The Los Angeles City Council approved a resolution Wednesday supporting a state Senate bill that seeks to create a state-chartered bank that could be used by the marijuana industry.
The resolution approved on an 11-0 vote supports Senate Bill 930, introduced by Sen. Bob Hertzberg, D-Van Nuys, and comes after City Council President Herb Wesson suggested that Los Angeles explore opening its own bank that could serve the marijuana industry.
The creation of a public Bank of Los Angeles was proposed by Wesson during a speech in July 2017 as he called on his fellow council members to help devise a legal cannabis industry in the city that works.
However, a recent report from the City Attorney’s Office appears to have spooked city leaders away from creating a bank for the cannabis industry.
Lawyers with the city told the Ad Hoc on Comprehensive Job Creation Plan Committee in December that the public bank would be subjected to the same laws for any other bank when it comes to marijuana businesses, and because pot is still a Schedule 1 drug at the federal level, accepting deposits from cannabis businesses could violate the Banking Secrecy Act and open the city and bank employees to potential liability.
Because banks fear running afoul of the federal government, most do not accept deposits from marijuana-related businesses, and the industry in California and other states where it has been legalized for recreational or medicinal purposes operate largely on a cash basis. Banks are allowed to have marijuana businesses as clients, but the paperwork required by the feds is so onerous that few banks choose to do so, according to the City Attorney’s Office.
Wesson has cited other benefits to the city that a Bank of Los Angeles could bring outside of marijuana issues, including that it could be used to finance local entrepreneurs and affordable housing. At the December meeting, Wesson told city staff not to allow considerations of marijuana to slow down its research on creating the bank, and that the city could still move forward on creating its own bank even if it was not for the marijuana industry.
The Ad Hoc on Comprehensive Job Creation Plan Committee held another meeting Wednesday on the bank creation proposal, where it received a number of reports for city staff. The meet lasted over two hours, and the discussion was less focused on marijuana and more focused on the other complex issues that surround the creation of the bank.
On of the reports the committee received was from the Office of the City Administrative Officer, stating, “Despite the recent legalization of cannabis by the state of California, cannabis-related businesses will continue to face many operational challenges as long as cannabis remains classified as a Schedule I drug by Federal law. For purposes of this report, discussions regarding a potential municipal bank assume no association with the cannabis industry.”
Hertzberg’s statement on his proposed state-chartered bank did not directly address how it could avoid some of the potential problems cited by the Los Angeles City Attorney’s Office.
No city in America has its own bank, and the only public bank in the nation is the Bank of North Dakota, which was created in 1919. The motion Wesson introduced calling on the city to explore creating its own bank said the Bank of North Dakota is a successful model on how cities and states could use their banking needs to give back to the community.
Marijuana was legalized for recreational sale and use in California on Jan. 1.