California

California Politicians Want to Create a Government-Owned Marijuana Bank

Federal pot prohibition breeds state socialism.

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Drug money
Andrii Iarygin/Dreamstime.com

The difficulties of running a state-legal recreational marijuana market when the substance is prohibited at the federal level are pushing California politicians to consider some less than ideal policy solutions.

California Treasurer and gubernatorial candidate John Chiang on Tuesday lent support to the idea of creating a publicly owned bank that would exclusively service the state's cannabusinesses. "We are contending with the emergence of a multi-billion dollar cannabis industry that needs banking services, and a private banking industry that is stymied by federal law in meeting the needs of the new industry," said Chiang in prepared remarks to reporters, adding that his office would be begin studying the practical hurdles involved in establishing a bank.

This idea is not unique to Chiang. His opponent in the race for governor, Lt. Gov. Gavin Newsom, likewise called for the creation of a state-owned bank in May, and similar proposals are currently being mulled by the cities of Los Angeles, Oakland, and San Francisco.

The idea is attracting interest from the industry as well, following Attorney General Jeff Session's revocation of Obama-era guidance for banks on how to engage with cannabis clients without getting hit with federal money laundering and racketeering charges. That guidance had offered some measure of predictability for the industry by opening up at least some access to the financial sector.

But according to Josh Drayton of the California Cannabis Industry Association (CCIA), a number of marijuana-related businesses have had bank accounts closed since the reversal. That includes the CCIA, which—despite not directly engaging in any cannabis enterprise or ever handling the plant—was given notice that its account with a local California bank would be shut down.

"With the federal government intervening and threatening our industry, it takes the industry back to a gray area," says Drayton. "The industry is definitely in support of a public banking solution."

Even under the more lax Obama administration rules, cannabusinesses had an exceedingly difficult time securing basic financial services such as checking accounts, business loans, and insurance policies. Sessions' move has made desperate policy solutions seem even more attractive.

However understandable the urge is, though, establishing a state-owned bank raises any number of practical, legal, and policy concerns. For starters, it could actually make it easier for the feds to crack down on state-legal marijuana businesses. Collecting the assets of all California cannabusinesses in one financial institution means the federal government could theoretically freeze the entire industry's assets in one fell swoop.

A similar scenario is playing out now for Deferred Action for Childhood Arrivals (DACA) recipients. Desperate for protection from immigration enforcement, countless people who were brought to the U.S. illegally as children handed over reams of personal information to the federal government when Obama was president. Now the executive branch is overseen by someone with a decidedly different view on immigration who can use the data to expedite deportations among that community.

Drayton says the marijuana industry is not unaware of this risk, and would try to guard against it, possibly by pushing for the creation of a series of smaller, local government–owned banks.

A state-owned cannabis bank would also pose a real risk to taxpayers, as a November 2017 report by Chaing's own Cannabis Banking Working Group makes clear. "The obstacles to creating a public financial institution are formidable, including the difficulty of getting deposit insurance, unknown start-up costs, investment likely to measure in the billions of dollars, and the probability of losses for several years or more that taxpayers would have to cover," reads the report, which recommends further study of the idea.

And then there's the possibility that a state bank, once created, would later be expanded into unrelated functions that libertarians are likely to find unpalatable. Newsom suggested such an institution could be used to finance health care facilities, student loans, and affordable housing. Another activist told the Los Angeles Times that talk of opening a cannabis bank was a boon to the idea of creating more state-owned banks in general. The discussion is "putting a spotlight on the glaring inequalities of the banking system and how inadequately it provides services to the economy," he said.

Beyond all this, a state-run cannabis bank would be merely a Band-Aid for the larger problem of federal marijuana prohibition.

"I am not convinced that a public bank in California will solve the problems," Hezekiah Allen, executive director of the California Growers Association, told the San Francisco Chronicle. "The problem is antiquated laws at the federal level. Congress must solve that issue."

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  1. What it could do is force the bank’s to push harder for the feds to get their heads out of their asses. The bank’s do have political power and they sure as hell don’t want to lose any potential money..

