California Treasurer John Chiang wants to form a state-owned bank to service the coming legal marijuana boom that he expects to grow bigger and faster than the “Dot-Com boom.”
Earlier this year, Chiang formed a “Cannabis Banking Working Group” that included 18 representatives from the cannabis industry; financial institutions; and government tax collection, law enforcement, and regulatory agencies.
The Working Group’s first report is titled: “Banking Access Strategies for Cannabis-Related Businesses.” According to the broad stakeholder analysis: “The nascent industry faces an enormous challenge. The production, distribution, sale, and possession of cannabis remain illegal under federal law. Cannabis and many of its byproducts continue to be listed as Schedule I controlled substances, akin to heroin.”
As a result, cannabis is still a cash business, because “banks generally will not open accounts for cannabis businesses out of fear they will be penalized under federal law.”
The Working Group predicts that following the January launch of the legalization of recreational marijuana, taxed California cannabis product sales will grow at an 25 percent annual-compounded rate, from $7 billion in 2018 to $20.2 billion in 2021. Over the same period, state and local cannabis taxes and fees will soar from $1 billion to $3 billion.
The Group emphasizes the disruptive importance of California cannabis growth: “To put this in perspective, the industry growth is larger and faster than even the Dot-Com era.”
But the report cautions that the large amounts of cash associated with cannabis businesses already make their employees and customers targets of violent crime. Given that state and local government will be required to collect cannabis tax and fee payments in cash, at least initially, public employees will be exposed to safety risks that will require added staff time and other expenses.
The Group argues that the development of “normal access to banking services” is essential to take the “cannabis industry out of the shadows and establishing it as a transparent, regulated, tax-paying part of the California economy.” Banking relationships would also assist law enforcement in distinguishing between legal and illegal operators.
Based on input from the Working Group, Treasurer Chiang recommends a four-step process respond to California cannabis industry’s lack of banking relationships:
- Implement safer, more effective, and scalable ways to handle the cash payment, such as crypto-currency transactions;
- State and local governments should develop a data portal to assist financial institutions ability to track cannabis regulatory compliance;
- Study the feasibility of establishing a state state-backed cannabis bank; and
- Develop a “multistate consortium” to lobby for eliminating federal cannabis banking restrictions and for the national legalization of cannabis.
Chiang, a Democrat candidate for governor, trumpets that “California has exercised national leadership in areas ranging from enhancing civil rights to protecting the environment.” He states in the Cannabis Banking Working Group report that “the arrival of legal adult recreational cannabis offers another opportunity for our state to set an example.”