A new report from the Cannabis Banking Working Group recommends a series of steps to increase banking access for California’s cannabis industry, including the creation of a new type of financial institution.
The group, made up of California State Treasurer John Chiang and 18 stakeholders, suggests in its report that a state-backed or public bank could be the solution to the cannabis industry’s banking problem.
The federal government’s stance on marijuana causes friction between state-legal cannabis businesses and federally regulated banks. Banks often will not open accounts for cannabis companies for fear that the bank will be punished under federal law.
The report estimates that the California’s legal cannabis industry will generate more than $7 billion in annual sales during its first few years of operation, which will begin Jan. 1, 2018.
California would organize and capitalize the state-backed bank, which state taxpayers would own, the report says. Serving cannabis businesses would be one of its missions, but it would also be able to accept deposits from other small businesses and consumers, lend money for the development of underserved communities and finance infrastructure projects.
The public bank option would be established to primarily serve the cannabis industry, according to the report. The bank could be organized as a freestanding institution or as a separately chartered unit of a broader public institution. It would provide deposit, credit and payment services to cannabis businesses. The model would require a statewide branch network and a robust compliance program.
Based on the group’s findings, the state Treasurer’s Office recommended a feasibility study be conducted to determine whether the creation of either bank model is advisable.
Each solution outlined in the report aims to bring cannabis businesses closer to banking access. The end goal, the report says, is either the federal legalization of cannabis or legislation that protects financial institutions that serve the cannabis industry.
The report recommends the following steps:
1. The implementation of safer, more effective ways for businesses to handle the payment of taxes and other fees in cash that minimize risk to stakeholders.
2. The state and local governments should develop a portal of compliance and regulatory data and make it available to banks that serve cannabis businesses.
3. A feasibility study should be conducted of a public bank or other state-backed financial institution that provides banking services to the cannabis industry.
4. A multistate organization of state government representatives and other stakeholders should be created to seek changes to federal law to remove barriers to banking for state-legal cannabis businesses.
Top image: © Aleksander Hubenov | Dreamstime.com
