Sales of recreational marijuana in California could soon be a multi-billion dollar industry with hundreds of millions in taxable cash changing hands. So what happens to that cash when commercial banks, which are regulated by the federal government, won’t touch it?
The predicament is a big problem for California’s fledgling recreational marijuana businesses. And now, state leaders may be closer to putting one idea to the test — a public, state-run bank for the cannabis industry.
How could something like that work? And who’s behind this idea? Here’s a quick look at how this issue:
A bank run by the state of California? Really?
Yes. The idea is to create a public bank funded and run by the state of California, and not private investors, the Los Angeles Times reported. Before this occurs, a few people in California government want to study this idea.
Who is behind this idea?
The Times also reports that John Chiang, the state’s treasurer, and Xavier Becerra, the state attorney general, are each looking to begin studying the feasibility of a state-run bank. Chiang said his office will study the costs, regulation and operational issues involved in creating a state-run bank.
Chiang added that Becerra’s office would look into the legal issues. Lt. Gov. Gavin Newsom, who like Chiang is running to succeed fellow Democratic Gov. Jerry Brown, has also supported this idea.
They are not alone. Other cities across California and the country where sales of recreational pot is legal — including Los Angeles, San Francisco, Portland, Seattle, and Washington, D.C. — are also exploring the idea of creating their own municipal banks. Cannabis advocates and public bank advocates also support the idea.
What’s wrong with banks like Wells Fargo or Bank of America?
Commercial banks operate largely under federal oversight. And in the federal government’s view, marijuana is still an illegal drug. To no one’s surprise, banks will typically shun businesses that transact money from sales of an illegal drug. This prevents marijuana businesses, both growers and sellers, from opening bank accounts to get loans, write checks or process credit card payments.
Yes, public banks were more common in the 1700s. A number of states had their own banks. Today, only one public bank remains in the nation — the Bank of North Dakota.
Cash is king, so what’s the problem?
Chiang and other state and city officials worry that the cannabis industry’s overreliance on cash puts people at risk of getting robbed or mugged. He also says it makes it hard for these businesses to pay their taxes.
How are cannabis businesses managing for now?
The methods could vary from business to business.
In one example described by the Times, one marijuana dispensary in Los Angeles uses a separate limited liability company that pretends to be a management firm. That firm then deposits its money to a bank that doesn’t know what they do.
Another cannabis company loads cash onto an armored car and drops it off at a Federal Reserve Bank in downtown Los Angeles. The cash is then deposited to a local credit union, the Times reports.
credit:420intel.com
