A California-backed Marijuana Bank? State Study Says Unlikely

California would likely lose money and face insurmountable federal hurdles if it tried to create a state-backed bank for the marijuana industry, according to a report by the state treasurer.

The report puts an end, for now, to hopes that California could find a way to get around banking hurdles for marijuana businesses as the state’s recreational market concludes its first year in operation. A working group launched by state Treasurer John Chiang commissioned the study by a San Diego-based firm in January. State lawmakers rejected legislation for a state-backed bank earlier this year.

Chiang used the report, released Thursday, to blast the Trump administration for cracking down on marijuana even though 33 states have legalized it for recreational or medicinal purposes. It remains a Schedule 1 drug under federal law.

“While today’s announcement may not lay out the path some of us had hoped, it did reinforce the inconvenient reality that a definitive solution will remain elusive until the federal government takes action,” Chiang said. “They must either remove cannabis from its official list of banned narcotics or approve safe harbor legislation that protects banks serving cannabis businesses from prosecution.”

Many banks are nervous about running afoul of federal law by doing business with the industry, although some work with marijuana-related businesses. That forces pot businesses to deal in large sums of cash, a potential security risk.

Chiang said he was hopeful a public bank could address that issue.

“We need Washington D.C. to provide a clear solution that makes cannabis banking work for everyone,” he said.

California voters legalized recreational marijuana for adults in 2016 and the recreational sales industry launched Jan. 1, 2018. Chiang created a working group of banking, cannabis and other industry and government representatives to address conflicts between state and federal law. The group commissioned Level 4 Ventures to conduct a study on a state-backed bank’s feasibility.

According to the firm’s findings, creating a state bank would likely waste taxpayer money, require $1 billion in capital investments and wouldn’t become profitable for 25 to 30 years. If federal law changes during that time, or if existing private banks decide to take on the risk of working with the growing cannabis industry, the need for California’s bank would disappear.

Public banks are rarely successful, the report found. Only two exist, in North Dakota and American Samoa, and neither was created to deal with the marijuana industry.

“The only effective long-term solution involves legislative and regulatory changes at the federal level to allow the legal banking of cannabis related funds,” the report concluded.

The report recommends California designate a state agency to help improve how it handles cash-based tax and other marijuana-related payments, lobby for changes to federal law and encourage existing private banks to work with cannabis businesses.

California Attorney General Xavier Becerra’s office also concluded a public bank for marijuana business was not feasible, saying it would violate federal criminal statutes.