California expects to bring in $1 billion in annual tax revenues from the cannabis industry starting next year, when retailers can begin adult-use sales. The problem is how to handle all that cash.
California Treasurer John Chiang Tuesday announced a series of proposed strategies to help the newly legitimized recreational and medical cannabis industry — still largely barred from using banks because of federal laws making cannabis illegal — manage large amounts of money and pay taxes.
“Most growers and dispensaries are forced to run their businesses on cash; storing and transporting cash exposes real dangers to employees and public,” Chiang said at a Tuesday press conference about his recommendations at the state capitol in Sacramento.
Developed over the course of a year through public hearings including a May forum held in Santa Rosa, Chiang made four recommendations that address the large amounts of cash coming into local tax collection centers, the obstacles for banks interested in working with the cannabis industry, the possibility of a state-backed financial institution and how to push for an end to federal prohibition.
Chiang said his proposals are stopgap solutions until the federal government ends marijuana prohibition and the cannabis industry can function like any other business. He recommended states work together to push federal lawmakers to “help federal law catch up with the faster evolving values and viewpoints of the state.”
Sebastopol attorney Omar Figueroa said he hoped the prospect of a public bank of California, and its potential to take business away from Wall Street, will push financial institutions to do more to lobby the federal government to change laws that prevent cannabis companies from accessing bank accounts, loans and other financial services.
“Banks don’t want a public bank, they don’t want the competition, especially if California starts investing its money in its own public bank instead of a Wall Street institution,” Figueroa said.
Marijuana is still classified as a schedule one drug under federal law, putting it in the same category as heroin with no officially recognized health benefit. That prohibition has prevented banks from working with cannabis businesses, even in the 44 states where its use has been legalized to varying degrees, because of strict anti-money laundering laws and anti-terrorism requirements that banks know certain details about customers.
Under the Obama administration, the federal government took steps to allow banks to serve cannabis clients through a set of guidelines issued by the U.S. Department of Justice and the Treasury Department. However, those rules created onerous requirements that most bank executives have said are too costly to follow.
One of Chiang’s recommendations is for the state to develop a way to satisfy the know-your-customer requirements for banks by offering verified information about a business, including its local permit and state license, as well as other company information such as sources of supply and financial records. The state would have to create a secure online database and a portal through which banks can access the information.
But Nick Caston, board member with the Sonoma County chapter of the California Cannabis Industry Association, called the idea an “inappropriate intrusion that no other industry is subjected to,” that could potentially provide the federal government with detailed information.
“The recommendations in this report that help cannabis businesses operate like any other industry are good, but the proposals that treat it different perpetuate the problems we have in the first place,” Caston said.
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