State-run commercial bank seen as option for California marijuana industry
LOS ANGELES—California State Treasurer John Chiang wants a study to consider creating a state bank to help resolve problems the legal marijuana industry has encountered as it marches toward legitimacy.
In addition to serving the virtually unbanked California marijuana industry, Chiang said there is a growing interest, because of the "craven excesses" of existing commercial banks.
Recreational marijuana sales and production in the state are slated to become legal in January after voters approved a ballot measure in November 2016.
The hitch in California, as in other states that have legalized recreational or medical marijuana, is that it is still illegal on the federal level.
As a result the banking industry has not been willing to do business with pot growers, manufacturers or retailers.
"It is unfair and a public safety risk to require a legal industry to haul duffle bags of cash to pay taxes, employees, and utility bills," Chiang said. "The reliance on cash paints a target on the back of cannabis operators and makes them and the general public vulnerable to violence and organized crime."
He unveiled the recommended solutions at a press conference Tuesday in Sacramento.
It’s estimated, according to the treasurer’s report, that the industry will generate sales exceeding $7 billion and $1 billion a year in tax revenues.
Chiang also proposed using armored cars to transport hundreds of millions of dollars in cash tax payments expected next year.
Operating as a cash business not only presents a dangerous scenario for pot businesses, but it makes it harder for state and local governments to take their cut through sales taxes.
Armored cars were recommended because cannabis industry workers and business owners can be targets for robbery. They tend to carry large amounts of cash as a result of their inability to access banking services.
The treasurer has been lobbying Congress to enact changes on the federal level to bolster his efforts, said Khurshid Khoja, a board member of the California Cannabis Industry Association.
"The reality is that a definitive, bullet-proof solution will remain elusive until the federal government removes cannabis from its official list of banned narcotics or Congress approves safe harbor legislation protecting banks that serve cannabis businesses from prosecution," Chiang said.
During the Obama administration, the Justice Department issued guidelines to help banks avoid federal prosecution when dealing with pot businesses in states where the drug is legal, but Chiang said those guidelines were onerous, so most banks still refused to work with the cannabis industry.
Banks also don’t see those rules as a legal protection against drug trafficking charges.
The number of banks and credit unions willing to handle money generated by this industry is growing, albeit slowly.
The goal of the cannabis working group was to provide the industry with basic services, such as checking accounts and credit cards, available to other entrepreneurs, Chiang said.