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- Author: Emily Caldwell, The Ohio State University
- Author: Pamela Kan-Rice
Study analyzes tension between legal cannabis, financial industry
Legalization of marijuana in California has helped some financial institutions in the state increase their assets. At the same time, many banks, feeling stifled by federal regulations, deny services to licensed growers, manufacturers and retailers, a new study shows.
“Licensed cannabis businesses need to bank their cash and take out loans to build their businesses, but many banks worry that by doing business with the cannabis industry, they'll be flouting federal laws,” said co-author Keith Taylor, University of California Cooperative Extension community development specialist. “Banks that won't accept legal cannabis cash deposits and don't provide loans, aren't monetizing their deposits. Marginalized cannabis communities are missing out on capital.”
Of the banks and credit unions contacted by researchers at The Ohio State University and University of California for the study, most were not knowingly involved in the cannabis industry.
Combining data on bank holdings and interviews with growers and bankers, the research –published online in the journal Agricultural Finance Review – paints an initial picture of how the marijuana and financial industries co-exist in California now, and suggests regulatory changes could create new opportunities for both.
The data analysis did make one thing clear: Legalization of the estimated $16 billion marijuana industry in California has been a boon to financial institutions. But restricted access to banking, from checking accounts to loans, perpetuates inequities for those participating in the legal production of cannabis – while unlicensed, illegal growing and exporting continues as an enormous cash-based sector of the industry.
“We need a better understanding of the economics of this industry and all of the questions and implications related to it so the impacts of policy choices are intentional,” said lead study author Zoë Plakias, assistant professor of agricultural, environmental and development economics at The Ohio State University.
“If we want to have a more equitable society and allow communities to keep more of the value of this crop, how do we do that? We first need to characterize what happens in communities when you legalize cannabis.”
Plakias and Margaret Jodlowski, assistant professor of agricultural, environmental and development economics at Ohio State, conducted the study with researchers Taylor, Parisa Kavousi and Taylor Giamo at the University of California, Davis.
“The tensions we are observing in the cannabis banking space comes about in part due to the inequity felt between large cannabis and small and legacy operators,” Taylor said. “The ‘big guys' are able to absorb a great deal more than ‘Ma and Pa.'”
Legalization benefited financial institutions indirectly
Marijuana is listed as a Schedule 1 drug under the federal Controlled Substances Act. Even in states that have legalized recreational and medicinal use of cannabis, it is still a federal crime to possess, buy or sell marijuana. California legalized recreational cannabis for adults in 2016, and the industry is overseen by the Department of Cannabis Control.
Data used by the researchers for this study included bank and credit union call data for the years 2015-2020. The analysis showed that assets held by financial institutions in counties that legalized marijuana had increased in that period by almost $750 million and loan activity rose by about $500 million.
These benefits are presumed to be spillover effects of better overall economic health that followed cannabis legalization in specific counties, Jodlowski said, because the interviews with financial institutions indicated there has been little appetite among banks to associate with the marijuana industry.
“It's important to remember when talking about loans that it's not possible to identify whether they were for cannabis operations, and they're probably not based on what we heard from stakeholders,” she said. “It's more of a general relationship. The bank is doing better, and they're able to lend out more in general and earn more interest from loans.”
When they narrowed the analysis to banks that operate only in California, the researchers found that for each single new manufacturing or retail license, bank assets and loan capacity grew by tens of thousands of dollars. Cannabis cultivation licenses, on the other hand, had no impact on California banks' holdings.
“This suggests that a lot of the economic benefits of legalization come from other stages of the supply chain – and it's not a foregone conclusion that farmers benefit from legalization,” Plakias said. “There's a need to think about how farmers who are producing cannabis in the legal market, often operating in rural environments with a weaker economic base to start with, can be supported in the context of economic development.”
The team also interviewed marijuana farmers and representatives from banks and credit unions in Humboldt, Trinity and Mendocino counties – the “Emerald Triangle” region known historically in California and nationally for the quantity and quality of marijuana produced there.
Cannabis growers face obstacles, risk-adverse bankers
On the financial side, bankers reported being hamstrung by ambiguous federal guidelines that pose a real risk to financing cannabis, largely because banks are required to report suspicious transactions to the federal government. They might be seen as players in a criminal enterprise even by providing banking services to employees who work for licensed members of the cannabis industry, or they could lose big on lending if cannabis-related assets backing a loan were seized by federal agents.
