its recent budget surplus, the idea of the state running its own bank should worry every person in California,” said Yaël Ossowski, the Deputy Director for the Consumer Choice Center in Washington, D.C.
State Sen. Robert Hertzberg, D-Van Nuys, also is pursuing the idea of a state bank for cannabis businesses. Last week, he introduced a bill that would allow state-chartered banks, credit unions and other financial institutions to open checking and savings accounts and for marijuana businesses.