California Cannabis Banking Reform: A Blueprint for Financial Stability and Sustainable Growth

Building Stability, Access, and Opportunity in a Time of Transition

A Moment of Change for California

Lieutenant Governor hopeful Fiona Ma delivered an inspiring address at Ignite It California this week, speaking candidly about the promise and the pain of California’s regulated cannabis economy.

She highlighted both progress and persistence: from cash-based excise tax payment solutions to extended hours for safer deposits, to modernized counting machines that streamline compliance. Her leadership has already created a tangible difference for thousands of legal operators who struggle to navigate an uneven playing field.

“What can we do to help each other in the State of California?” Ma asked.

Pac Garden Assets' answer is simple: help the industry help itself through a California State Bank designed specifically for regulated cannabis operators.

The Problem: A Budget Shortfall and a Broken System

California’s $20 billion budget deficit reflects a structural issue: our legal cannabis industry contributes substantial tax revenue, yet lacks access to affordable banking and credit.

Since the first legal sales in 2018, California’s cannabis tax program has generated more than $7.3 billion in total state tax revenue — including about $3.9 billion in excise taxes, $2.9 billion in sales taxes, and $500 million from cultivation taxes (before that tax was eliminated in 2022). Yet despite this enormous fiscal contribution, most operators still cannot access fair credit, standard merchant services, or long-term financing.

This contradiction undermines both state and industry. Businesses must rely on private, high-interest lenders. Small operators are squeezed by limited liquidity. Many simply can’t survive.

The result? A shrinking tax base and a flourishing illicit market. What California needs isn’t higher taxes, it’s modernized finance, normalized payment systems, and the liquidity that keeps legitimate businesses alive.

The Proposal: A California State Bank for Cannabis Real Estate

Pac Garden Assets proposes the establishment of a California State Cannabis Bank, seeded in part by excise tax deposits.

This state-managed bank would focus on:

• Secured commercial real estate lending (at conservative LTV ratios),

• Standard business loans & lines of credit,

• Deposit services and digital payments, and

• Merchant processing and transaction infrastructure for licensed operators.

It’s time for the state to treat cannabis like every other regulated sector — as a legitimate business with legitimate financial needs.

The Math: Turning Policy into Profit

Let’s start with the foundation - real estate lending. Some back-of-the-envelope math:

• Eligible properties estimate: 2,000 statewide

• Estimated average appraised value: $2.5 million

• Loan-to-Value (LTV): 50% → $2.5M × 0.5 × 2,000 = $2.5 billion loan portfolio

• Average rate: 7%

Annual interest income: $2.5B × 7% = $175 million per year

Over a 10-year term, this single program could yield $1.75 billion in interest income without undue exposure, while enabling more licensees to finance their own property.

A 50% LTV keeps the program conservative and safe, while ensuring operators gain access to credit that fuels real property reinvestment and growth.

Expanding the Model: Business Lending & Lines of Credit

Beyond real estate loans, the state bank could support small and mid-sized operators through standard commercial credit products, just as the SBA supports breweries, wineries, and other federally legal industries with loan guarantees issued through commercial banks. That reality, however, is not available to California’s cannabis businesses. It is a fundamental inequity that leaves compliant operators shut out of the same federally backed financing other regulated industries rely on. A California State Cannabis Bank could close that gap.

Assume:

• Average business loan or line of credit: $250,000

• Interest rate: 9% (current SBA 7(a) rates currently range from ~9.5% to 12%)

• Active credit clients: 2,000 businesses

Calculations:

• $250,000 × 2,000 = $500 million total principal

• $500M × 9% = $45 million annual interest income

Even at conservative adoption rates, that’s an additional $45 to 90 million per year in recurring revenue, while empowering thousands of small businesses to expand, hire, and compete.

Deposit & Account Fees

California currently has nearly 8,000 active cannabis licenses. If even half, around 4,000, held an account with a very conservative average balance of $10,000, that would represent $40 million in total deposits, providing the state bank with valuable liquidity.

On top of that, a modest $50 monthly maintenance fee on those accounts would generate about $200,000 per month, or roughly $2.4 million per year in steady fee income.

