California is just weeks away from legal recreational marijuana laws coming into effect. But, as with other states that have legalized recreational and medicinal marijuana use, the jurisdiction’s associated businesses — most often small- and medium-sized businesses (SMBs) — are struggling with financial management.
The struggles result from law-based complications. While state laws allow marijuana businesses to operate, federal law continues to outlaw the drug, meaning federally-regulated banks are barred from servicing these marijuana-affiliated companies.
California Treasurer John Chiang has begun exploring a way to remedy this situation for such businesses in his state. Reports in the LA Times this week said Chiang is looking into the creation of a state government-backed bank to service the industry’s businesses.
The proposal is one of several suggestions put forth by the cannabis working group established by the California Treasurer, as policymakers learn how to support marijuana businesses‘ ability to pay taxes and manage cash, according to reports. But, Chiang warned, even the creation of such a bank wouldn’t solve all the legal marijuana industry’s problems.
“A definitive, bulletproof solution will remain elusive without federal deregulation of marijuana,” Chiang said at a press conference. “This is not an excuse for inaction.”
California voters passed Proposition 64 last year, legalizing recreational marijuana with rules that come into effect in January. After the vote, Chiang established the working group as more marijuana SMBs struggled with finances without access to a bank. In California and other states where marijuana has been legalized, these companies often operate on a cash-only basis, meaning troves of physical paper money are carried and stored — a process industry players say creates security and other problems for the businesses. Companies are also typically unable to take payments by customers in any method other than cash.
There are federal guidelines suggesting banks can take money from marijuana businesses, reports said, but financial institutions (FIs) have been unwilling to step out and work with these companies for fear of regulatory penalties.
In addition to a California-backed bank, Chiang’s group also suggested the state hire armored car services to help these businesses pay taxes and transport cash, which can then be deposited at the banks on behalf of the state. The group is also calling for state and local authorities to educate FIs about local marijuana businesses, and for the collaboration of state- and local-level officials to establish a lobby group in areas where marijuana is legal.