Cannabis is a cash industry. And there’s no denying that a cash only business environment is dangerous for employees, owners, consumers and the community they serve. The Feds don’t seem to be interested in legalizing the herb any time soon so without the availability of Federal insurance banks refuse to service the industry. However California has an bold, we mean old solution to this new problem—a public bank.
Currently there are less than 400 banks or credit unions providing extremely limited services to the cannabis industry under strict FinCEN guidelines (The Financial Crimes Enforcement Network). Other marijuana businesses might be forced to work with cryptocurrencies or pre-paid services like Tommy Chong’s Green Card.
Public banking 101
On August 10th marijuana industry leaders gathered at the Cannabis Banking Working Group Conference to discuss how a public banking system could work for marijuana business owners. A public bank is fully owned and operated by the state or municipal government where it operates. This means that the federal government would no longer have a voice and could not interfere with the banks. California’s John Chiang, State Treasurer and gubernatorial candidate, devoted the entire session to the public banking discussion.
Chiang who also chairs a Working Group stated, “The emergence of a multi-billion dollar cannabis industry could well be the catalyst that propels public banking into becoming a reality. We are here to test the idea and see if it’s truly workable.”
Public banking isn’t new. Many popped up with the rise of colonialism. They were known as “land banks” in the south. However the only US public bank currently in existence is the Bank of North Dakota.
The Bank of North Dakota was founded in 1919 as a populist alternative to national banks that had reduced their willingness to lend to local farmers, the Bank of North Dakota now controls over $7 billion in assets and $876 million in capital, returning 46% of its earnings to the state every year. It famously occupied the financial high ground during the 2008 meltdown, which kickstarted the current public bank revival.
Although the numbers from North Dakota look promising former commissioner of the Massachusetts Division of Banks David Cotney feels the model cannot be used for other states. He cited his state’s 2011 feasibility study which determined that the North Dakota model was inapplicable for a state as large as well as economically and financially diverse as Massachusetts. Suffice to say this model may not work for a state the size of California which is home of the world’s sixth largest economy.
Amanda Ostrowski is a former bank examiner for the Federal Reserve and founder of CannaRegs. She recently said to the Working Group attendees, “The number of different things a bank has to pass through, it’s not just simple stress tests. It’s safety and soundness exams, consumer lending compliance, there’s so many different factors that go in.”
“There’s a reason why the federal reserve is still refining the systems and equations to this day and why these examiners go through at least two years of training before they’re certified examiners,” she continued. “And to put that kind of infrastructure into place from the ground up is going to be extremely costly.”
Even though the idea of instituting a public bank in California may seem unlikely Oakland’s Harborside Healh Center’s Medical Center co-founder Dave Wedding Dress attended the session. Wedding Dress supports social and economic justice elements of the public bank and has argued for a bank business plan that would apply for a master account plus a commingling of municipal and cannabis funds.
Matt Standard, Policy Director of Commonomics USA, told the Working Group, “What a public bank can do is really stare in the face of whatever existing guidelines, however ambiguous or however contingent those federal guidelines might be… and say, ‘We are going to do everything and beyond that these non-regulatory guidelines [such as the Cole Memo and the FinCEN guidelines] ask of us.’”
As it stands now California’s possible public bank is only a far reaching concept yet to be formed into an agenda. Several speakers at the Working Group noted that without a master account from the Federal Reserve and access to the fedwire a cannabis bank would only serve as a vault incapable of completing intrastate transactions with other banks.
What do you think of the idea of a public cannabis bank? Let us know your thoughts in the comment section below.