Tuesday, October 3, 2023 | Back issues
Courthouse News Service Courthouse News Service

‘No Good Option’ for Handling California Pot Funds, Report Finds

Creating a public bank capable of handling marijuana-related business is “too risky,” the Cannabis Banking Work Group said in a hearing in Sacramento Thursday.

SACRAMENTO, Calif. (CN) – Creating a public bank capable of handling marijuana-related business is “too risky,” the Cannabis Banking Work Group said in a hearing in Sacramento Thursday.

“Many California businesses are left in legal limbo and their business remains illegal at a federal level,” California Treasurer John Chiang, who chaired the work group, said.

At the hearing, the group released the results of its 151-page report attempting to assess the feasibility of establishing a public bank – which would give the hundreds of businessmen and women in California's approximately $8 billion marijuana industry a means to write checks, use credit cards, perform electronic transfers and use other banking services.

According to the report, collecting billions of dollars in tax revenue in cash imperils the state employees who have to work with it. In addition, law enforcement would benefit from a more transparent banking system that would help officials better distinguish between legal operators and those who continue to distribute marijuana through the black market.

“Large amounts of cash make cannabis businesses, their employees, and their customers targets of violent crime,” the report says.

“Normal access to banking services is an essential part of taking the cannabis industry out of the shadows and establishing it as a transparent, regulated, tax-paying part of the California economy,” it adds.

Still, report consultant William Roetzheim said the civil and legal risks California officials could face for opening a state bank are “off the charts.”

That’s because of the $1 billion in startup capital the federal government would require if it approved California’s application for a state bank. The bank would cost millions to launch and lose significant chunks of money over the next 12 years, according to projections outlined in the report.

That money would come from the state’s general fund, by way of a state-created holding company, which Roetzheim said could pose “residual risk going in the other direction” in the form of federal charges of money laundering and illegal use of funds.

“The fact that cannabis remains a schedule one illegal drug at the federal level, in the same class as heroin and LSD, places a 'Sword of Damocles' over the state,” the report says.

Even if the state bank was successful, California wouldn’t see dividends until 2050 or 2055, according to the report. The bank’s assets could also be subject to foreclosure and its employees subject to federal criminal charges.

“It’s not a very attractive horizon,” Roetzheim said.

Further clouding the issue is the possibility that federal regulators could ease or remove prohibitions on marijuana, something openly discussed by several Democratic politicians eyeing the White House — such as Senators Corey Booker from New Jersey and Kamala Harris from California.

John Boehner, former Republican Speaker of the House, has come out in favor of marijuana legalization as well, seeing it as a catalyst for economic growth.

“You never know what the federal government is going to do,” Roetzheim said. “They may crack down and put people in jail. But there is so much momentum that we don't think the feds will stay with the current approach forever.”

Federal legalization could dramatically reduce the demand for a California public bank – which would leave California taxpayers holding the bag if the state's return on its initial billion dollar capitalization never materialized.

Roetzheim said researchers rigorously studied alternatives to the cannabis bank idea - such as using electronic banking apps, purchasing an existing bank or going through public credit unions - but ultimately ruled them out.

“No state-backed bank is feasible. All alternatives fail,” Roetzheim said. “There is no good option here.”

State leaders determined to establish a state bank could seek a remedy through the judicial branch.

“Gay marriage became law through the court system, not through legislative action,” Roetzheim said.

In the meantime, the report recommends short-term solutions such as finding methods to make handling and managing the marijuana-related cash payments easier and encouraging existing private financial institutions to make services available for the fledgling industry.

As the working group considers potential public-private partnerships for the possibility of a state bank, California Department of Business Oversight Commissioner Jan Lynn Owen – herself a member of the group – said it should review the data collected at the county level and by local jurisdictions dealing with the cannabis industry.

“I see the value in this,” Owen said. “We have to continue exploring options.”

Categories / Business, Economy, Government

Read the Top 8

Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.