As more businesses transition from cash-based operations to compliant banking, these deposits would grow along with payroll, vendor, and tax inflows. This would create a healthy, circulating ecosystem of capital and compliance and deliver the kind of transparency and audit readiness that Fiona Ma has been calling for all along.

Merchant Services: Unlocking the Next Layer of Growth

Even with a functioning state bank, the payments problem remains a major choke point. Because Visa and Mastercard prohibit cannabis transactions under federal banking rules, most dispensaries continue to rely on cash or limited ACH-based alternatives.

The inefficiency is both staggering and costly.

Credit Cards Could Expand Average Sale Value by 50 to 75 Percent

Retail data from other regulated markets shows that access to card-based payments increases average ticket sizes by 50 to 75 percent.

Applying that to California’s five-billion-dollar retail cannabis market:

• 5 billion dollars multiplied by a 50 to 75 percent uplift equals 7.5 to 8.75 billion dollars in annual retail volume.

• The potential increase amounts to 2.5 to 3.75 billion dollars in new taxable sales if electronic payments were widely adopted.

This shift could significantly expand taxable sales, improve transparency, and make the industry more accessible for both consumers and regulators.

A State-Backed Solution

With the creation of a state-chartered cannabis clearing bank, the entity could act as both the clearinghouse and settlement authority for cannabis transactions. This would allow consumers to use their existing debit or credit cards at dispensaries while the state bank processes and settles transactions entirely within California’s regulatory framework.

If the bank collected a modest fee of 0.5 to 1.0 percent on transactions, the impact would still be substantial:

• Current market: 5 billion dollars multiplied by 0.5 to 1.0 percent equals 25 to 50 million dollars per year.

• Expanded market: 7.5 to 8.75 billion dollars multiplied by 0.5 to 1.0 percent equals 37.5 to 87.5 million dollars per year.

This represents up to 87.5 million dollars in potential annual bank revenue, generated entirely from legitimate, auditable, and taxable transactions that already exist in the marketplace. Beyond the revenue potential, it would create a transparent, consumer-friendly payment system that strengthens oversight and rebuilds confidence in California’s regulated cannabis economy.

Beyond Fees: Stronger Deposits, Stronger System

Card-based transactions mean fewer safes, fewer armored trucks, and more digital money in motion. With cash converted into deposits, dispensaries maintain higher balances, vendors get paid faster, and the state bank gains stronger liquidity.

These healthier deposits improve the institution’s loan-to-deposit ratio and strengthen the industry’s overall financial resilience, creating a virtuous cycle of trust, efficiency, and growth.

In short, solving payments could be the single most transformative step in normalizing California’s cannabis economy.

Indirect Benefits: The Multiplier Effect

Beyond direct income, California Cannabis Banking Reform could catalyze a broad fiscal recovery across the state.

Increased Excise-Tax Collection

With improved access to credit and liquidity, fewer dispensaries would default or underreport taxes. Even stabilizing current collections at $1 billion annually, instead of declining by 10 to 15 percent each year, would preserve roughly $100 to $150 million in annual tax revenue.

If sales expand through card transactions and accessible credit, excise-tax revenue could grow by another $50 to $100 million per year. Over a decade, that represents $1 to $1.5 billion in regained or new tax receipts.

Fewer Business Closures, More Jobs

Reducing the cannabis business failure rate from 15 percent to 7 percent could keep 600 to 700 operators open statewide, preserving jobs, tax receipts, and community investment.

Faster Accounts Receivable and Vendor Payments

Access to banking means faster accounts receivable turnover and more working capital. Even a five-percent improvement in statewide AR recovery could free up $50 to $75 million in reinvested cash flow.

Stronger Local Economies

The cannabis industry supports more than 80,000 jobs in California. Every dollar in cannabis payroll typically circulates about 2.2 times through local economies, amplifying the impact of stability and reinvestment.

Combined Fiscal Outlook

Adding up the direct and indirect gains, California could realize between 450 and 700 million dollars in annual fiscal benefit, or roughly 4 to 7 billion dollars over the next decade. This represents a realistic, responsible, and revenue-positive path forward that strengthens the state’s finances while supporting legitimate businesses.