    1. That’s what California will do eventually. No way do they want to collect all those taxes in cash. Cali going legal is like the Battle of Midway, the war is over the losers just won’t admit it.

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  2. so, maybe i missed it when i was reading, but what protects the state-run bank from the federal laws? the optimism of politicians?

    1. State Militia or: How CA learned to Stop Worrying and Love the 2nd Amendment?

    2. That it would have California’s backing, mostly.

      Which case so you think will be a bigger fight, Small Local Bank v United States, or State of California v United States?

      It’s no guarantee of outcome, but it’s a big helping hand.

    3. Jury nullification. The feds long have been fighting this by trying to keep juries from knowing that the case before them concerns activities legalized by their state, but if they prosecute an executive of the state-owned bank for the operations of that bank, the jury will figure it out.

  3. “I am not convinced that a public bank in California will solve the problems,” Hezekiah Allen, executive director of the California Growers Association, told the San Francisco Chronicle. “The problem is antiquated laws at the federal level. Congress must solve that issue.”

    Comrade, no! We must not miss this opportunity to Build Socialism. Soon, every worker in the People’s Republic of California will receive their pot rations, and we may finally have achieved Stoner Equality.

    1. Can you imagine the piss poor quality of government run pot?

      1. Well the employees will probably be stealing it to smoke and sell so maybe they’ll have an alternative motivation.

      2. Well the employees will probably be stealing it to smoke and sell so maybe they’ll have an alternative motivation.

  4. “we may finally have achieved Stoner Equality.”

    That would be a good thing. Right now we’re just overrun with groups of hyper-partisan outrage junkies roving around screaming at each other. Stoner Equality sounds like the perfect mellow alternative to that……..

  5. North Dakota has a state owned bank, and other states did it in the past, so it’s not completely unheard of. I can only imagine CA will mess it up somehow.

    1. “I can only imagine CA will mess it up somehow.”

      As a monopoly, you can understand that there is a LOT of money to be made out of this venture.
      Screw-up, the first: It owned by the state, becomes a net contributor to the general fund, so fat chance it will ever lose its power to hold money from pot-shops. They will probably be required to open an account before they open the doors.
      Screw-up, the second: Privately held, again, a LOT of dough. “Why we had open bidding for this! It just happened to end up being owned by the Teachers Union!” Or another D. mega-donor.
      I’m sure there’s more.

      1. Any government-run “business” has all the usual problems. Aside from incompetent employees more eager to protect their job than stick their neck out, the politicians will see it as a piggy bank. They have two natural advantages: lack of profit means they can charge less, and government backing to make it a monopoly. Of course the profit advantage will disappear toot sweet as they siphon it off for unrelated ventures, and when the de facto “natural” monopoly disappears because the feds no longer harass real banks, customers will bolt for the real banks with better cheaper service. That will lead the government to rescue their bank by making it a de jure monopoly, and that will just accentuate its piggy bank nature and embolden its bureaucrats to do anything but their job.

        1. “They have two natural advantages: lack of profit means they can charge less, and government backing to make it a monopoly.”

          Gonna argue with #1.
          Business profit is typically 7% at best, far less when the prime rate is 4.5%. Those numbers attract competition and the profit is held to that or lower, depending on the particular market as a result of that competition.
          Which ignores the discipline enforced by the requirement to MAKE a profit. Far more laggards have had to learn to clean up their act after being fired from for-profit businesses than have ever worried about their jobs on non-profits.
          Going out on a very short limb, and stating a strong opinion (and I do have LOTS of anecdotes) that non-profits have to charge more for the inefficiencies.

          1. I agree with everything related to why profit is good, and I at least implied that by harping on bureaucrats who only want to cover their ass.

            But that profit also makes the product more expensive. People care a lot about price. Look at how many people will drive out of their way to save a nickel a gallon on fuel, or spend hours on Amazon trying to save a few pennies. That 7% will be noticed.

            Where I live, some county/state “startup” is going to take over electricity bills and cut prices some small amount precisely because they are a government non-profit and can charge less. I am sure in both cases that the government-run “business” will be cheaper at first, but without the accountability of a real business treading the line between profit and bankruptcy, both will be milked by politicians and gradually raise their prices, and by the time customers want to leave, politicians will have to make them mandatory to keep the cash cow going.

