Santa Rosa cannabis manufacturer CannaCraft gets a visit from State Treasurer John Chiang

It was payday at local cannabis manufacturer CannaCraft when Santa Rosa police raided in July. At the time, the business was out of compliance with city codes. Police confiscated about $500,000 in cash, divided into stuffed envelopes ready for the company to pay its workers.

On Friday, State Treasurer John Chiang visited CannaCraft’s Circadian Way manufacturing plant on a fact-finding mission, part of an effort to help the state’s now-legal marijuana industry ultimately safeguard that money in banks.

Marijuana is a cash business. With pot still banned by the federal government, cannabis-related companies face roadblocks to basic services like bank accounts, loans and insurance. Employees are paid in cash, placing individuals at risk, too.

Chiang’s visit comes one month after he sent a letter to President-elect Donald Trump asking him help pave the way for the state’s pot business, projected to hit $7 billion in sales this year, to access the federally regulated banking system.

“I’m afraid for you guys when you have so much cash,” Chiang said, speaking with company representatives and eyeing a safe bolted to the ground in an internal room where cash deliveries are kept. “I don’t mean to sound disrespectful, but don’t you need more security?”

They have surveillance cameras, third-party GPS systems, secure rooms, cash-handling protocols and another layer of safety measures they won’t discuss out of caution, CannaCraft spokesman Nick Caston said. But it’s never enough.

“It’s our biggest hurdle that we face, for our company and for the industry,” Caston said.

Chiang, a Democrat running for governor, announced in early December he would convene a Cannabis Banking Working Group, three weeks after California voters passed Proposition 64 legalizing adult recreational use of marijuana. In doing so, the state joined seven other states and the District of Columbia. He said he wants the group to come up with practical ways to help the burgeoning industry handle its money safely and lawfully.

Friday was Chiang’s first time visiting a cannabis extract manufacturing facility. The building is a tidy warren of white-walled laboratories, packaging rooms and offices in the southwest Santa Rosa facility once used to manufacture heart stents.

Santa Rosa Planning and Economic Development Director David Guhin joined Chiang on the tour and answered his questions about the area’s housing market and its attractiveness for companies.

“We want manufacturing in California,” Chiang said.

Co-founder Dennis Hunter described some of the strategies they use to be upfront about the nature of the business. They make sure their deposits are over $10,000 - which trigger federal forms disclosing the nature of the deposit - in an effort to be transparent and avoid exposure to federal laws barring the structuring of deposits to avoid detection.

The downside is that transparency puts organizations at risk of being targeted by federal law enforcement.

“It’s a Catch-22,” Hunter said.

The company’s Circadian Way facility, and several other properties, were raided July 15 by Santa Rosa police and U.S. Drug Enforcement Administration agents. Hunter was briefly jailed. No charges have been filed. The payroll money taken is in a city bank account until the case is resolved, police officials said.

The company has since made upgrades to the building to comply with city codes and received all permits needed to operate.

CannaCraft has opened accounts with five banks this year: Chase, Bank of America, Wells Fargo, Exchange and Umpqua. They have been forced to close one account after the other when the banks balked at the amount of cash they handle.

Federal law makes it risky for banks and other financial institutions to provide services to marijuana businesses. Marijuana is still considered a Schedule I drug, alongside drugs like heroin and ecstasy, with no federally approved use under the Controlled Substances Act.

Banks have been reluctant to bring marijuana businesses on as clients, fearful that handling pot money could expose them to money-laundering charges and accusations of other federal crimes. Violations could force a bank to lose its charter.

Chiang said he’s met with state treasurers from Washington and Alaska, and he plans to continue meeting with other state officials to discuss how they are handling the problem. But, he said, no state has come up with a workable solution.

“What can states do? We don’t know yet,” Chiang said.

Chiang said he hoped his letter to Trump will open the door to working with his administration to bring California’s multi-billion-dollar marijuana industry into the mainstream of the banking industry.

“This conflict between federal and state rules creates a number of difficulties for states that have legalized cannabis use, including collecting taxes, increased risk of serious crime and the inability of a legal industry under state law to engage in banking and commerce,” Chiang wrote in the Dec. 1 letter to Trump.

He has not yet received a response.

You can reach Staff Writer Julie Johnson at 707-521-5220 or julie.johnson@pressdemocrat.com. ?On Twitter @jjpressdem.