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The Cannabank of California



What to do with all that cannabis cash is a problem North Coast growers have faced for decades, leading to tales of six-figure sums buried under chicken coops, violent home invasion robberies and stacks of often-stinky hundreds entering the registers at Costco.

Well, in many ways, Humboldt's problems have become California's, with the state scrambling to figure out how to manage a multi-billion dollar, cash-only industry, considering everything from deploying a fleet of armored cars to collecting cash tax payments to creating a public bank.

That last option got a sizeable boost last week when State Treasurer John Chiang announced that he has commissioned a firm, the San Diego-based Level 4 Ventures, to conduct a feasibility study on the concept.

"This study aims to settle the lingering critical question about whether a public cannabis bank is possible," Chiang said in a press release. "And if it is determined to be feasible, the report will place in our hands what amounts to a set of blueprints to design such a bank and make it fully operational."

The problem with cannabis cash is that banks in the United States are federally regulated and most deposits are backed through the Federal Deposit Insurance Corporation. This means the financial institutions can potentially be federally prosecuted for conspiracy or money laundering charges if they knowingly take deposits from marijuana businesses, as the drug remains listed as a Schedule 1 substance under the Controlled Substances Act. This has been enough to scare almost all the nation's large banks away from working with the cannabis industry, leaving most dispensaries accepting only cash payments and many businesses making payroll with stacks of bills. In addition to this posing serious security concerns, it also leaves the vast majority of the industry unable to secure small business loans and effectively takes billions of dollars out of circulation, leaving them to sit in safes rather than finance loans and mortgages.

Some see a public bank as a viable option, one that's not only tantalizing to the cannabis industry but also to lawmakers looking to finance public infrastructure projects and even Occupy Wall Street types who want to see the financial industry wrested away from for-profit institutions that pushed the nation into the Great Recession in 2008.

The basic idea of a public cannabis bank would work like this: It would be set up by the state to take deposits from city and state tax revenues, giving it a firm capital base stretching well into the billions of dollars. It could then leverage those deposits by making loans to local public works improvements, small businesses and affordable housing projects, growing the initial capital while also spurring economic growth and community improvements. With a steady stream of tax revenue coming in, the bank could also guarantee deposits from cannabis businesses and business owners without federally insuring them, theoretically sidestepping federal regulation and the risk of prosecutions or asset forfeitures.

In addition to Chiang's exploration of a state public bank, the concept will also be on the ballot this November in Los Angeles, where Mayor Eric Garcetti signed off on an initiative that would "allow for the establishment of a municipal financial institution or bank." If the measure passes and the bank comes to fruition, it would be the first created by a city or state in a century, since the Bank of North Dakota opened in 1919.

Opened as part of a populist movement and spurred by concerns that East Coast banks were cheating local farmers, the Bank of North Dakota opened its doors with a single depositor: the state. Acting as a clearing house for state tax revenue, the bank offers low-interest loans for infrastructure projects and every year transfers its profits into the state's general fund to be reinvested into state services.

Chiang has asked Level 4 Ventures to return its report by Dec. 1, the same deadline for a separate report Chiang is collaborating on with the Attorney General's Office to assess the legal ramifications of making such a move.

"Disruptive change and bold innovation require more than grandiose aspirations," Chiang said in the press release. "They demand real-world pragmatism, data-driven solutions and well-crafted blueprints to show how to translate dreams into reality. These two studies will enable policy makers to make informed decision on whether to move forward or not on a public cannabis bank."

There's certainly a lot to like about the potential for such a bank. First and foremost, it could bring cannabis cash out of the shadows, increasing public safety and oversight, while also allowing that cash to have the reverberating impact most other private sector income does. It could also help the world's fifth largest economy exercise its autonomy and leverage its wealth, all while sending less public money to Wall Street.

Thadeus Greenson is the Journal's news editor. Reach him at 442-1400, extension 321, or [email protected]. Follow him on Twitter @thadeusgreenson.

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