California Treasurer John Chiang wants the state to consider creating a government-owned bank that could serve cannabis businesses, one of several recommendations aimed at helping bring those businesses into the financial mainstream.
The recommendations, the product of a year of meetings of a cannabis working group organized by Chiang’s office, suggest there may be ways for California to help cannabis businesses pay their taxes and open bank accounts. But they also illustrate that the relationship between banks and marijuana companies will remain tenuous unless federal laws are changed.
Indeed, along with looking into the creation of a public bank, another of the recommendations from Chiang’s group is to form a multistate group to lobby Congress to ease federal restrictions on cannabis.
“A definitive, bulletproof solution will remain elusive” without federal deregulation, Chiang said at a news conference Tuesday announcing the recommendations. “That is not an excuse for inaction.”
Last year, in the wake of the passage of Proposition 64, which legalizes marijuana for recreational use, Chiang created a working group of public officials, bankers and cannabis companies with the aim of addressing a vexing problem for the pot industry: Even in states where cannabis is legal, companies that grow or sell the plant are often unable to open bank accounts.
Despite guidelines that suggest banks can accept money from cannabis businesses, marijuana remains an illegal substance under federal law and banks answer to federal regulators, making the vast majority of financial institutions unwilling to work with marijuana companies.
Over the last year, Chiang’s group held public meetings around the state, hearing from cannabis companies about how the de facto banking ban affects them, from banks about their concerns and from public officials about the side effects of a bankless industry — notably having to accept tax payments made with duffel bags full of cash.
The group’s final report, released Tuesday, makes four recommendations aimed at addressing the issue, though the report acknowledges they are stopgap measures. Cannabis business owners called the recommendations useful but incremental at best.
One recommendation, which was promoted by many in the cannabis industry as well as social justice groups, is that the state look into the creation of a public bank. A bank owned by the state of California, the thinking goes, could provide banking services to cannabis companies and also offer an alternative to profit-driven Wall Street institutions.
There are numerous obstacles to creating such a bank, including the potential cost to the state and lingering questions about whether such an entity would be able to serve the cannabis industry. Tuesday’s report does not call for the creation of a public bank, but rather suggests the state should study the idea.
Chiang said he and the state attorney general’s office will start such a study soon.
To help local agencies collect marijuana tax payments, and to reduce the risk that cannabis business owners take by transporting tax payments in cash, the report recommends that the state hire armored car services to pick up tax payments from businesses.
That cash would be deposited at banks — on behalf of the state, not the cannabis businesses. Chiang, who is running for governor of California, called it “a simple and elegant strategy” that would help address a long-running concern for governments and business owners.
Dan Grace, chief executive of Oakland’s Dark Heart Nursery, which supplies commercial cannabis growers, said being able to pay taxes without hauling cash to government offices would be helpful — but only to a point.
“My payments to the government are at most one quarter of my monthly payments, so that still leaves everything else,” he said. “It still doesn’t solve the issue in a meaningful way.”
To help banks feel more comfortable working with marijuana businesses, the report recommends that state and local agencies that regulate those cannabis businesses should make information about the businesses available to financial institutions.
Under current federal guidelines, banks that accept deposits from cannabis businesses are required to certify that those businesses are not selling to minors, affiliated with organized crime or breaking a handful of other rules — a tricky task that has the effect of keeping most banks out of the industry.
Tuesday’s report suggests that if banks had access to state and local regulatory information about cannabis businesses, it would help banks feel more comfortable about working with those businesses.
Grace said such a system might be helpful and that state cannabis business licenses — which will be issued starting next year — should also make banks feel more comfortable working with cannabis companies.
“One thing we do frequently hear from bank compliance officers is that it’s hard to meet the regulatory standards because they have to ensure we’re conforming to state and legal regulations,” he said. “Right now, that’s a high bar to meet since we still don’t have state licensing.”
Finally, the report calls for the creation of a consortium of state and local governments in states where marijuana is legal, with the goal of making sure “cannabis-legal states speak with one voice” in lobbying for changes to federal law.