We enter the New Year with a myopic food and drug administration. It still classifies cannabis as schedule one narcotic, while the majority of California citizens believe we should treat it the same way as alcohol. To compound the problem, most California banks are still scared of accepting marijuana money. They fear of prosecution under money laundering laws.
This creates a legal logjam. Deputy Attorney James M Cole tried unsuccessfully to break this on August 29, 2013. He pleaded for prosecutorial discretion and the ‘efficient use’ of federal resources when deploying law enforcement. Thus far, we have limped along in an elaborately choreographed legal pas de deux. Now California state treasurer John Chiang has made his move.
The Marijuana Money Problem We Need to Solve
“We need quick action and practical solutions,” he told reporters including Orange County Register late December. “California is willing to assume a leadership role nationally to effectively achieve this goal.”
Chiang set up the Cannabis Banking Working Group. He knows when marijuana sales leap forward in 2017, a significant amount of marijuana money is going to leave the formal economy. This is since the only thing the industry can do is stash it somewhere else.
Chair of California State Board of Equalization Fiona Ma pulled the threads together. She said, “The cannabis industry is the largest shadow economy in California. Allowing them banking access would facilitate [taxation] compliance and bring millions of dollars into our economy.”
This is not to say that all banks and credit unions are blind to the possibilities. In 2015, American Banker reported that 266 out of America’s 6,200 financial institutions were already trading with businesses connected to marijuana.
However, a 2014 effort to create a California State Marijuana Bank crashed when a U.S. District Court supported the Federal Reserve’s rebuttal. In so doing, it relied on marijuana “remaining illegal under federal law”.
California State Treasurer John Chiang’s Move
John Chiang seems determined to take the lead on opening commercial banking to the marijuana industry. His Cannabis Banking Working Group met the first time on December 19, 2016 and attracted around one hundred banking and cannabis stakeholders. Disappointingly, there was no Federal, State Capitol, or Trump representation.
“Defining the problem is our first objective,” Chiang told the working group. “As we continue to hold meetings around the state and compile information, I think we will continue to gain ever more clarity on precisely what should be done and how.”
Four more meeting are set to follow throughout California. John Chiang could be in a position to gain traction on this one. Forty-five U.S. states already allow some form of marijuana consumption. This amounts to a large pile of marijuana money to bring back into the formal economy.
