California would likely lose money and face overwhelming federal barriers if it tried to create a state-backed bank to help cannabis businesses navigate banking challenges, according to a report released by the state treasurer.
The report puts an end for now to hopes the state could find a banking solution for marijuana businesses.
Since marijuana remains a Schedule 1 drug under federal law, many banks are nervous about running afoul of the U.S. government by doing business with the industry, although some work with cannabis-related companies.
That forces cannabis businesses to deal in large sums of cash, a potential security risk.
According to the report, commissioned by a working group launched by state Treasurer John Chiang:
- Creating a state bank would likely waste taxpayer money, require $1 billion in capital investments and wouldn’t become profitable for 25-30 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 state bank would disappear.
- Public banks are rarely successful, the report found. Just two exist, in North Dakota and American Samoa, and neither was created to deal with the marijuana industry.
- The report recommends California designate a state agency to help improve how the state 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.
State lawmakers rejected legislation for a state-backed bank earlier this year.
State Attorney General Xavier Becerra’s office also concluded a public bank for marijuana business was not feasible.
The newest report concluded: “The only effective long-term solution involves legislative and regulatory changes at the federal level to allow the legal banking of cannabis-related funds.”
– Associated Press