Money From Marijuana Businesses May Drive California Into Public Banking

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Cannabis-related businesses are dealing with the issue of making a ton of money but have nowhere to safely put it. The U.S. banking system is nationally regulated and marijuana is illegal under federal law, a Schedule I substance with no accepted medical use and a high potential for abuse, according to the DEA.

So marijuana-related deposits can’t be federally insured, and money is at risk to be seized by the feds, making bankers and marijuana businesses rightly uncertain of conducting business. Most of transactions are handled in cash, which is put away in floorboards and pillowcases. Now California is contemplating whether a state public bank could be the solution for this booming industry; cannabis is anticipated to generate the state over $6.5 billion in revenue by 2020. In the state’s estimation, 70% of marijuana-related businesses don’t have bank accounts

Currently, the only public bank in the U.S. is the Bank of North Dakota, founded in 1919 because farmers had troubles getting loans through private banks under the federal system and the state’s top industry was agriculture. Deposits are insured by
North Dakota, not the Federal Deposit Insurance Corporation, and not at risk to federal regulations.

Other states like Massachusetts and Colorado, have considered similar moves. For example, Massachusetts contemplated creating a state bank in 2010, in reaction to the national financial crisis. The state researched the issue and came to a conclusion there was minimal public interest, and the process would be too difficult and high risk.

Private bankers, perhaps naturally, preach caution. “I would suggest you really do not underestimate the challenges [and] complexity,” Don Childears, president of the Colorado Bankers Association, reported. As of right now, states issue guidance on operating in this legal gray area between state and federal law. Though, financial institutions don’t have to open accounts for marijuana businesses and a lot don’t.

Institutions are cautious of trouble with federal regulators and many banks are willing to pass on cannabis profits to avoid potential conflicts. The few that do have cannabis divisions, dedicated to helping cannabis businesses steer tricky financial area.

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