California Cannabis Banking Reform isn’t a bailout — it’s a breakthrough.

Partnering for Progress

Fiona Ma’s leadership has already modernized how the state interacts with the cannabis industry. The next step is to create a comprehensive financial infrastructure that works for everyone.

With a state-backed cannabis bank, California can:

• Strengthen its budget without raising taxes

• Create fair and accessible lending for small businesses

• Enable safe and traceable transactions

• Expand excise revenue and job growth

• Reinforce the state’s leadership in innovation

California has always led by example. With vision and determination, it can do so again by building a banking model that balances risk, reward, and responsibility, and finally gives the state’s cannabis economy the financial tools it deserves.

Q1: What is California Cannabis Banking Reform?

A: California Cannabis Banking Reform is a proposed policy initiative that would establish a state-backed financial institution to serve licensed cannabis operators. This model would provide access to loans, lines of credit, merchant processing, and deposit accounts — services that are typically unavailable due to federal banking restrictions.

Q2: Why does California need a cannabis-specific banking system?

A: Although cannabis is legal at the state level, federal law still classifies it as a Schedule I substance. That means traditional banks and credit card processors — regulated by federal agencies — often refuse to work with cannabis businesses. As a result, operators are forced into cash-heavy operations, making the industry less safe, less efficient, and more difficult to regulate.

Q3: How would a California State Cannabis Bank generate income?

A: Through several primary revenue channels:

1. Real estate and business lending (earning 7 to 9% interest annually)

2. Deposit and account maintenance fees

3. Merchant services and transaction processing fees (1 to 2% per transaction)Together, these could yield $300 to 450 million annually while improving access to fair credit.

Q4: What impact would credit card access have on dispensary sales?

A: Studies and retail data suggest that enabling card payments could increase the average transaction size by 50 to 75%. For California’s $5 billion retail cannabis sector, that could translate to an additional $2.5 to 3.75 billion in annual taxable sales — benefiting both businesses and the state.

Q5: What indirect benefits could California Cannabis Banking Reform create?

A: Beyond direct income, the reform could:

• Increase annual excise tax revenue by $100 to 150 million

• Reduce business failures through fair financing

• Improve vendor payment cycles

• Strengthen job retention and local tax bases

Overall, the reform could deliver $4 to 7 billion in combined fiscal benefit over 10 years.

Q6: Can the state operate a bank while federal laws still restrict cannabis?

A: Yes — with careful design. A state-chartered financial institution can operate within California’s jurisdiction, handling deposits, loans, and payments exclusively for in-state entities. Similar frameworks exist for public infrastructure banks and housing finance authorities.

Q7: How would merchant services work if Visa and Mastercard still refuse cannabis transactions?

A: The state could create a closed-loop payment network, where cannabis transactions are processed within California’s regulatory framework. This could involve digital wallets, prepaid debit systems, or direct account transfers through the state’s banking infrastructure — bypassing federal card rails entirely.

Q8: How does this proposal align with Fiona Ma’s priorities?

A: Fiona Ma has long advocated for transparency, efficiency, and equity in California’s financial systems. Her prior reforms — like modernizing excise tax payments and improving cash handling — show her commitment to practical solutions. California Cannabis Banking Reform would expand on that foundation, offering structural change that benefits both the state and its legal cannabis operators.

Q9: Would this program require taxpayer funding?

A: No. The proposed bank would be self-funded, using a portion of existing cannabis excise-tax deposits as seed capital. Over time, interest income, account fees, and transaction revenue would make it self-sustaining — and even profitable for the state.

Q10: What’s the long-term vision for California Cannabis Banking Reform?

A: To create a transparent, equitable, and fully integrated financial ecosystem for California’s cannabis industry — one that:

• Reduces risk

• Enhances compliance

• Boosts tax revenue

• Builds public trust

• And sets the national standard for cannabis finance reform

California Cannabis Banking Reform isn’t just about banking — it’s about building a sustainable future for legal commerce.