Are Municipal Banks the Answer to the Cannabis Industry’s Cash Problems?
There is less than five months until California’s January 1 deadline to regulate adult use cannabis. Not only is the state scrambling to write regulations for the industry, but some cities are looking into creating municipal banks that would allow cannabusinesses to have accounts and take out loans.
On July 25, City Council president of Los Angeles, Herb Wesson, instructed the council to begin investigating the “feasibility” of creating a city-owned bank to help fund small businesses, development of affordable housing and cannabis entrepreneurs.
“We cannot bury out heads in the sand on the issue of recreational and medical cannabis legalization, instead we must strive to reasonably regulate the emerging industry while creating opportunities for Angelenos,” Wesson said to the City Council.
Up in the Bay Area, both San Francisco and Oakland are also examining their options in creating their own city banks. Like LA, a major motivation for both cities is to do business with the cannabis industry and support community development projects.
Interestingly, another reason California cities are looking into creating their own banks is to ensure their progressive values are respected by the institutions who deal with their money. For example, they don’t want to support banks that financed the Dakota Access Pipeline.
Not to mention, public municipal banks will save tax payers money.
According to the Los Angeles City Comptroller, LA paid $109,821,552 in fees to private banks in 2016 alone. This, coupled with shady Wells Fargo activity, has prompted some Angelenos to start a change.org petition to create a public bank. They are also using the hashtag #PublicBankLA to gain awareness.
California is expected to make $7 billion in cannabis sales annually in the upcoming adult use market—$1 billion of that in eventual tax revenue. But, as of now, the entire industry is still cash-based because big banks refuse to touch marijuana money while the plant is still classified federally as a Schedule I substance.
Cannabis business owners struggle to operate exclusively with cash, especially when it’s time to pay taxes and other large bills. Plus, the Los Angeles Daily News recently reported the State Board of Equalization does not accept cash.
Serge Chistov, financial partner to the Honest Marijuana Company, explained some extra precautions cannabusiness owners go through: “For moving cash around, purchase some lockable money bags like banks use. If you really feel unsafe, say when you’re going to pay your taxes, hire an armored car service. The price you pay for that is worth the peace of mind… Always put the money in a lockable bag or briefcase and then have a trusted employee carry a similar, empty bag. Each of you then goes in a separate car and takes a separate route to the same place.”
Not only is operating in cash inconvenient, it’s dangerous and can cause unnecessary stress to legitimate business owners. Mitchell Stern, CEO of Burning Bush Nurseries in Oakland and president of Stern Strategies said:
“Dealing with cash in the cannabis industry is an absolute nightmare… I can recall one particular occasion where I was leaving a dispensary in Oakland with $10,000 in cash when a homeless person approached me and asked if he could wash my windows. I was so tense from having all that cash on me that I nearly punched him… Cash induces a kind of paranoia. Your mind starts asking questions like, ‘Did he see me go in? Does he know what to look for? Is he really just trying to distract me?’ I’m sure he didn’t intend to do me any harm; but when you have that much cash on you, you never really know for sure. I think we’re all looking forward to the day when we, as cannabusiness owners have access to standard banking services just like all other businesses.”
Yet, not everyone thinks opening a city-owned bank, especially in LA, is a good idea. Some are even afraid it could become an “ATM for City Hall.”
A member of the California Board of Equalization, Fiona Ma, admitted even with a municipal bank, doing business with the cannabis industry could still be risky.
“The question always is, can the federal government come and take the money if it’s not used for taxes and it’s just sitting there in an account?” Ma said to the SF Chronicle.
The fact is, municipal banks are very rare in the United States, the only existing one being the Bank of North Dakota. It was started almost 100 years ago, in 1919, to help farmers at a time when banks seemed to favor investing in railroad ventures.
California has the sixth largest economy in the world, and if municipal banks become a reality and cities move their money out of private institutions, “Big Banks” could fight back.
“Municipal banks have the interests of the public as their priority and gains are returned to the people. Private banks are beholden to shareholders looking to profit,” explained Geoff Doran, co-founder of Tradiv, a legal online marketplace for wholesale cannabis. “Anyone disrupting their earnings is a threat to private banks. So, it is highly likely that the cannabis industry will become a target of the big banks. With that, we shouldn’t be surprised to see anti-cannabis propaganda, contributions to prohibitionist organizations and legal action against our industry coming from major financial institutions.”
If there’s one thing cannabusiness owners are unfortunately accustomed to, it’s a target on their backs. But that also means they’re used to fighting things like anti-cannabis propaganda and will continue to do so until cannabis is treated like any other industry.
Plus, if other cities and states follow suit and explore their municipal banking options, it could change the landscape of the cannabis industry forever.
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