Are Municipal Banks The Solution To The All Cash Marijuana Industry?

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There is less than half a year until California’s January 1 deadline to monitor the adult use of marijuana. Not only is the state all over the place trying to pen regulations for the industry, yet some cities are looking into developing municipal banks that would allow canna-businesses to have accounts and take out loans.

On July 25, City Council president of Los Angeles, Herb Wesson, told the council to start investigating the “feasibility” of creating a city-owned bank to help fund small businesses, development of affordable housing and cannabis entrepreneurs.

“We cannot bury out heads in the sand on the issue of recreational and medical cannabis legalization, instead we must strive to reasonably regulate the emerging industry while creating opportunities for Angelenos,” Wesson said to the City Council.

Up in the Bay Area, both San Francisco and Oakland are also examining their options in creating their own city banks. Like LA, a major motivation for both cities is to do business with the cannabis industry and support community development projects.

Interestingly, another reason California cities are looking into creating their own banks is to ensure their progressive values are respected by the institutions who deal with their money. For example, they don’t want to support banks that financed the Dakota Access Pipeline.

According to the Los Angeles City Comptroller, LA paid $109,821,552 in fees to private banks in 2016 alone. This, coupled with shady Wells Fargo activity, has prompted some Angelenos to start a change.org petition to create a public bank. They are also using the hashtag #PublicBankLA to gain awareness.

California is expected to make $7 billion in cannabis sales annually in the upcoming adult use market—$1 billion of that in eventual tax revenue. But, as of now, the entire industry is still cash-based because big banks refuse to touch marijuana money while the plant is still classified federally as a Schedule I substance.

Cannabis business owners struggle to operate exclusively with cash, especially when it’s time to pay taxes and other large bills. Plus, the Los Angeles Daily News recently reported the State Board of Equalization does not accept cash.

Serge Chistov, a financial partner to the Honest Marijuana Company, explained some extra precautions canna-business owners go through: “For moving cash around, purchase some lockable money bags like banks use. If you really feel unsafe, say when you’re going to pay your taxes, hire an armored car service. The price you pay for that is worth the peace of mind… Always put the money in a lockable bag or briefcase and then have a trusted employee carry a similar, empty bag. Each of you then goes in a separate car and takes a separate route to the same place.”

Not only is operating in cash a bit of an issue, it’s dangerous and can cause unnecessary stress and attention to legitimate business owners. Mitchell Stern, CEO of Burning Bush Nurseries in Oakland and president of Stern Strategies said:

“Dealing with cash in the cannabis industry is an absolute nightmare… I can recall one particular occasion where I was leaving a dispensary in Oakland with $10,000 in cash when a homeless person approached me and asked if he could wash my windows. I was so tense from having all that cash on me that I nearly punched him… Cash induces a kind of paranoia. Your mind starts asking questions like, ‘Did he see me go in? Does he know what to look for? Is he really just trying to distract me?’ I’m sure he didn’t intend to do me any harm; but when you have that much cash on you, you never really know for sure. I think we’re all looking forward to the day when we, as canna-business owners have access to standard banking services just like all other businesses.”

However, some folks think that opening a city-owned financial institution, especially in LA, is a solid idea. Some are even afraid it could become an “ATM for City Hall.”

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