Public cannabis bank too risky for California, study says

Posted at 5:13 PM, Dec 27, 2018
and last updated 2018-12-27 22:41:46-05

An independent study has found that the creation of a public cannabis bank would be too much of a legal and financial risk for the State of California.

It puts an end for now to hopes of creating a public bank as California’s recreational marijuana market concludes its first year.

The study was presented Thursday afternoon to the Cannabis Banking Working Group (CBWG), which is chaired by California State Treasurer John Chiang.

While cannabis businesses are legal under state law, they’re still considered illegal by the federal government. This has created an issue for these businesses when it comes to money — banks that accept deposits from cannabis businesses are at risk of losing federal authority to operate and the businesses often have to deal in large amounts of cash.

The CBWG was created in hopes of coming up with a solution. It commissioned a study by analytics company Level 4 Ventures on the feasibility of a state-backed bank for the cannabis industry.

The 151-page report lays out the risks the state would face if it were to move forward.

Among those risks, the report noted there is “a high probability” that federal regulators would allow a public bank to operate and the state would end up wasting any taxpayer funds used for start-up costs.

The report also found that it could take decades for the state to see any kind of return on investment. Plus, if federal regulations changed and cannabis banking were to become legal, California’s bank would likely have to close because of decreased demand.

It also noted that, historically, public banks have not been successful.

A separate analysis by California Attorney General Xavier Becerra and the California Department of Justice reportedly came to similar conclusions.

In a statement, Treasurer Chiang said, “In the two years since the passage of Prop 64, I have been proud to lead this fight and will continue to look for alternate ways to support our legal businesses, the will of our citizens, and stakeholders across this state. But today’s news makes it clearer than ever that the path forward must include action by the federal government.”

The Level 4 study recommends that the state designate a lead agency to improve access to banking by the cannabis industry.