In Massachusetts, a call for a public bank to serve pot firms

With Massachusetts only months away from allowing the sale of pot for recreational use, the state’s top cannabis regulator is urging policymakers to consider creating a public bank to serve growers and dispensaries that might otherwise have nowhere else to bank.

As in many other states where marijuana is legal, banks and credit unions in Massachusetts have shown little inclination to provide services to the recreational marijuana industry out of fear that they might run afoul of federal laws.

Steve Hoffman, the chairman of the state’s Cannabis Control Commission, said in an interview with The Boston Globe that if traditional banks and credit unions are unwilling to bank licensed pot firms, then the state should consider stepping in. Without a viable banking option, licensed firms would have to deal primarily in cash and would have nowhere to deposit the mounds of money they will likely collect each day.

“There’s a high degree of urgency, so it’s something we need to start talking about,” Hoffman said of the public bank proposal.

Hoffman is at least the second public official in the U.S. to float the idea of creating a state-owned bank to serve the marijuana industry. Last year, California’s state treasurer recommended that the state consider a public bank to address the lack of banking services available to pot firms there. The Los Angeles City Council is considering a public bank for the same reason.

The concept of the public bank isn’t a new one, but it’s picked up traction in the past year, with many supporters pointing to the Bank of North Dakota, currently the only state bank in the country, as a model.

Most states see public banks as being catalysts for economic development, though some advocates are now saying state banks could also help resolve a host of safety and regulatory issues that marijuana-related firms face in the 30 states, plus the District of Columbia, where pot is legal for recreational or medicinal use. The industry’s reliance on cash creates a public safety issue, essentially painting a target on those businesses’ backs, advocates say. The dependency on cash can also make handling taxes and payroll a challenge for marijuana firms.

“There are many different uses or possible purposes for a public bank, and pot has been identified by some states as a possible focus for a public bank,” said Nichoe Lichen, a director and secretary for the Public Banking Institute, an organization that advocates for the creation of public banks. “Cannabis brings about a sense of urgency to the need to be able to deposit funds somewhere safely.”

It’s not that traditional banks necessarily object to legal pot, but because marijuana is still illegal at the federal level, many bankers steer clear of it, rather than deal with the potential regulatory issues.

The Treasury Department’s Financial Crimes Enforcement Network issued guidance in 2014 to banks and credit unions that might want to bank pot businesses that are legal in their states, but early this year, Attorney General Jeff Sessions announced he would rescind that guidance.

Jon Skarin, executive vice president of the Massachusetts Bankers Association, said the organization has always opposed the creation of a state-run bank. In the case of legal marijuana, he wondered whether a public bank set up exclusively to serve that industry would be able to skirt the issues associated with federal prohibition. For instance, could a bank that deals entirely with pot businesses still access the federal payment system?

“I think the biggest concern is the cash aspect, but if you don’t have access to the payment system, I’m not sure how much that’s going to change and I’m not sure how much the state is willing to invest in creating its own payment system to deal with one type of business,” Skarin said.

Massachusetts lawmakers have previously considered a state bank, too. In 2010, the state’s legislature convened a commission to study the idea, but ultimately ruled it out, citing excessive start-up costs and an already adequate banking system in the state.

Although the impetus was different then, many of those same obstacles would remain if the state were to establish a public bank for the purpose of dealing with marijuana businesses, only with the added challenge of dealing with an industry that’s still illegal at the federal level.

Skarin said that he’s talked to 30 or 40 bankers from different institutions across the state who seriously studied the issue since Massachusetts legalized medicinal marijuana in 2012. All concluded that the risks did not outweigh the potential benefits.

Credit unions are leery as well, but somewhat less so. In neighboring Rhode Island, some credit unions are providing banking services to firms in the medicinal marijuana business, said Paul Gentile, the president and CEO of the Cooperative Credit Union Association, which represents credit unions in Massachusetts, Rhode Island, New Hampshire and Delaware.

“I wouldn’t say it’s overwhelming, but we have a number of credit unions that are currently analyzing cannabis banking and all that goes into it,” he said. “Your primary consideration is the regulatory burden you have to take on to bank the cannabis industry.”

In Massachusetts, recreational sales of pot are scheduled to begin in July, and a commission has been busy crafting rules around sales and licensing.

It remains to be seen, though, if policymakers will take up the issue of a public bank. The office of Massachusetts Gov. Charlie Baker told The Boston Globe this week that it would not support creating such an entity.