“What's consistent across all financial institutions is that it's very costly, and does involve taking on some risk, to be in compliance with all of the guidelines – the risk being that even if you follow all guidelines to the letter, there's no assurance that you can't still get in trouble,” Plakias said.
Cannabis growers they interviewed reported paying fees ranging from $200 to $3,000 per month for bank accounts, which they found to be cost prohibitive. These limitations leave most licensed marijuana producers and retailers in the lurch, forcing them to rely on nontraditional financing arrangements – maybe investing in friends' endeavors – or risk running cash operations.
“There is a lot of evidence that cash can be better for a local economy because cash tends to stay local – but we are now a credit-based economy,” Jodlowski said. “In this day and age it's incredibly harmful for local economic development to have an entire sector that's denied access to credit, because so much of developing as a household, or individual, or industry requires credit and requires demonstration of credit-worthiness.
“That's a fundamental harm of these sorts of restrictions.”
This research is part of a larger project on cannabis and community economic development in California supported by a grant from the UC Davis Cannabis and Hemp Research Center. As part of this project, the California authors on this paper recently published a review of the opportunities and challenges marijuana legalization poses for localities in which the crop is cultivated and sold.
“It's clear we need policies making cannabis banking and finance more equitable,” Taylor said. “It's also clear that ‘Ma and Pa' enterprises need to associate together in formal organizations so they can achieve economies of scale and harness their political power to endure the transition to legal.”
Despite the stigma attached to marijuana, even when legal, its status as California's most valuable crop – estimated to be worth more than almonds and dairy combined – attracts outsiders who are better-equipped to come up with funding to get their operations started and compete with legacy growers who have lived and worked in California for generations.
This trend necessitates development of evidence-based policies that take all participants into consideration, the Ohio State researchers say.
“Our findings speak to confusion around existing policies and the need for streamlining, clarifying and having a more unified approach to regulating this industry,” Jodlowski said.
Related reading:
Cannabis and utilities hold potential for economic development, says UCCE specialist
Characteristics of farms applying for cannabis cultivation permits
- Author: Olivia Henry, UC Davis graduate student intern
As California strives to recover from the pandemic-induced economic slump, Keith Taylor is taking an unconventional approach to economic development. In the world's sixth biggest economy, where do you start? Taylor, who was hired in 2017 as UC Cooperative Extension's sole specialist in community economic development, started by tackling a couple of the state's thorniest sectors: cannabis and utilities.
Participatory research in Mendocino County
In 2016, the passage of Prop. 64 legalizing recreational cannabis ushered in an era of both opportunity and headaches for Mendocino County growers. The county's permitting program has been the source of significant confusion and debate: Between 800 and 1,100 growers have received county permits, but many have not been able to obtain permanent state licenses because of a lack of clarity around the county process and compliance with the California Environmental Quality Act. The burden of uncertainty is one reason why only a fraction of Mendocino growers have pursued licenses, says Taylor, who is based in the Department of Human & Community Development at UC Davis.
While these regulatory battles play out, Taylor says better economic coordination between small growers could buffer them against large capital interests moving into cannabis. Virginia-based Altria, the parent company of Philip Morris USA, is investing in cannabis and filing patents for cannabis-specific vaporizers. Individual legacy growers have the crop experience and market share, Taylor says, but don't have shared institutions through which they can exercise collective power — especially down the value chain in processing, distribution and consumer technology. Taylor believes that creating a small farmer-centric system will involve the creation of more interest groups, associations or cooperatives.
“For too long in agricultural and rural communities, we've encouraged people to do things alone,” Taylor said in an October 2020 presentation to the UC Davis Cannabis and Hemp Research Forums. However, if you look at parts of the world where rural economies do very well, they work together.”
With help from a Cannabis and Hemp Research Center grant, Taylor has been working on a wide-ranging participatory action research project in Mendocino County. Taylor's team — comprised of two faculty members, one post-doctoral researcher, and two student researchers — is producing research publications, policy recommendations and public events about ways that the emerging cannabis industry can support high-quality livelihoods and environments for county residents.
