Could the legalization of marijuana in Washington create opportunities for small businesses to access a new source of capital investment?
Maybe something like this: Proposed legislation to create a Washington state-run public bank would provide a legal banking alternative for marijuana-related businesses and potentially a new source of credit for small businesses.
While our state voted to legalize marijuana in the past election, possession and distribution remains a federal offense. As a result, many banks will not accept cash deposits from dispensaries or other related businesses for fear of public seizure.
Recently the U.S. Department of Justice announced it was preparing new guidance that would allow state-legalized cannabis businesses to use federal banks. However, without a defined safe harbor or action from Congress, many may feel the risk outweighs the benefit.
A solution may be to create a public bank in the state to handle these deposits and provide banking services.
A public bank is a financial institution in which the state or public actors are owners. Advocates for public banking point to North Dakota as a policy model. As the state receives revenues from taxes and fees, rather than depositing those funds into a commercial bank, they are deposited at the Bank of North Dakota.
The public bank acts as a clearinghouse for state transactions and spending much like a commercial account. However, the bank is also able to lend deposited funds for a variety of purposes within the state. Those loans in turn provide an additional revenue stream for the state totaling over $300 million during the last decade.
So how would a public bank solve the banking problem for now legalized pot shops? Washington state Senate Bill 5955 would create a state-chartered trust specifically for marijuana businesses as a well the tax revenues authorized by Proposition 502.
The state-chartered trust would be exempt from the Controlled Substances Act, which authorizes the federal government to seize money earned from illegal drug transactions. Deposits in the Washington Public Bank, backstopped by the state rather than the FDIC, would protect the monetary assets of marijuana-related businesses.
It is not just newly legalized marijuana businesses that could benefit from a public bank in Washington.
“What small businesses need more than anything is credit,” said Matt Stannard, director of media and communications for the Public Banking Institute. “Public banks are able to provide that credit on a more consistent basis. Private banks tend to tighten credit with businesses need it most, such as during economic downturns but public banks are far less cyclical in their lending.”
Stannard noted that public banks are governed by a charter that directs investments to be made in particular areas. In North Dakota, the bank provides small business loans through private community bank partners, loans to farmers, and underwrites student loans.
The Senate bill sponsored by Sen. Bob Hasegawa, D-Seattle, limits deposits to businesses involved in the marijuana industry and public entities such as municipalities.
The bill targets investments in public infrastructure but also allows for collaboration with economic development agencies, local financial agencies and community-based organizations to invest funds in the public interest. So stay tuned as our state works to implement Proposition 502, there may be a pot of money (pun intended) for entrepreneurs to create and grow.
Ryan Davis is the dean of the Business and Workforce Education department at Everett Community College.