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California Could Lead Way in Creating Banking Solution for Marijuana-Related Businesses

By Toni Lapp, Senior Editor

January 1 — In November, nine states voted on the legalization of marijuana; ballot measures passed in eight of the states. Marijuana is now legal for recreational or medicinal use in 28 states and the District of Columbia.

 California’s approval of recreational marijuana will likely be a watershed moment in the legalization movement, given the state’s status as the sixth-largest economy in the world. Its new law calls for retail sales to begin in 2018. Put in perspective, Colorado recently reported that marijuana sales exceeded $1 billion for the first time 2016; California, which had legalized the medicinal use of marijuana in 1996, projects its annual sales will increase $6.64 billion by 2020.

And yet, because the federal government still lists marijuana under the Controlled Substances Act, “there is a dangerous, disruptive disconnect between state law and federal law,” as California Treasurer John Chiang described the situation.

Chiang noted that in 2014, the U.S. Department of Justice issued a memorandum known as the Cole Memo, which attempted to alleviate concerns about enforcement of the Controlled Substances Act as it related to banking.

“There was hope that the Cole Memo would provide some certainty to financial institutions and give access to banks for the cannabis industry,” he said. “Anecdotal evidence, however, suggests that the Cole Memo has not produced those results.”

Chiang has formed a working group to study banking issues for marijuana-related businesses. The group, which had its initial meeting last month, included participants from the cannabis industry, financial institutions and state agencies. Panelists described the effects of not having access to banking: from a dispensary having to pay employees in cash – a biweekly event that takes hours – to a dispensary having to hire armed guards to protect patients and staff.  One dispensary operator commented on the irony that Wells Fargo closed his account citing “unethical business practices.”

The panelists discussed what they’d learned from the experiences of Colorado and Washington state: that even when banks had attempted to comply with Financial Crimes Enforcement Network guidelines and open accounts for dispensaries, they ran afoul of the FDIC.

Conspicuous in their absence from the working group were federal regulators.

“We are hopeful they will join us at a future date,” said Chiang. “Certainly, they are paying attention to what we do here.”

Possibly, they are waiting for guidance from the new administration. President-elect Donald Trump’s choice for attorney general, U.S. Sen. Jeff Sessions of Alabama, has been critical of legalization efforts. At a Senate hearing last year, Sessions went as far as to say “good people do not smoke marijuana.”

Regardless of one’s opinion on the moral character of marijuana users, with more than half of the states allowing use of marijuana on some level, it may be now impossible to put the genie back in the bottle.


Sidebar: Pondering Trump’s Position on Banking, Cannabis

Many questions have been raised about the future of the cannabis industry since the election of Donald Trump, who ran on a pro-business platform. However, Trump’s selection of Jeff Sessions for attorney general, a position that would oversee the Justice Department, has alarmed the industry.

“That’s why 53 percent of recently surveyed marijuana company executives have changed their business plans or are considering doing so for 2017 and beyond,” says Chris Walsh, editorial director of Marijuana Business Daily. “Some are bullishly investing in heavy growth. Others are cautiously scaling back.”

A recent issue of MJBizDaily examined five scenarios that could play out under a Trump administration:
 Scenario 1. Trump’s team cracks down on both medicinal marijuana and recreational.
 Scenario 2. The administration looks to shut down recreational marijuana, leaving medicinal untouched.
 Scenario 3. Existing states remain untouched, but new states are targeted.
 Scenario 4. Status quo — marijuana industry continues as it has been.
 Scenario 5. Trump openly supports a booming marijuana industry.

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