California Clears the Haze Around Cannabis
Recently, California took historic and progressive steps to provide a regulatory framework for the medicinal Cannabis Industry.
With the signing of AB 266, AB 243 and SB 643 by Gov. Edmund G. Brown Jr., California will finally bring a 20-year-old industry out of the shadows of the underground economy into compliance.
Even before Gov. Brown signed these bills, state agencies and stakeholders were working together to develop procedures to enforce the intent of these bills. The first meeting was held on Sept. 30, 2015 and included the Department of Consumer Affairs (DCA), California Department of Food and Agriculture (CDFA), California Department of Public Health, and the State Board of Equalization (SBOE).
Although the state will begin to promulgate regulations, the core element of these laws is local control. The new laws strengthen the rights of local governments to regulate land use and zoning, levy additional taxes, and allow or prohibit cultivation and sales within California’s 58 counties and 482 municipalities.
However, we need to keep working on one crucial issue: getting Medicinal Cannabis Dispensaries (MCDs) banked so California can get back the taxes it is owed. Last year, in the 23 counties that I represent (from the Oregon border to Santa Barbara), SBOE collected about $28 million of sales tax in 2014 from the licensed dispensaries, representing about 35 percent of the MCDs in operation. That means 65 percent of the Medical Cannabis Dispensaries are not paying sales taxes.
Given the federal government’s classification of marijuana as a Schedule I Controlled Substance, banks and credits unions cannot provide banking services to medicinal (or recreational) cannabis operations without risking the threat of criminal prosecution. This remains true even if financial institutions follow the federal guidance issued by the Justice Department and Treasury, via the Financial Crimes Enforcement Network (“FinCEN”) which oversees Bank Secrecy Act compliance.
For those financial institutions willing to take on the enhanced compliance for banking cannabis, they face several risks. Under federal law, these institutions risk losing their eligibility to participate in the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA), which guarantees deposits for credit unions similar to the FDIC’s guarantee for bank deposits. If the federal government prosecutes these financial institutions, non-cannabis accounts in those institutions face additional risks.
On July 31, 2015, I convened a banking stakeholders meeting in Sacramento where the consensus was this: until the federal government addresses the conflict between federal and state laws, California needs to step up and find a creative proposal to bank the unbanked in our state. One idea worth pursuing is the creation of a State Depository to handle cash deposits and provide for electronic transfers to pay operating bills, taxes, and payroll at a minimum.
On the last day of session, Assemblymember Jim Wood, D-Healdsberg, introduced AB 1549 as a starting point for discussions amongst stakeholders to bank the cannabis industry. This bill would create a credit union within the SBOE. AB 1549 will be considered next year when the Legislature reconvenes.
California must get this right. Our size and well-established industry means that actions here can force the federal government to address this legal roadblock.
This is especially true considering that California has six times the population of Colorado, and that California voters appear likely to approve an initiative campaign to legalize recreational use cannabis for adults in 2016. California’s leadership on banking is especially important given the 23 states and Washington D.C., that provide some form of cannabis use — medicinal or recreational — but that are similarly caught in banking limbo.
In the meantime, we need to continue educating local governments on their new authority; we need to further encourage compliance with our tax laws; and we need to have a serious discussion about transportation issues. How do we regulate inter-county transportation? Who will be eligible to transport the product? How do we keep our streets and communities safe as product moves from where it is grown, to where it is sold?
These are essential questions that will be discussed at my stakeholder meeting on Nov. 20, 2015 in Sacramento from 1 pm -3:30 pm at the State Board of Equalization headquarters. I welcome the public to join us live, or by calling into the conversation: (877) 336-1828, code: 6236742.