The difficulties of running a state-legal recreational marijuana market when the substance is prohibited at the federal level are pushing California politicians to consider some less than ideal policy solutions.
California Treasurer and gubernatorial candidate John Chiang on Tuesday lent support to the idea of creating a publicly owned bank that would exclusively service the state's cannabusinesses. "We are contending with the emergence of a multi-billion dollar cannabis industry that needs banking services, and a private banking industry that is stymied by federal law in meeting the needs of the new industry," said Chiang in prepared remarks to reporters, adding that his office would be begin studying the practical hurdles involved in establishing a bank.
This idea is not unique to Chiang. His opponent in the race for governor, Lt. Gov. Gavin Newsom, likewise called for the creation of a state-owned bank in May, and similar proposals are currently being mulled by the cities of Los Angeles, Oakland, and San Francisco.
The idea is attracting interest from the industry as well, following Attorney General Jeff Session's revocation of Obama-era guidance for banks on how to engage with cannabis clients without getting hit with federal money laundering and racketeering charges. That guidance had offered some measure of predictability for the industry by opening up at least some access to the financial sector.
But according to Josh Drayton of the California Cannabis Industry Association (CCIA), a number of marijuana-related businesses have had bank accounts closed since the reversal. That includes the CCIA, which—despite not directly engaging in any cannabis enterprise or ever handling the plant—was given notice that its account with a local California bank would be shut down.
"With the federal government intervening and threatening our industry, it takes the industry back to a gray area," says Drayton. "The industry is definitely in support of a public banking solution."
Even under the more lax Obama administration rules, cannabusinesses had an exceedingly difficult time securing basic financial services such as checking accounts, business loans, and insurance policies. Sessions' move has made desperate policy solutions seem even more attractive.
However understandable the urge is, though, establishing a state-owned bank raises any number of practical, legal, and policy concerns. For starters, it could actually make it easier for the feds to crack down on state-legal marijuana businesses. Collecting the assets of all California cannabusinesses in one financial institution means the federal government could theoretically freeze the entire industry's assets in one fell swoop.
A similar scenario is playing out now for Deferred Action for Childhood Arrivals (DACA) recipients. Desperate for protection from immigration enforcement, countless people who were brought to the U.S. illegally as children handed over reams of personal information to the federal government when Obama was president. Now the executive branch is overseen by someone with a decidedly different view on immigration who can use the data to expedite deportations among that community.
Drayton says the marijuana industry is not unaware of this risk, and would try to guard against it, possibly by pushing for the creation of a series of smaller, local government–owned banks.
A state-owned cannabis bank would also pose a real risk to taxpayers, as a November 2017 report by Chaing's own Cannabis Banking Working Group makes clear. "The obstacles to creating a public financial institution are formidable, including the difficulty of getting deposit insurance, unknown start-up costs, investment likely to measure in the billions of dollars, and the probability of losses for several years or more that taxpayers would have to cover," reads the report, which recommends further study of the idea.
And then there's the possibility that a state bank, once created, would later be expanded into unrelated functions that libertarians are likely to find unpalatable. Newsom suggested such an institution could be used to finance health care facilities, student loans, and affordable housing. Another activist told the Los Angeles Times that talk of opening a cannabis bank was a boon to the idea of creating more state-owned banks in general. The discussion is "putting a spotlight on the glaring inequalities of the banking system and how inadequately it provides services to the economy," he said.
Beyond all this, a state-run cannabis bank would be merely a Band-Aid for the larger problem of federal marijuana prohibition.
"I am not convinced that a public bank in California will solve the problems," Hezekiah Allen, executive director of the California Growers Association, told the San Francisco Chronicle. "The problem is antiquated laws at the federal level. Congress must solve that issue."