“The more we make folks aware of these good actors, the more likely we are to get challenges to the incumbents in terms of climate mitigation and economic developments,” Taylor said.
West Business Development Center, Economic Development & Financing Corporation and Mendocino County Supervisor John Haschak have been allies in the process so far. Haschak says Taylor brings valuable knowledge, resources and networks to bear on local challenges.
“There's a lot of opportunity for doing this whole new industry in a new way, and I think that's what Dr. Taylor sees too,” Haschak said. “There's a lot of potential here for structuring the industry along the lines of what our community values already are.”
As Taylor's team releases their findings, they intend to host forums at the Hopland Research and Extension Center to help the county harness the legal cannabis sector for economic impact.
Power to the people
Shortly after arriving at UC Davis from Illinois, Taylor published a book about the benefits of community ownership of wind energy in the Midwest. The turmoil surrounding California's largest utility, Pacific Gas & Electric, could have been ripped from the pages of his research. PG&E equipment has ignited half of California's most destructive fires since 2015, and experts pin much of the blame on the company's lack of investment in the grid.
In the months following the 2018 Camp Fire, which burned an area roughly the size of Chicago andkilled85 people, Taylor was one of the first advocates to propose converting PG&E into a user-owned nonprofit cooperative. This conversion would remove the extractive role of investors and give customers a voice in big-picture decisions about the company, Taylor wrote in an op-ed pushing the idea of customer ownership in The Mercury News in February 2019. By December, more than 100 elected officials across 10 counties endorsed the idea. The federal bankruptcy judge overseeing PG&E's case did not endorse the plan, although it's still possible for the state to take over the company under certain conditions. Other attempts to gain local control of PG&E's grid — including San Francisco's bid to buy the city's power lines from the company — also stalled.
Taylor isn't discouraged. He is working closely with the Golden State Power Cooperative, an association of the state's three community-owned electric utility co-ops, to push forward what he calls a “Rural Electrification Act for California broadband.” Taylor often references this New Deal-era law that gave federal loans to rural communities seeking to expand the electrical grid to their area. The act gave rise to the nation's more than 900 electric cooperatives today, including the three in California. With their help, Taylor sees opportunity in legislation or programs that would catalyze community-initiated, community-owned internet services. Plumas-Sierra Rural Electric Cooperative is already bringing broadband to the rough terrain of its mountain customers.
“When you first set foot in California and are exposed to the giant that is PG&E and their influence over policy, you think that it's an obstacle that's too difficult to overcome,” Taylor said. He tries to elevate the visibility of people who are making inroads and recently featured Kevin Short in a webinar about community economic-development innovations.
Short is the general manager of Anza Electric Cooperative in California's high desert and current board president of the Golden State Power Cooperative. He said there are “tremendous opportunities” in the idea of growing cooperative broadband entities, especially with the attention on infrastructure at the state and federal levels. Short said the effort will take some creativity and willingness to depart from existing models: “The old saying among us here is if you've seen one co-op, you've seen one co-op, because it's going to be different everywhere you go.”
In both of these areas — cannabis and utilities — Taylor says his role is networker and facilitator. As the only economic development specialist at UC Agriculture and Natural Resources, he spends a lot of time researching and meeting people to understand where his efforts can be the most strategic. “In order to scale, I've got to go small, root and build and be comfortable with that process,” he said.
Small works for now, but Taylor remembers an associate dean telling him, “You've got a great job, now make it work for 40 million Californians.”
- Author: Pamela Kan-Rice
“We will start a conversation about prospects for new businesses after COVID-19, and entrepreneurial support for existing and new independent business startups,” said Taylor, who is organizing the series.
Webinars will be held on alternate Thursdays at 11:30 a.m. to 12:30 p.m. For details and to register for the free events, visit http://ucanr.edu/postpandemiceconomy.
Schedule
May 6: Mobilizing and Organizing Grassroots Capital: Investment Clubs and Real Estate Cooperatives – Matt Cropp, executive director of Vermont Employee Ownership Center
May 20: Utilities of the 21st Century – Kevin Short, CEO of ANZA Electric Cooperative
June 3: Modo Co-operative: A Platform for Carsharing – Patrick Nangle, CEO of Modo Co-operative
June 17: Models of Affordable Workforce Housing – Mikaela Fenton, UC Davis Bradshaw Scholar
- Author: Pamela Kan-Rice
Tracy Schohr joined UCCE on Oct. 16, 2017, as an area livestock and natural resources advisor in Plumas, Sierra and Butte counties.
