State-compliant marijuana businesses still can’t use traditional banking services due to federal regulations. But that may be changing, thanks to public banking, a form of state-regulated banking with minimal oversight by the fed.
Cities in California are currently leading the efforts to get these financial institutions up and running, CT Post reports. Arizona and Maryland also want to establish public banks.
Dan Kalb, an Oakland City Council Member supporting the idea, said, “It’s important for local jurisdictions to do what they can to facilitate a successful cannabis industry. It’s important for local governments to help their success, and the lack of banking services is a gap that no other industry faces. So, it’s important for local governments and elected leaders to step up and try and solve that problem.”
One public bank exists in the United States: Bank of North Dakota. It was founded in 1919 for in-state farmers and small businesses. The state of North Dakota insures deposits at the bank instead of the Federal Deposit Insurance Corp. (FDIC), and the North Dakota Department of Financial Institutions oversees the bank instead of the fed.
Herb Wesson, Los Angeles City Councilman, said, “We have to figure out a way to make this industry work.”
California is also exploring in cities like Oakland, Richmond, Alameda County and Berkeley are exploring the possibility together. So far, the municipalities interested in the public banks have provided $130,000 for a feasibility study.
Another California organization, Commonomics USA, supports the creation of public banks. The company is working on templates for how this public banking system would work. They’d like for the template to become a law to allow public banks to form.
Marc Armstrong of Commonomics said, “If such a license exists, then a lot of governance problems go away.”
But there’s a catch: although the public banks would be overseen by in-state officials, they still require a master account with one of the nation’s 12 federal reserve banks. Master accounts are required by financial institutions to open accounts and operate as a bank.
Efforts to create Fourth Corner Credit Union in Colorado were hindered due to this issue. Armstrong said, “The reason Fourth Corner didn’t get (a master account) is because they were too concentrated in one industry, and the risk associated with that went way up.”
If public banks are created to help the legally operating marijuana businesses in this country, it could be at least two to three years before they can open. There are dozens of hurdles to cross and hoops to jump through. If it takes too long, commercial banks may jump ahead to offer services to marijuana businesses.
Lance Ott of Guardian Date Systems said, “Public banks are a good idea, but by the time anyone gets around to opening one, you’re going to have – as far as California goes – more financial institutions for marijuana businesses to choose from. Public banking process could take years. By the time they launch it, they’re going to be too far behind to make a large impact unless they offer some very attractive incentives to potential customers to come on board.”