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Public Banking Could Solve The Cannabis Cash Crisis, But It Won’t Be Easy

While the legal cannabis industry may be booming wherever it sprouts up, there is an unpleasant side effect to this success, thanks in large part to the federally illegal status of cannabis. Because the federal US government deems cannabis to be a Schedule One drug with “no medical value and a high risk of abuse,” banks often won’t go near any funds that need to be managed by cannabis companies. This is true even of organizations that do not have a single thing to do with the cultivation or sale of cannabis-such as the Marijuana Policy Project and NORML. Both organizations have seen accounts dropped by PNC Bank to best align with the federal law before the Department of Justice issues its expected crackdown on cannabis.

And because banks won’t accept these kinds of accounts, much of the legal cannabis industry is handled in cash. Lots and lots of cash. It is dangerous to have that much cash floating around. Additionally, cannabis companies cannot go to banks for other services, such as the receiving of business loans.

Gubernatorial candidate and California Lt. Gov. Gavin Newsom has issued a call for the creation of a public bank, a facility that would be government-operated and willing to work with these companies. LA City Council President Herb Wesson has also expressed a great amount of interest in the creation of such a bank.

Matt Stannard, who has long advocated public banking before California legalized cannabis, says that this can be done, but be warns that there are a lot of problems that could be faced along the way. “I’m not going to say that if you create a public bank, it’s going to solve all of the marijuana industry’s banking problems,” he said. “But it’s worth a try.”

Stannard is the policy director for Commonomics USA, a California-based advocacy group. His group cites some key differences between public banks and private ones.

Public banks are owned by the public, are run by elected or government-appointed officials, and are supportive of public priorities and returning money to the public.

Private banks, however, are owned by shareholders, as well as operated by a board of directors appointed by those shareholders. Where public banks return their profits to the public, private banks return profits to the shareholders who own it.

At the Bank of North Dakota, the only publically-owned bank in the country, deposits are insured by the state itself rather than the Federal Deposit Insurance Corp, which takes one federal institution out of their banking operations. This is just one way in which state or city-owned banks can navigate around this type of federal oversight.

Still, there is at least one way that the federal government could prevent public banks from working with cannabis businesses: by shutting them out of the Federal Reserve system. Banks have no choice but to work within this system, as it require the bank to make an account with one of the government’s 12 Federal Reserve banks. Without such an account, a bank cannot interact with the rest of the financial world via electronic payments, wire transfers or the processing of checks. A bank without such an account is essentially a huge piggy bank.

Even though there is a great risk that federal agencies will try and shut down such efforts to provide banking services to California-based cannabis businesses, experts in the industry believe that it is worth going for, anyway.

Photo by Steve Parker

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