Prior to joining UCCE, Schohr worked for the Department of Plant Sciences, UC Davis (2012-2014), where she co-led research projects on working rangelands focused on irrigated pasture, mountain meadows, livestock predation, annual rangelands and invasive species. She is a managing partner for Schohr Ranch (rice, cattle, walnuts and wetland management) where she is engaged in all facets of the operation from livestock production, financial accounting, equipment operation, human resources and marketing. From 2015 to 2017, Schohr also worked as a farmer outreach specialist for K-COE Isom, a national agricultural accounting and consulting firm, where she was a scientific and agricultural advisor on conservation initiatives. From 2006 to 2012, Schohr was the director of rangeland conservation for the California Rangeland Conservation Coalition. From 2004 to 2006, she served as director of industry affairs for the California Cattlemen's Association.
She completed an M.S. in horticulture and agronomy (rangeland focus) from UC Davis and a B.S. in agricultural business from CSU Chico.
Based in Quincy, Schohr can be reached at (530) 283-6262, cell (916) 716-2643 and tkschohr@ucanr.edu. Follow her on Twitter @BeefnSushi.
Mary Bonaparte-Saller joined UCCE on Oct. 9 as a 4-H youth development advisor in Orange County.
Prior to joining UCCE, Bonaparte-Saller taught third- to fifth-grade classroom and field lessons at Sierra Nevada Journeys, a science and environmental education nonprofit. From 2011 to 2016, Bonaparte-Saller was a graduate student researcher at UC Davis, where she studied the social behavior and welfare of zoo elephants and mentored and supervised undergraduate research volunteers. During this time, she also engaged in youth education and outreach activities as a volunteer for the Kids into Discovering Science (KiDS) Program at UCD, Sacramento's Powerhouse Science Center, and the Sacramento Zoo.
She earned a Ph.D. in animal behavior at UC Davis and a B.S. biological sciences at UC Irvine.
Bonaparte-Saller is based in Irvine and can be reached at (949) 653-1814 and kmbonaparte@ucanr.edu.
Black joins UCCE as dairy advisor
Randi Black joined UCCE on Oct. 2 as an area dairy systems advisor in Sonoma, Marin and Mendocino counties.
Prior to joining UCCE, Black was a graduate research assistant at University of Tennessee (2013-2016) and University of Kentucky (2010-2012), leading and supervising dairy cow behavior research projects.
Born and raised in Versailles, Ky., Black ventured into agriculture working with thoroughbred race horses, but realized her passion for the dairy industry as an undergraduate.
She earned a B.S. and an M.S. in animal science at the University of Kentucky. Her thesis focused on the management of compost bedded pack barns within Kentucky dairy farms. She earned a Ph.D. in animal science from University of Tennessee. Her dissertation focused on the use of exercise during late gestation to improve postpartum health in dairy cows.
Black is based in Santa Rosa and can be reached at (707) 565-2648 and rablack@ucanr.edu.
Brooke Latack joined UCCE on Oct. 2 as an area desert livestock advisor in Imperial, Riverside and San Bernardino counties.
Prior to joining UCCE, Latack worked in multiple positions at the Michigan State University Animal Air Quality Research Facility. As an undergraduate research assistant, professional aid, and graduate research assistant, Latack worked with beef, swine and poultry evaluating and addressing the environmental impact of management decisions in animal agriculture. Her primary research integrated systems dynamics feedback into understanding the environmental sustainability of animal protein production.
She earned a B.S. and an M.S. in animal science from Michigan State University.
Latack is based in Holtville and can be reached at (442) 265-7700 and bclatack@ucanr.edu.
Matthew Shapero joined UC ANR as a UCCE livestock and range advisor serving Ventura and Santa Barbara counties on Sept. 5. Prior to starting as an advisor, Matthew worked for the Rangeland Planning & Policy and the Rangeland Ecology labs at UC Berkeley and worked as a graduate student researcher at Sierra Foothill Research and Extension Center. Shapero also has experience in small-scale, grass-fed meat production, working as rancher in the Sierra Nevada foothills between 2010 and 2016.
