Watchdog Warns Against California's Idea For Public Pot Bank

'A government owned and operated bank will prove disastrous to residents and taxpayers'

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January 31, 2018

A new California proposal to create a state-run bank to serve the state's marijuana industry is raising red flags for some consumer advocates, including those who support legal cannabis sales.

State Treasurer John Chiang, a candidate for governor, on Tuesday announced that he and California Attorney General Xavier Becerra are considering the idea of setting up the state-government-owned bank to handle marijuana industry transactions and will spend the next few months looking into the costs, regulations, and legal and other operational issues involved.

The idea drew an immediate rebuke from a major consumer watchdog group, the Consumer Choice Center, who warned it could lead to scandal and mismanagement.

"Opening the banking sector for cannabis-based businesses is necessary, but a government owned and operated bank in California will only invite more problems and prove disastrous to California residents and taxpayers," said Yael Ossowski, the group's deputy director.

"For a state that is already plagued with so many economic problems, despite its budget surplus, the idea of a state running its own bank should worry every person in California," he added, referring to the state's history of raising taxes to compensate for previous budget deficits and get its finances back in the black.

Chiang said there is added urgency for the creation of such a bank after Attorney General Jeff Sessions earlier this month rescinded Obama administration guidelines that essentially gave the state a pass when it came to enforcing federal laws outlawing the sale and use of marijuana.

"California and other states will need to lead when it comes to bringing the cannabis industry out of the shadows so that it can be properly regulated to prevent sales to minors, to protect the public's health and safety, and ensure cannabis businesses behave as legitimate, tax-paying members of our economy," he said Tuesday during a conference call with reporters and other interested parties.

"The recent action taken by Attorney General Sessions threatens us with new national divisiveness and casts into turmoil a newly established industry that is creating jobs and revenue," he added.

While Chiang cited law and tax enforcement reasons, there are plenty of practical reasons too. Most banks and credit unions won't accept deposits from marijuana businesses, making the mainly cash-only business more difficult to operate. The few financial institutions that do allow the deposits operated under the 2013 federal guidelines that Sessions revoked.

Chiang cited Sessions's recent action as the impetus, but he helped organize a working group late last year that recommended looking into the idea of a public bank. He said a feasibility study would consider whether such a bank would be run and operated mainly online or have physical addresses.

The online model would inevitably cut costs, one of the major hurdles for state's setting up and operating their own financial institutions.

The Bank of North Dakota is the only publicly owned bank in the nation. It was founded back in 1919 but lost money for decades before becoming profitable. As California started first looking into the idea a few years ago, it heard warnings from other states, such as Massachusetts, which recently legalized pot and considered setting up a bank to ease the industry transactions.

The Massachusetts Division of Banks looked into the idea of creating a bank but abandoned it after analyzing the financial risk. The state concluded it would need $3.6 billion to get the bank up and running.

Published under: California , Marijuana