City official pitches bank plan for Los Angeles’ marijuana businesses

Los Angeles’ City Council president wants to establish a municipal bank to serve marijuana businesses, including providing financing.

The proposed bank would also serve affordable housing developers and small businesses, the Los Angeles Daily News reported.

According to the newspaper, Council President Herb Wesson likely will direct a committee to study the practicality of a municipal bank.

Lack of access to banking services is a significant issue for marijuana businesses. Most financial institutions steer clear of the industry because cannabis remains illegal at the federal level.

Los Angeles isn’t the first city to consider creating a public bank for the cannabis industry.

According to the East Bay Times, the cities of Oakland and Santa Rosa, California; Santa Fe, New Mexico, and Philadelphia have considered or are considering creating municipal banks to serve marijuana businesses.

The states of Arizona and Maryland are also studying how to provide banking services for the cannabis industry.

2 comments on “City official pitches bank plan for Los Angeles’ marijuana businesses
  1. Paula Givens, JD on

    The lack of banking for the cannabis industry is attributable to the fact that servicing marijuana is “high risk” for a financial institution. Not all banks decide to service high risk lines of business (gaming, money services businesses, electronic commerce). High risk lines of business require a substantial amount of additional compliance work, which is heavy lifting that many banks find too onerous.

    What most people do not understand is that each bank is accountable to a federal regulatory body, whose regulators inject themselves in to the daily lives of financial institutions. As such, new lines of high risk business must first get past regulators. Frequently, banks do not have a sufficiently robust compliance program to successfully service medical marijuana and the regulator balks. Banks do not make any moves regarding high risk lines of business without the tacit approval of their regulators.

    For a bank willing to engage in high risk business such as servicing medical marijuana they must have an extensive compliance program to board new customers, to determine that funds are from state compliant sales of marijuana and that on-going transaction testing is conducted. For most banks this work is too much of a hassle or too expensive. For banks willing to engage in the heavy lifting, however, the income can pay for the expense, plus some.

    The Department of Treasury, FinCEN, on February 14, 2014, detailed the path for financial institutions to service the cannabis industry consistent with their BSA/AML obligations under the Bank Secrecy Act and USA Patriot Act. Banks that follow this guidance, and create a compliance program consistent therewith, have passed multiple periodic examinations (Safety and Soundness and Compliance) with flying colors.

    Paula Givens, JD
    Direct: 314.229.5638

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  2. mike on

    Yeah Paula you may be right but it sure didn’t stop the banksters from selling those mortgage backed securities 32 times or the regulators worrying about the “(Safety and Soundness and Compliance)” because they all knew if it blew up, as it did in 2007, their friends in DC would just bail them out so they could stay out of jail. All of a sudden now they are moral on pot sales deposits? Probably this banking restriction with the banksters cooperation is just another way the big money people crowd out the small people in the business until they can get pot legalized in all 50 states and then move in for the billions in profits.

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