SAN DIEGO — The state of California is accustomed to throwing around its considerable weight. From auto emission standards to rules governing the size of chicken cages, policies established in the nation’s largest state often have reverberations well beyond its borders.

So after Californians voted in November to legalize the recreational use of marijuana, State Treasurer John Chiang set out to tackle the U.S. pot industry’s persistent lack of access to the banking system.

The issue has bedeviled dozens of states whose laws conflict with the federal ban on cannabis, but Chiang hoped to make headway by convening a working group that includes bankers, state officials and pot industry representatives.

At the start of a public meeting Friday about cannabis banking, Chiang struck an upbeat tone. “Because of California’s size, there may well be some magic in our efforts, presenting us the opportunity to be national thought leaders,” he told an audience gathered at a San Diego hotel.

But as the three-and-a-half-hour meeting continued, optimism was in short supply. Several speakers emphasized the need to lean on members of Congress rather than trying to find a homegrown solution. Others fretted about the possibility that the Trump administration will overturn previously issued federal guidance that helped persuade some banks to dip a toe in the water.

Ultimately, the meeting offered little reason to believe California will be more successful than Colorado and other states that have struggled to bring the pot industry into the financial mainstream.

“As we all know, banking is controlled by federal oversight, and there isn’t really too much a state can do,” Aaron Smith, executive director of the National Cannabis Industry Association, said in an interview.

The most revealing comments at Friday’s meeting came from Julie Robinson, senior vice president and compliance risk manager at River City Bank in Sacramento, who gave a detailed explanation of why her $1.9 billion-asset, state-chartered bank remains unwilling to work with companies that handle cannabis.

Several of the roadblocks that Robinson cited fall outside of the state of California’s control. For example, she argued that it is too difficult to comply with Obama-era federal guidance, devised by the Treasury Department’s Financial Crimes Enforcement Network, which was designed to ease banks’ fears about serving the pot industry.

She also pointed to River City Bank’s primary federal regulator, the Federal Deposit Insurance Corp., as an impediment. Though Robinson noted that she was not speaking on behalf of the FDIC, she said that she has had many private conversations with FDIC officials about marijuana banking.

“And my interpretation of their stance is this: They’re required to uphold federal law,” Robinson said. “The bottom line for them: Marijuana is illegal federally. And following the Fincen guidance is currently impossible.”

When asked to respond to those comments, an FDIC spokeswoman said that the agency expects banks to follow Fincen’s guidance. She also noted that a number of FDIC-supervised banks do serve the pot industry.

At Friday’s meeting, Robinson argued that the National Credit Union Administration takes a less strict stance on marijuana than banking regulators do. “This may be a reason why more credit unions than banks are currently banking these businesses,” she said.

In an email, an NCUA spokesman said: “NCUA has consistently maintained the identical supervisory position with credit unions as bank regulators do with banks in terms of institutions servicing licensed marijuana-business-related accounts.”

Pot topic
California State Treasurer John Chiang has convened a working group of government agencies and industry trade groups that have a stake in resolving the marijuana banking impasse. But absent from the deliberations are federal policymakers, who hold the keys to solving the problem.

Robinson ended her presentation on a positive note by recommending some specific actions that California officials can take to help assuage bankers’ fears. For instance, she suggested that California spend more money on law enforcement in an effort to prevent the local marijuana crop from crossing state lines or winding up in the hands of children — scenarios that could put banks in hot water with the federal government.

Other attendees made clear that some California banks are looking for ways to serve the state’s cannabis industry, which is expected to generate more than $6 billion in annual revenue by 2025.

David Haithcock, executive director of the California Community Banking Network, said that some of his group’s members have interest. But for many bankers, the risks are simply too big.

“Am I willing to risk my charter? Am I willing to risk prison?” Haithcock said in an interview.

The stakes are perhaps even higher for the folks in the marijuana industry. Because many cannabis businesses are unable to get bank accounts, they operate on a cash-only basis, which poses security risks.

Todd Kleperis is the CEO of an armored transportation company that moves cash for the marijuana industry. He asked how many of the people in attendance Friday have ever had a gun pointed at them. Lots of hands went up.

“The faster we get a banking solution done, the better,” said Kleperis, the CEO of Hard Car Security.

Meanwhile, Rep. Dana Rohrabacher, R-Calif., a longtime legislative ally of the cannabis sector, advised the industry’s representatives to pressure his fellow Republicans in Washington. Several bills that are aimed at bringing pot into the banking system are languishing on Capitol Hill.

“My recommendation: If you really want to help, find those Republicans,” Rohrabacher said.

Smith, the Washington-based lobbyist for the pot industry, called for California officials to issue guidance to state-chartered banks that serve the pot industry. But he acknowledged that the ultimate solution to the banking problem falls outside of the state’s control. And he expressed concern that the Trump administration may be poised to take a harder line on the enforcement of federal law.

Following the meeting, State Treasurer Chiang said that the cannabis banking working group that he has convened hopes to issue a report by the end of the fall. On Jan. 1, the California law legalizing the recreational use of marijuana is scheduled to take effect.

In an interview, Chiang acknowledged that whatever actions the working group recommends will have limited usefulness. “You don’t have finality unless you get action by the federal government,” he said.

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Kevin Wack

Kevin Wack

Kevin Wack is a California-based reporter for American Banker who covers the U.S. consumer finance industry.