The cannabis industry’s hope for California to establish a bank for the sector was dashed Thursday with the release of a highly anticipated report that said such a move would place state funds and workers at risk with no guarantee of success.
The conclusions of the 151-page report delivered to a cannabis banking working group led by state Treasurer John Chiang derail attempts to establish a public bank for marijuana companies when state lawmakers reconvene in Sacramento in January.
Supporters hoped a favorable report would provide momentum for the Legislature to clear the way for such a bank to help bring the multibillion-dollar cannabis industry — still mostly a cash-only business almost one year after marijuana was legalized for recreational use in California — into the financial mainstream. The lack of traditional commercial banking access for cannabis enterprises has hindered growth, placed employees at risk of robbery and denied the state and local municipalities additional tax revenue.
“We went in to try to find a way to make it work,” said William Roetzheim, the founder of Level 4 Ventures, a business analytics firm based in San Diego that studied the feasibility of cannabis banking, then wrote the report and presented it to the state working group on Thursday. “Every single channel through the set of possibilities that we followed ended up reaching a dead end.”
Instead, Roetzheim and his team wrote that the thorny banking issue has to be ultimately settled at the federal level, given that marijuana is still classified as an illegal drug under federal law — in the same class as heroin and LSD. Therefore, most banks will not open accounts for cannabis-related enterprises. They fear losing their banking charters, something that would put them out of business.
“While today’s announcement may not lay out the path some of us had hoped, it did reinforce the inconvenient reality that a definitive solution will remain elusive until the federal government takes action,” Chiang said at the last hearing of his working group. “They must either remove cannabis from its official list of banned narcotics or approve safe harbor legislation that protects banks serving cannabis businesses from prosecution.”
Chiang had focused on the topic for years, including in 2016 when he visited Santa Rosa cannabis maker CannaCraft to learn the obstacles the company faced in its operations. He leaves office next month after an unsuccessful bid for governor.
The debate in Congress and the Trump administration about bringing cannabis operators out of the financial shadows remains murky. Incoming U.S. House Speaker Nancy Pelosi, D-San Francisco, has placed the onus on President Trump. The biggest obstacle in Trump’s inner circle was former Attorney General Jeff Sessions, who resigned last month. Treasury Secretary Steve Mnuchin signaled earlier this year to Congress a greater willingness for banks to provide services to legal pot businesses.
Meanwhile, the state report found numerous hurdles in trying to establish a public bank, which already faced opposition from the powerful commercial banking lobby in Sacramento. They included most prominently: time, as it would take at least six years before a public bank could offer any services; and money, because the state’s cannabis industry would likely need $1 billion in funds to be fully capitalized. The state would not receive any dividends from operating such a bank until 25 to 30 years after it opened, likely 2050 at the earliest.