Fiona Ma for State Assembly
News

Governor signs comprehensive bill package establishing medical marijuana regulation; issues raised over lack of banking opportunities

NORTHERN CALIFORNIA – In what supporters are calling a historic action, on Friday California Gov. Jerry Brown signed into law the most comprehensive medical marijuana regulation legislation ever seen in the state of California.

North Coast Sen. Mike McGuire worked to find common ground and build a strong coalition of support behind SB 643 – The Medical Marijuana Regulation and Safety Act, signed into law on Friday.

“From seed to sale, for the first time in our state’s history, medical marijuana will now be regulated across the state of California,” Sen. Mike McGuire (D-Healdsburg) said. “Voters passed Proposition 215 nearly 20 years ago and the promised rules and regulations from the legislature were never advanced and our communities and environment have been paying the price ever since. This is a historic day for our state and generations of Californians will benefit from these sweeping rules and regulations that will protect our neighborhoods, our environment and the safety of patients.”

McGuire represents the North Coast of California – including Lake County – where the majority of marijuana is grown in the nation.

“These regulations are long overdue and I’m thrilled that we were able to work together to find common ground on these historic medical marijuana regulations for our state,” McGuire said. “The time is now.”

SB 643 was part of a three-bill package that moved forward through the Legislature together. Paired with AB 266 and AB 243, the three bills are meant to change the face of a multibillion dollar industry that has gone largely unregulated for almost 20 years.

“After the hard work of countless individuals over the last 20 years, we have finally been able to pass the strongest medical marijuana regulation package in the country,” McGuire said. “I want to thank our partners in the State Assembly, Gov. Brown and the hundreds of folks who have put in thousands of hours over the past eight months to ensure this bill was signed into law.”

The new laws cover every aspect of the commercial medical marijuana industry which would be regulated and subject to licensure – both by the state and local authorities. 

The bills create a Bureau of Medical Marijuana Regulation under the Department of Consumer Affairs led by a Director who will be confirmed by the Senate.

That new bureau will develop detailed rules by January 2017, and businesses will begin to apply for state licenses in January 2018, at which point the current system of collectives and cooperatives will be phased out. Medical marijuana businesses will need to obtain local approval to continue operating.

Cities and counties will be eligible for grants from the Marijuana Production and Environmental Mitigation Fund. These monies can be used for local law enforcement activities and environmental cleanup.

Key to SB 643 are provisions that will track and trace all marijuana products, and a provision that will once and for all make medical marijuana officially an agricultural product in California. 

Cultivators will have to abide by the same rules and regulations as all other agriculture, including water use, water discharge, pesticide and insecticide use and more. 

SB 643 also includes provisions governing indoor and outdoor cultivation standards for small, medium and large growers to ensure that best practices related to land conversion, grading and electricity usage are instituted.

The bill makes sure that the environment is cared for and that the products are safe, while also mandating strict standards for transportation to ensure that no marijuana is diverted out of state for illegal use.

“We applaud Gov. Brown and the legislature for adopting a much-needed regulatory framework for the cultivation and distribution of medical marijuana in California,” said Lauren Vazquez, Oakland-based deputy director of communications for the Marijuana Policy Project.

“This is an important and long-awaited step forward not only for medical marijuana patients and providers, but also for the state as a whole,” Vazquez said. “Nearly 20 years ago, California paved the way for patients’ rights to access medical marijuana. Finally, it is following in the footsteps of states around the country that have proven that regulating marijuana works.

Vazquez said the regulations will ensure patients have legal, safe, and consistent access to medical marijuana, with the new guidelines for testing and labeling products ensuring that patients will know what they are getting and that it meets appropriate standards for quality.

“We hope localities that have banned medical marijuana establishments will rethink their policies now that these establishments have clear and uniform rules to follow,” Vazquez said. “Seriously ill patients in many of these areas are being forced to travel many miles to legally obtain medical marijuana. Communities should be working to make life easier for their most vulnerable citizens, not placing additional burdens on them.” 

Board of Equalization Vice Chair George Runner, who also sponsored the legislation, said he was pleased that the governor signed the package.

