Cannabis Businesses and State Banks: a Possible Solution to a Difficult Issue

One of the more frustrating aspects of the cannabis industry for business owners is the lack of available banking services.  Many banks are hesitant to provide banking services to the cannabis industry because of the conflict between state legality and federal illegality, not to mention the obligation of banks to file Suspicious Activity Reports for transactions that may violate the Bank Secrecy Act.  While the number of banks providing services to the cannabis industry is growing, obtaining banking services is still very challenging for cannabis entrepreneurs.  The standoff between banks and the cannabis industry manifests in many frustrating ways, including but not limited to strictly cash businesses, banks who charge excessive services fees to cannabis business clients and the need to use credit unions in lieu of traditional banks (who themselves are fighting their own legal battles).

Iconic image of a bank.

Recently, California proposed an idea that could very well reshape the entire cannabis industry: a state sponsored bank for cannabis businesses.  California State Treasurer John Chiang and Attorney General Xavier Becerra are planning to conduct a feasibility study to test whether a California state bank would help California’s many cannabis businesses.

“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,” Chiang said.

Conceptually, a state run bank that does not answer to the federal government could prove to be an ideal solution to the cannabis industry’s banking woes.  This is a particularly interesting development for the potential legalization of cannabis in New Jersey.  Governor Phil Murphy campaigned on a similar promise: to bring a state bank to New Jersey.  Murphy’s campaign pledge suggested that a New Jersey state bank would provide capital to New Jersey businesses, especially small businesses that could not get a foot in the door in larger banks.  Murphy’s idea is not in stasis: the idea was already discussed at the Assembly Financial Institutions and Insurance Committee on January 29, 2018.

Governor Murphy’s plan is not without its opponents.  State banking lobbyists have already stated their opposition to the concept of a state bank, claiming that it would not be as effective as Murphy suggests.

Nevertheless, the development of state banks in both New Jersey and California could be a major boon for the cannabis industry. This blog will post any important updates as they develop.

Alex concentrates his practice on business litigation and counseling. Alex is the author of the New Jersey Cannabis Counsel blog where he tracks and analyzes developments in New Jersey’s efforts to legalize recreational cannabis and the potential impact on cannabis businesses in New Jersey. Alex is also a member of the New Jersey Cannabusiness Association.