With California’s newly legalized  recreational marijuana industry set to begin January 1 and projected to generate $7 billion annually by 2020, devising a banking system for all that money is a priority.  The problem is that banks, which are regulated by the federal government, won’t touch it for fear of being prosecuted criminally.

Last month, James Rufus Koren of the Los Angeles Times reported on ideas from California Treasurer John Chiang’s task force formed to study the issue.  These included a state-owned bank to handle the money, creation of “a multistate group to lobby Congress to ease federal regulations on cannabis,” and state-hired “armored car services to pick up tax payments from businesses.”

Earlier this week, Patrick McGreevy – also of the Los Angeles Times – reports that another potential solution to the federal/state law dilemma, this time out of the governor’s office, is a private collaboration of banks and credit unions working with a central “correspondent bank.” The plan is to meet federal banking regulators’ concerns in a way that protects the financial institutions from punishment.  Whether they feel comfortable enough to sign on remains to be seen.

And as my colleague, Professor Mike Vitiello, pointed out in an earlier blog post, even though marijuana will be legal in California, “use or possession of the drug in any form and in any amount remains illegal under federal law, regardless of state law.”  This reality shadows all efforts to identify “safe” banking practices that meet the needs of the producers and retailers, while also assuaging the concerns of the financial institutions considering diving into this newly legalized industry in California.

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