California has successfully circumvented federal law and created a state-held bank with the purpose of serving the marijuana industry. While many are excited that these plans have moved from words to actions, others are questioning how viable it is. This has led state Treasurer John Chiang and state Attorney General Xavier Becerra to launch a new feasibility study. Chiang’s department will be focusing on the financial and operational issues, while Becerra is examining the legal.
At a recent news conference, Chiang voiced caution about the idea of a public bank, comparing it to – of all things – a potato chip: “Today we are taking the next steps in determining the practical considerations that could lead to the creation of a public bank. Is there a solution there? Maybe. Or is it like a potato chip? It tastes good going down but is ultimately of no nutritional value.”
The need for a public bank for the marijuana industry is not new one. Medical marijuana has been available in California since the mid-1990s. It is the recent boom in growth and acceptance that has more and more people jumping onboard with the public bank idea. As of now, legal cannabis business owners are forced to deal in cash only. Obviously, incredibly inconvenient and unsafe.
Why does a multi-billion-dollar industry find itself in this position? As of now, marijuana is still categorized as a Schedule I illegal drug at the federal level. Fearing entanglement in federal law, banks will simply not extend their services to marijuana merchants. This leaves businesses with a number of major problems. They are not only unable to process customers’ credit and debit card transactions (no merchant account), but they also deal with security issues dealing in cash only and having shocking amounts of cash on hand. They also face potential penalties for paying state taxes and fees in cash.
