As of January 1st, marijuana is completely legal in California and an already burgeoning industry has exploded. One problem, though: It is almost entirely a cash enterprise. Banks won’t touch drug money, even if it’s legal on the state level. This means dispensaries and shops need to pay their taxes, buy their stock, and otherwise do business entirely in cash. It’s weird, considering they aren’t breaking laws.
California’s government doesn’t enjoy this any more than the marijuana dispensaries, so it’s taking an unlikely action: It’s considering opening a state bank to handle the marijuana cash coming in. But is that legal, and even if it is, can California pull it off?
- It’s perfectly legal for a state to start a bank: In fact, North Dakota does all its business through the Bank of North Dakota, and that’s a good model here. The BND is more of an industrial bank than a consumer service, handling student loans, government bonds, and other financial business. It’s guaranteed by the taxpayers of North Dakota, not the Fed. This is rarely done because America has a central banking system, the Federal Reserve, that’s largely independent of the federal government and most states just do their business through that.
- Only a state bank could really handle marijuana cash, legally speaking: National banks are under the jurisdiction of the federal judicial system, and marijuana is still illegal on a federal level. Banks aren’t certain whether they’d be breaking the law, and they’re not terribly eager to find out. That leaves those selling marijuana with no option but cash, which means they’re vulnerable to organized crime, robbery, and other problems. It also makes it easier to launder money or evade taxes.
- But there are problems with the idea, starting with who guarantees the bank: Every bank needs a guarantor — basically a way to keep cash on hand so depositors don’t lose their shirts. For most banks, that would be the Federal Deposit Insurance Corporation, or FDIC, which covers your money up to $250,000. Needless to say, any marijuana bank would not enjoy FDIC support. But the other option is the taxpayers of California, who voted for legal weed in the first place.
- Thought the federal government may also object to the very idea: It’s not clear how federal law enforcement will react to a bank that collects the funds and enables what it still considers a crime. One of the key concerns as states legalize marijuana is that drug traffic will spill across state borders, and any bank the state of California founds would, by necessity, probably only be able to do business within the state itself.
- There are other options, however: Hawaii is working to take cash out of the system entirely and use digital payments. Or if the state really wanted to get high tech, they could turn to the unsurprisingly high number of cryptocurrencies tied to marijuana.
In the end, there are two realities here. One is that marijuana legalization is not going away. In fact, 2018 kicked off with Vermont’s Republican governor signing a legalization bill, and so far, 2018 will see ten states with marijuana ballot initiatives, with more likely on the way. The other is that the Trump administration seems to want to push back on states’ legalization initiatives. Neither side seems willing to budge, and for now, that means anybody who wants to make money off the boom is stuck in the middle.