“This regulatory package provides much-needed state oversight of the medical marijuana industry while recognizing that every California community is different," said Runner. “The new laws will help improve public safety and bring about greater tax compliance.”

Banking still remains an issue

Some concerns, however, remain, according to State Board of Equalization Board Member Fiona Ma, who represents Lake County, and Assemblyman Jim Wood (D-North Coast).

While applauding the effort, Ma said the issue of banking remains unaddressed.

In a rare parliamentary procedural exception, in the final hours of the regular 2014 Legislative session on Friday, Sept. 11, Wood introduced AB 1549 to address the urgent matter of the lack of banking opportunities for the legal cannabis industry in California. Ma sponsored the legislation, written by Wood.

The bill is the starting point for discussions amongst stakeholders and will be heard in committee early next year when the Legislature reconvenes, Ma and Wood reported.

“Forty-three states today allow some form of legal cannabis or hemp access under state and/or local laws. However, not one state allows individuals access to banks or credit unions which creates a huge safety concern when millions of dollars remain unbanked on our streets, homes and businesses,” said Wood.

“Our currency still says 'this note is legal tender for all debts, public and private' and yet we are still forcing cannabis businesses to use cash-only in a digital world,” said Ma. “By failing to conform our laws with their business needs and not allowing access to bank accounts, we are creating a whole society of third-class citizens.”

Passed by voters in 1996, Proposition 215, “The Compassionate Use Act,” requires the creation of nonprofit cooperatives that would register with the State Board of Equalization and pay sales taxes on products sold.

Last year, the State Board of Equalization collected about $44 million in sales tax from the licensed medicinal cannabis dispensaries that represent about 25 percent of the dispensaries in operation in California, Ma reported.

However, given the federal government’s classification of marijuana as a Schedule I Controlled Substance, banks and credits unions cannot provide banking services to medicinal cannabis operations without risking the threat of criminal prosecution, according to Ma.

Ma said this remains true even if financial institutions follow the federal guidance issued by the Department of Justice and Department of Treasury, via the Financial Crimes Enforcement Network which oversees Bank Secrecy Act compliance.  

For those financial institutions willing to take on the enhanced compliance for banking cannabis, Ma said they face an additional threat of risking their eligibility to participate in the Federal Deposit Insurance Corp., or FDIC, or National Credit Union Administration, which guarantees deposits for credit unions similar to the FDIC’s guarantee for bank deposits.

She said this has the effect of forcing medicinal cannabis operations to remain strictly cash operations, making compliance and enforcement of California tax law significantly more difficult. 

Medicinal cannabis operations also do not have access to checking accounts, ACH transactions or credit lines to finance their day-to-day operations or opportunities to expand, Ma said. 

The all-cash nature of medicinal cannabis dispensaries operations includes employees, which Ma said exposes them to liability for federal and state tax withholding errors, and prevents them from participating in the Social Security program.

Because the medicinal cannabis industry operates on a cash basis, employees, patients and neighborhood residents are at greater risk of violent crime, Ma said.

In July, the U.S. Senate Appropriations Committee voted 16-14 to allow cannabis operators access to the federal banking services. This historic vote was on the heels of the Federal Reserve System denying Master Account status to a newly formed compliance-based credit union in Denver who was prepared to bank the now-legal cannabis industry in Colorado. The credit union has since filed a lawsuit demanding “equal access” to the payments system.

On July 31, Ma convened a banking stakeholder meeting in Sacramento. “The consensus from this meeting was that until the federal government affirmatively addresses many of the conflicting federal and state laws, California needs to step up and find a creative and feasible legislative proposal to bank the unbanked in our state,” Ma said.

“In order to continue serving our customers and for the sake of the security of our community, people who work in credit unions and banks need to have a place at the table to ensure any laws and regulations are feasible,” stated Janet Sanchez, senior vice president of Community Credit Union of Southern Humboldt. “This will make sure financial institutions are willing and able to participate.”

The introduction of AB 1549 has the support of Congressman Ted Lieu, who is cosponsor of HR 2076 in Congress to provide banking access to marijuana-related businesses. 

“I look forward to working with my colleagues at the federal and state level to ensure we update our state and federal banking laws to allow cannabis providers and consumers the full range of financial access,” Lieu said.