Marijuana Banking Service Solution to be Found in California

California is looking to find a marijuana banking service solution before retail shops are legal in a year. The initiative is working to stop a very large problem in the industry, finding money. Financing is the biggest issue for marijuana businesses looking to join markets, and create more welfare within the industry. A marijuana banking service solution could create more growth in California’s already-massive marijuana market. California’s market accounts for more than half of marijuana sales in the entire United States, and is poised to grow even further after legalizing marijuana for recreational use. United States Senator Elizabeth Warren has promised to help the marijuana industry obtain banking services, directly addressing the issue within the US government. The lack of banking services for cannabis companies is rooted from the schedule 1 label on marijuana, making it an undesirable industry for banks to deal with. A marijuana banking service solution is necessary for companies to obtain financing to fuel an industry that is filled with growth opportunities.

California hopes to take the lead in giving the cannabis industry access to banking services in 2017, with a new working group focused on finding a solution to conflicts between state and federal laws that force marijuana businesses to operate largely in cash.

The Golden State has a year to come up with a plan. That’s when California’s first recreational marijuana shops are expected to open under voter-approved Proposition 64, which legalized marijuana for adults 21 and over.

“We need quick action and practical solutions,” State Treasurer John Chiang, who formed the Cannabis Banking Working Group, said on a call with reporters in December. “California is willing to assume a leadership role nationally to effectively achieve this goal.”

Federal law still classifies cannabis as a Schedule I narcotic on par with heroin. That means major banks and credit card companies won’t do business with growers and dispensaries out of fear they’ll be penalized for money laundering.

That changed little even after U.S. Deputy Attorney General James Cole in 2013 issued his now-famous “Cole memo,” which gave banks guidance on how to service marijuana businesses without breaking any federal laws.

Some local banks and credit unions have been quietly taking on marijuana businesses as customers. A 2015 report from American Banker showed 266 of the nation’s nearly 6,200 financial institutions had accounts with marijuana-related businesses.

But once recreational pot shops can open after Jan. 1, California’s cannabis industry is expected to start raking in $7 billion in profits and paying $1 billion in state taxes each year.

“A lot of businesses will be hauling around a lot of cash with no place to deposit their money, putting them at risk of robbery,” Chiang said.

That also makes the industry ripe for money laundering, he noted.

Chiang brushed aside the idea of creating a state bank specifically to service cannabis customers. It’s an approach proposed by the Board of Equalization to combat the industry’s poor record of paying state taxes, and one that’s been tried and shut down by federal regulators in other legalized states.

The state of Colorado sought to create its own cannabis credit union in November 2014. But the Federal Reserve rejected the state’s applications to create a master account that would have allowed banks to do business with the credit union. And a U.S. District Court judge dismissed Colorado’s challenge to that decision, stating he was compelled to do so because marijuana remains illegal under federal law.

Efforts to remove marijuana from the Schedule I drug list have also repeatedly failed, most recently under the Obama administration. So have efforts to pass legislation that would remove criminal penalties for banks that service businesses that are operating in accordance with state law.

Those avenues seem even less promising now that Republicans, who have traditionally been less supportive of marijuana legalization, control both the executive and legislative branches. And President-elect Donald Trump’s choice of Alabama Sen. Jeff Sessions for attorney general hasn’t boosted optimism for a federal solution, given the Republican’s staunch opposition to marijuana in the past.

Chiang reached out to both Trump and California’s congressional delegation asking for clarification and support in finding banking solutions for the industry. But no federal representatives attended the first meeting of Chiang’s working group, which was held Dec. 19 in Sacramento.


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Brian Wroblewski has a passion for writing, travel, food and family. Since working in and around the cannabis industry since 2008, Brian brings a unique perspective to the cannabis journalism space. With a focus on emerging brands, moving the cannabis industry forward and an undeniable passion for truth in business and journalism, find some of Brian's posts across the web on digital marketing, cannabis and a variety of different topics.

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