            1. “But that profit also makes the product more expensive.”

              This is specifically where I disagree.
              The discipline enforced by the profit motive means a ‘tight ship’; less waste and ultimately a lower cost to the customer.
              Non-profits are lousy with over-staffing and poor time management; that 7% means nothing compared to the waste in a typical non-profit.

              1. It only means a tight ship in the long run. I explicitly said the non-profit will be cheaper to start, then get more expensive.

      2. Concur Sevo.

        I would also add that there is an alternative that would keep these money-grubbing bastards out of the business of weed finance: Cannacoin (http://www.cannacoin.tech/). This company finances growers and other operators within the cannabis supply chain. It is not very big yet but I think we, as individuals, should be able to profit a little while helping out the Cannabis Industry. Waiting for Big Fed to get out of the way may take too much time.

        1. “Cannacoin (http://www.cannacoin.tech/). This company finances growers and other operators within the cannabis supply chain.”

          You GO, guy or gal!
          Keep it OUT of the government’s paws!

          1. I’ve been lurking since 2005 but don’t have much to say…just learning to be more Libertarian.

  6. Anyone know about this Post Office Banking thing I keep seeing people getting all up about lately?

    1. Banking would be the perfect market for the post office to get into. Especially considering that for the last decade the two banks I’ve visited are better described as “The building attached to the ATM.” and “The building across from the old village bank building that’s now a pub.”

      They should add in groceries so that the old people who write checks for stamps can get entirely the fuck out of my way.

      1. I think it more has to do with their status as places to store money and provide loans. But, honestly, I’m really confused on the concept.

        Why is everyone so up with giving more power to failing institutions?

        1. Why is everyone so up with giving more power to failing institutions?

          Goddammit are you telling me the Clinton Foundation is coming back?

          1. “Goddammit are you telling me the Clinton Foundation is coming back?”

            Turd swears she’s the BEST EVAH! You could ask him next time he shows up to lie.

    2. I’ve heard it usually proposed to help the “unbanked”, a term almost exclusively used to describe people who’ve burned so many banks and/or so seriously burned just one bank that they can’t get an account at any other bank or credit union.

      The usual excuses about monthly fees don’t hold up when it’s rare to find an area without a credit union or bank that either has zero fee accounts OR really easy ways to avoid them.

  7. Mad-Lib version

    “________ Politicians Want to Create a Government-Owned ________”

    Hilarious family fun!

    1. Fart Politicians want to create a Government Owned Weiner

    1. With the Adidas track suit, frozen wasteland, and blurred faces I would have figured it was Russia.

  8. smaller, local government?owned banks.

    Oh, that’ll work out well.

    There’s a lot to be said for devolving things to smaller, more local, governments but giving the sort of politicians that get elected to local government pretty much near total control over billions of dollars of ‘someone else’s money’ – and it will come with the same sort of ‘effective’ oversight that you’ve seen in such sterling examples of governance like Fergusen and Stockton – is not a the way to go.

    1. What a lot of libertarian gold standard types tend to forget in their admiration for pre-Federal Reserve days, is that back then the states ran the banking systems, and many states were much worse then the Feds ever were. The states kept much of the control even past that time. The legalization of interstate branch banking, for example, didn’t occur until the 1980s! We didn’t have one central bank, we had dozens of central banks run by state politicians for the benefit of their crony friends.

  9. i thought California was going to secede. what happened to that plan?

    1. still arguing over what to do with the third of Californians who are raving lunatic progressives. Gas chambers or mass deportations is still up in the air.

    2. Turned out the Russians were behind it so the ring-leader immigrated instead.

      Unless you’re confusing the more recent “split the state”, which didn’t involve secession. In that case, it was pretty much unanimous that it was a naked partisan attempt at state-level gerrymandering, and even folks that are otherwise supportive of breaking up big states ignored it.

  10. California already has state chartered banks. No need to be running a gub’ment bank when you just tell a state bank to stop turning away pot businesses. It’s intrusive, but not nearly so much as a state run bank.

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