As one of ANR's Global Food Initiative fellows and Graduate Students in Extension in 2015-16, Shapero led a group of UC Berkeley graduate students in organizing seminars and workshops about careers with Cooperative Extension, including the Cooperative Extension Showcase, which brings UC Cooperative Extension advisors and specialists to the Berkeley campus to discuss their work and to network with graduate students.
He completed an M.S. in range management from UC Berkeley and a B.A. in religion and pre-med from Columbia University.
Shapero is based in Ventura and can be reached at (805) 645-1475 and mwkshapero@ucanr.edu.
Keith Taylor joined UCCE as a community economic development specialist in the Department of Human Ecology at UC Davis on July 1, 2017.
Taylor earned a Ph.D. in human and community development from the University of Illinois at Urbana-Champaign, an M.S. in public sdministration from the University of Illinois, and a B.A. in political science from Eastern Illinois University.
Prior to joining UC, Taylor worked as a research associate and visiting scholar with the Ostrom Workshop at Indiana University Bloomington, where his research focused on the community economic development spillovers from renewable energy and food systems development. Taylor has worked extensively with co-operative businesses and marginalized communities to identify sustainable community economic development strategies that enhance the well-being of the local population. His forthcoming book, “Governing the Wind Energy Commons,” analyzes the community economic differentials of community and investor-owned wind energy, a culmination of three years of research in rural North Dakota and Illinois. Taylor has served in governance capacities for Common Ground Food Cooperative and as chair of the board for Indiana Cooperative Development Center, and We Own It, “the national network for cooperative members' rights, education, and organizing.” He also has experience in public policy, having worked as a legislative aide for former Congressman David Phelps.
Taylor is based at UC Davis and can be reached at keitaylor@ucdavis.edu.
Scott Brayton and Kelly Scott have joined Development Services as major gifts officers, raising philanthropic support and building relationships that serve to advance ANR's programs.
Brayton has been with the UC system for 27 years primarily with UC Davis Athletics as the assistant athletics director responsible for marketing and corporate relations. Most recently he has served as a contract negotiation consultant with UC Davis accounting and financial services. In his roles, Brayton has raised over $25 million in funds for UC Davis programs, facilities and students.
A 2001 graduate of California State University, Chico, Scott has a degree in business administration, with an emphasis in marketing. He has worked in higher education at UC Davis for more than 14 years. He has held previous fundraising positions at UC Davis with the COSMOS program (California State Summer School for Mathematics and Science), the College of Engineering, and the Cal Aggie Alumni Association.
Brayton and Scott are based in the UCANR building in Davis. Scott Brayton can be reached at (530) 750-1210 and sabrayton@ucanr.edu. Kelly Scott can be reached at (530) 750-1307 and kdscott@ucanr.edu.
Lorrene D. Ritchie, Nutrition Policy Institute director, received the Academy of Nutrition and Dietetics Foundation's 34th annual Huddleson Award for the article “School Breakfast Policy Is Associated with Dietary Intake of Fourth- and Fifth-Grade Students” published in the March 2016 issue of the Journal of the Academy of Nutrition and Dietetics (2016;116(3):449-457).
The coauthors for the article include Lauren E. Au, PhD, RD, assistant researcher; Lauren H. Goldstein, PhD, director of operations, Nutrition Policy Institute, Division of Agriculture and Natural Resources, University of California; Nila J. Rosen, MPH, senior associate, Informing Change, Berkeley, CA; at the time of the study, she was a research associate, Atkins Center for Weight and Health, University of California, Berkeley; Keenan Fenton, MA, biostatistician, Seattle Genetics, Bothell, WA; at the time of the study, he was a research data analyst, Atkins Center for Weight and Health, University of California, Berkeley; and Tia Shimada, MPH, managing director nutrition policy advocate, California Food Policy Advocates, Oakland, CA.
The prestigious Huddleson Award honors a registered dietitian nutritionist who was the lead author of a peer-reviewed article that made an important contribution to the dietetics profession and that was published in the Journal of the Academy of Nutrition and Dietetics during the previous calendar year.
The award, named for Mary Pascoe Huddleson, editor of the Journal from 1927 to 1946, carries a $1,000 honorarium, and the winner is invited to attend the foundation dinner at the Food & Nutrition Conference & Expo.