California Treasurer John Chiang said Tuesday his office will commission a report to gauge the feasibility of creating a public bank to serve the cannabis industry.

Chiang, a candidate for governor, told reporters he's seeking an extensive road map exploring what such an institution could look like, from its basic structure to how it would be funded to what lending standards should be put in place “if you lend.” The Attorney General's Office has agreed to study any legal obstacles facing the bank's possible formation, he said.

Creating a state-backed bank to serve cannabis businesses turned away by traditional financial institutions was one of the ideas studied last year by a Chiang-appointed working group. Chiang has not endorsed the notion, and as late as December 2016 he said he didn't support building a public bank just to handle marijuana customers. On Tuesday, the treasurer said something has to be done after U.S. Attorney General Jeff Sessions discouraged already-skittish private banks from taking cannabis clients by rescinding the Cole Memo.

John Chiang.

“Jeff Sessions has taken us steps backwards,” Chiang said. “And so it's crystal clear that we're going to have to face some additional challenges.”

Nine states, including California, and the District of Columbia have legalized recreational marijuana. None of them, however, have created a public bank to handle receipts from legal sales.

The state of Washington, for example, credits a rigorous and transparent sales reporting system with giving six state-chartered banks and credit unions enough assurances to serve its industry. Ninety percent of marijuana excise taxes in the state are paid by check or other noncash methods.

Two major obstacles to launching a public bank are the massive cash infusion it would require and finding insurance—backing from traditional public agencies would not be available to an institution serving marijuana clients. Any proposal would likely encounter opposition from the private banking industry, which has historically opposed any talk of public institutions, whether they're aimed at marijuana clients or not.

“Ultimately what's needed is some sort of solution from the federal government,” said Beth Mills, spokeswoman for the California Bankers Association.

Officials with California's Business, Consumer Services and Housing Agency met with credit union and bank leaders in December to float the idea of creating a private network of institutions to serve marijuana businesses. The proposal has not gained any traction. A state senator introduced framework legislation this month to attract bankers to the industry, but he has yet to release any details.

Chiang said he expects to advertise this spring for consultants and think tanks interested in conducting the feasibility study. A final report should be submitted by the end of the year, he said. Chiang's term as treasurer ends in January 2019.

 

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