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How Nevada Plans to Solve the Marijuana Banking Problem

The state is drawing inspiration from the gambling industry to get cannabis businesses access to banks.

Marijuana is a half-billion industry in Nevada.
Nevada hopes to be the first state to create its own banking system for the booming marijuana industry, which has generated more than $150 million in tax revenue since 2017, according to Nevada Treasurer Zach Conine’s office.

Since the drug is still illegal under federal law, most banks won’t accept cannabis businesses as clients. As a result, the multimillion-dollar industry is mainly a cash business -- at least for now.

Under a three-year pilot program, Nevada will allow marijuana businesses and consumers to deal in electronic tokens. The system will work much the same way as in in casinos, where players buy and bet with chips. “You exchange cash for casino chips and those chips transfer around the casino,” says Conine. “At the end, you convert them back into cash.”

The initial idea is for consumers and businesses to use an app to buy tokens, which could then be used at any marijuana business or for paying state and local government. Consumers could use them at dispensaries. Dispensaries could use those tokens to pay growers, who in turn could use tokens to pay a tax bill to the state. At that point, the state would convert the tokens back into dollars.

The treasurer’s office is spending the summer consulting with both financial and tech companies. While Nevada will create the parameters, it plans to largely let the market dictate the details.

For example, the financial companies selected to run the pilot will make their money by charging fees for their service. Conine says that means the fees will have to strike a balance between being cheaper than what marijuana businesses pay now in security costs to safely manage massive loads of cash, but high enough so that finance and tech companies can make money and create a good product.

Marijuana buyers and sellers also won't be required to use the token program, and the state plans on selecting more than one vendor to facilitate it. “It was important for us to create an industry-supported idea,” Conine says. By stepping back and “seeing if market forces will support it,” he says, “that allows us to make sure it makes sense from a business perspective.”

The state expects to have its pilot banking system up and running by July 2020.

Other states are also looking at how to create alternative banking solutions for marijuana businesses while they wait for Congress to fix the problem. Some have considered opening state-run banks to serve marijuana businesses. But a report from California deemed that idea extremely risky.

In Illinois, which just legalized recreational marijuana, State Treasurer Michael Frerichs pushed through legislation that would prohibit state financial regulators from penalizing or discouraging banks and credit unions from serving cannabis businesses. The bill is awaiting the governor’s signature.

At the federal level, the SAFE Banking Act proposed in the House of Representatives would prevent federal banking regulators from punishing banks for working with legal cannabis businesses. While this version of the bill appears to have more momentum than prior ones, its future in the U.S. Senate remains uncertain.

This appears in "The Week in Public Finance" newsletter. Subscribe for free.

Liz Farmer, a former Governing staff writer covering fiscal policy, helps lead the Pew Charitable Trusts’ state fiscal health project’s Fiscal 50 online resource.
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