The cannabis industry is booming, but weed-related businesses face an odd discrepancy. Since weed isn’t legal on a federal level, banks aren’t allowed to work with cannabis companies, even legal ones. This often leaves those companies in the lurch. Now, as The Golden State moves closer to full recreational sales, California public banking is needed for weed money more than ever before.
A Green Issue
On a federal scale, weed is still considered a Schedule I substance. This makes it illegal at the federal level and places it on par with drugs like heroin.
Since U.S. banks are nationally regulated, they cannot hold any funds acquired from cannabis sales. However, since medical marijuana is legal in the state of California, having a state-owned public bank would solve the issue immediately.
According to the California State Treasurer’s Office, over 70% of weed businesses in California do not have bank accounts. As of now, weed-related transactions cannot be federally insured. Additionally, funds from weed sales are subject to seizure by the federal government.
As a result, banks and credit institutions are hesitant to work with cannabis companies in weed-legal states. That forces dispensaries and other cannabis companies to use strictly cash and to stash it at their own risk. This puts businesses and their employees at a much higher risk for crime and robbery.
In December, California State Treasurer John Chiang formed a group to tackle this ongoing issue. Their idea was a public banking system; an idea states have toyed with since the Great Recession back in 2008.
Public banks are actually somewhat common in developing nations, but there is just one in the United States. The Bank of North Dakota was founded way back in 1919.
More recently, other states have toyed with the idea of public banking. Massachusetts considered it briefly in 2010, but it was deemed too risky.
Additionally, California would still be at risk considering cannabis is illegal on the federal level. While a state bank would act as a small loophole, there would still be the risk of falling under broader federal jurisdiction.
Final Hit: California Public Banking Is Needed For Weed Money
While California public banking is seemingly the only short-term solution for the cannabis industry’s money issues, it doesn’t appear to be a sustainable one.
And even if California’s public banking idea gets approved, cannabis companies will still face additional obstacles. For example, they will still not legally be allowed to work with credit and debit card companies.
As of right now, really only one viable option remains: legalizing weed on a federal level. Or at the very least, reschedule it and remove it from the Schedule I list. That’s apparently what Chiang and his group believes is the ultimate solution.