More than 100 years since the only surviving public bank was established in North Dakota, the nation’s largest state has begun exploring the option. California Treasurer John Chiang — a gubernatorial candidate — and Atty. Gen. Xavier Becerra told reporters last week that they would study how to establish a state-owned bank to service the hundreds of marijuana-related businesses that have had difficulty securing reliable financial services because of federal anti-drug laws.

This would be a tremendous step forward and also a tremendous missed opportunity.

Using a California public bank as a vault just for marijuana businesses sells the concept way too short.

The burgeoning legal marijuana industry cannot rely on traditional financial services. Because marijuana remains a Schedule I drug at the federal level, banks with federal charters or access to the Federal Reserve’s payment system technically violate the law when they process transactions with proceeds from pot sales.

Many pot businesses therefore operate solely in cash, making perfunctory transactions unwieldy (imagine using a Brinks truck to pay your taxes) and raising the threat of crime. Those that find banking services often do so under false pretenses, or after paying thousands of dollars to cover criminal background checks and financial audits.

A public bank capitalized by the state of California could solve the problem. If the state, rather than the Federal Deposit Insurance Corp., insured all deposits, and state bank examiners rather than the federal government conducted oversight, the bank would sit outside the federal perimeter and thus not be bound, potentially, by federal controlled substance laws.

Processing payments without access to the Federal Reserve system would seem to be a hurdle, but a Colorado credit union that caters to the pot industry recently got Fed access after successfully suing for the privilege.

It’s certainly worth fighting this battle on behalf of thousands of California residents who want to thrive in a state-approved industry.

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But a public bank could do so much more than hold deposits for a handful of entrepreneurs. At a time when California has so many pressing needs, from transportation to water delivery, a public bank could help stretch scarce dollars and rebuild the state.

Opening up a public bank to the state’s cash reserves would add significant capital. California’s Pooled Money Investment Account, an agglomeration of state and local revenues, hit $74.3 billion at the end of last year. It earns a little bit over 1% in its low-risk investments.

Instead of having this money sit around, a public bank could use it as a deposit base to finance large-scale infrastructure projects. California has no shortage of needs in this department. The promised high-speed rail network requires billions more dollars and additional cost controls. The scaled-back Delta tunnel project was a casualty of a lack of funds. President Trump’s infrastructure proposal relies on states to raise their own money, so stretching state dollars becomes even more paramount.

A public bank can reduce costs in two ways. First, it can offer lower interest rates and fees because it’s not a for-profit business trying to maximize returns. (Around half of the total cost of an infrastructure project comes from debt-based financing.) Second, any profit flows back to the state, providing governments with extra revenue. Our tax dollars can be applied locally, not parked in Wall Street banks that deploy the money wherever they want, and toward practices that don’t necessarily match our interests.

A public bank could also be tasked with lending money to support critical public needs. Ethical developers have trouble financing affordable housing, and nonprofit entrepreneurs have trouble securing small business loans; a California public bank could operate as a lifeline.

The existing public bank in North Dakota makes loans for economic development, including infrastructure, agriculture and student loans. The loans are more affordable than the bond market, and the bank has earned record profits for 13 straight years, reaching $136 million in 2016. Over the last decade, hundreds of millions of dollars in Bank of North Dakota earnings have been transferred to the state.

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New Jersey, under its new governor, Phil Murphy, is flirting with the model. And cities including Oakland, Philadelphia and Santa Fe, N.M., have toyed with the idea as well. Adding the nation’s largest state to the roster would bolster this simple yet rewarding concept.

Using a California public bank as a vault just for marijuana businesses sells the concept way too short. A true public bank could seriously reduce the cost of infrastructure needs, and decrease the state’s reliance on dodgy financial giants.

I’m glad Chiang and Becerra are reversing the great error Gov. Jerry Brown made in 2011, vetoing a feasibility study for a public bank. But they should recognize how much more powerful it could be than just a means to letting people pay for weed with an ATM card.

David Dayen is a contributing writer to the Los Angeles Times.

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