Of the many roadblocks confronting cannabis entrepreneurs, access to banking services is among the biggest and costliest.
Despite marijuana being legal at least for medical use in 29 states, cannabis remains illegal at the federal level. That prevents major interstate banks from providing loans and other routine financial services to marijuana businesses, leaving most marijuana businesses operating on a cash-only basis.
In a speech given at City Hall in July, L.A. City Council President Herb Wesson laid down a plan for the city to create a bank that serves both the marijuana industry and other city needs, such as supporting companies that build affordable housing. In his speech, Wesson said, “When our grandchildren tell stories of us, what will they say? Will they say we were brave?”
Housing and Cannabis
Wesson managed to combine the need for a marijuana-friendly bank with one that will also provide financing for affordable housing. Additionally, it could provide loans to small businesses unrelated to marijuana. Unsurprisingly, the marijuana-friendly aspect got the most attention.
Voters made adult-use marijuana sales legal in California in the November 2016 election. Medical marijuana has been legal in the Golden State since 1995. Adult-use sales are expected to begin in 2018.
Given that, Wesson argued that city officials have a duty to “figure out a way to make this industry work….we in government are supposed to push the envelope, not protect the status quo.” He raised the image of cannabis business owners having to stuff millions of dollars in cash in mattresses or bury it in the backyard.
Los Angeles has much to gain, as well. The city could reap $50 million in tax revenue in just the first year of recreational marijuana sales, according to estimates made by City Controller Ron Galperin. The city also isn’t alone on this issue in California.
Oakland Community Bank
In Oakland, the movement to start a community bank is already underway. Two city council members started the ball rolling in January by asking the city council to fund a study into the issue. In June, the city council passed a budget that included $75,000 for the study.
About $100,000 is needed, according to the website, Friends of the Public Bank of Oakland. The site provides finely grained details on the movement to get public support for the idea.
As in Los Angeles, part of what drives the effort is the chance to provide banking services for the cannabis industry. Other advantages, according to the site, include reducing the cost of lending and borrowing for small businesses, facilitating affordable housing and infrastructure and getting Oakland “out from under the control of nonlocal big banks.”
Public banking is not new. North Dakota has had a state-owned bank since 1919. Some credit the bank for helping local businesses survive during tough times, thereby lowering unemployment. For example, the bank paid teachers in full during the Great Depression. The bank also made the first federally insured student loan in 1967 and paid for recovery costs after natural disasters, such as the floods in both 1997 and 2011.
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