The cash-only cannabis industry is badly in need of a banking solution. Following the latest fraud scandal at Wells Fargo, one of the nation’s largest lending institutions, so is the public. The common solution may be public banking — and San Francisco is leading the way.
On her last day as chair of the Federal Reserve, Janet Yellen made a clear statement about bank fraud. On Friday, Yellen announced that Wells Fargo, the massive San Francisco-headquartered bank that had followed up its participation in the subprime mortgage-fueled financial crisis with a massive and sustained campaign of fraud — opening up 3.5 million fake bank accounts and also inappropriately charging its customers fees for mortgages and auto insurance —would at last pay a price for such misbehavior.
Yellen announced that Wells Fargo would now have to limit its assets to $2 trillion — less than other similarly-sized financial institutions — and would have to replace four of its board members. “We cannot tolerate pervasive and persistent misconduct at any bank,” Yellen said in a statement.
These penalties mean Wells Fargo may see its earnings cut by as much as $400 million, Fortune reported, prompting Tim Sloan, Wells Fargo’s CEO, to quickly insist that the bank is “still open for business.”
And Sloan is right. Wells Fargo still rakes in more than $22 billion in annual revenue. Unless more penalties are forthcoming, Wells Fargo and its shareholders will survive. In turn, this means that massive for-profit banks — and the culture that prompted Wells Fargo to lie, cheat, and cook the books for more profit — will also survive.
It’s no exaggeration to say that the American public doesn’t support the current banking system. A Gallup poll found that just a quarter of Americans have good “confidence” in banks. However, there isn’t an easy alternative to our current banking system, and if regulators can’t force the banks to change their habits, how can the public?
Meanwhile, the marijuana industry’s well-publicized problems with banks — specifically, banks’ refusals to offer cannabis businesses banking services, forcing large retail operations that owe significant amounts of taxes to live a cash-only life — are still here, and only getting worse.
Retail sales of recreational cannabis in California began Jan. 1. Experts estimate that legal weed will be a $7 billion industry in California. In the meantime, the state expects the marijuana industry to pay its taxes. In 2018 alone, the taxes owed by the marijuana industry could exceed $1 billion.
Nearly all of that tax money will have to be in cold, hard cash, driven to the state’s limited tax-collector offices by leery dispensary employees and entrepreneurs hoping that today’s not the day an enterprising criminal makes a withdrawal of his own. In a convenient and selective discovery of their scruples, financial institutions say they simply cannot take marijuana money because of federal law.
So here we are: The cannabis industry has a banking problem and in a real way, its problem is shared by the public at large. Banks like Wells Fargo have demonstrated a preference to serve their shareholders rather than their account-holders. Is there a solution? In North Dakota in the 1910s and in Genoa, Italy, in the 1400s, the solution was for the public to create its own bank.
Today, the only public state-owned banks in the United States are the Bank of North Dakota, founded in 1919 after existing commercial banks provided insufficient service, and the Puerto Rico Government Development Bank. Interest in launching more public banks in the U.S. spiked after the financial crisis in 2008 and the subsequent Great Recession and foreclosure crisis (in which Wells Fargo had a hand), but have so far come to naught.
Interest in launching a public bank to serve the marijuana industry has also waxed and waned.
In 2011, Gov. Jerry Brown vetoed legislation that might have led to the launch of a state-owned bank for cannabis. But with more marijuana money around than ever before, support for a public bank currently back on the rise. Last week, state Treasurer John Chiang announced the launch of a “feasibility study” to examine creating a public bank in California to handle cannabis deposits (and to ensure the smooth transfer of that $1 billion from marijuana accounts to state coffers).
This comes at the same time as working groups in San Francisco examine a publicly owned financial institution, with lending terms friendly to the public rather than moneyed interests, as a general alternative to for-profit (and predatory) banking.
There’s a natural confluence here, created by a common problem: Big banks. A public bank would be a common solution. There’s little reason why a public bank would limit itself to only cannabis customers — and little logic behind a city-owned bank turning away marijuana businesses in favor of small businesses and working people looking to buy homes and cars at rates that won’t lead to penury.
Banks do need working capital to start lending money and thus become viable. Marijuana money would seem to be a natural source of such liquidity.
Energy behind public banking is not limited to California. In addition to vowing to sign a marijuana legalization bill into law should state lawmakers send it to his desk, Phil Murphy, New Jersey’s new governor, has also floated the idea of a public bank.
As he should. The two go hand-in-hand—and from a new institution for a new economy, other changes to the way we live may be forthcoming.
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