Tax Board Member Floats State-Run Cannabis Bank in California

With Congress considering a bipartisan bill that would make it easier for state-legal cannabis businesses to access banking services and while the Federal Reserve Bank just dashed a Denver credit union’s ambition of becoming the first financial institution to serve Colorado’s cannabis industry, a member of California’s Board of Equalization says it’s high time to study what a state-run bank catering to California’s cannabis businesses might look like.

This way, growers and retailers can begin paying taxes and avoid safety issues associated with carrying large amounts of cash to make their tax payment.

“We’re a big state, and we have very creative minds,” board member Fiona Ma said at a meeting on the topic she called Friday in Sacramento with fellow board member George Runner. “We lead in many first-in-the-nation initiatives, and I believe we could create some sort of state depository that could handle cash deposits and also be available for the industry to make electronic transfers to make their payments.”

The Sacramento Business Journal reports:

“We want to collect the taxes and audit these people efficiently,” said Ma. A state run bank would ensure that people “aren’t just keeping (money) in their homes, and they aren’t bringing it to a BOE office either.”

Marijuana operators occasionally bring large quantities of cash to BOE offices, said Ma. This makes the state office and its employees vulnerable to crime.

To brainstorm ideas for banking, Ma is hosting a meeting today at the BOE headquarters in Sacramento that will bring together state government officials, bankers and the Federal Reserve. Representatives will discuss banking efforts underway in Colorado and Washington state, where recreational marijuana is legal.

Tax board members have yet to commit a plan to writing but say it would likely take the form of state legislation to be introduced in the next session.

The Sacramento Bee reports:

In California, the lack of access to banking has hampered the state’s ability to collect taxes. A recent study of Ma’s San Francisco-based district that stretches across 23 counties found just 35 percent of the medical marijuana dispensaries paid sales taxes, totaling about $27 million last year.

Board of Equalization Chairman Jerome E. Horton this month said he supports an “Eliot Ness Plan” that enforces collection of taxes on cannabis. A Horton-supported bill by Assemblyman Mike Gipson, D-Carson, would create a state tax amnesty program for pot operators.

Storefront businesses that are paying taxes often carry the money in large sacks to field offices that state officials say are not equipped with money counters or other tools and safety measures associated with banks. Many do not have access to credit and use cash to obtain marijuana, pay employees and make transactions.

Runner said a recent tax delivery to his district office in Sacramento involved about $200,000 in cash.

Meanwhile, Horton has begun an outreach campaign to remind cannabis businesses they can pay taxes in cash.

“It’s becoming increasingly important that we distinguish the good guys from the bad guys,” Horton said.

The Sacramento Business Journal reports:

“Frankly, at this point I’m just fed up, and inspired by the industry’s willingness to comply with the law,” said Horton.

The chairman said he was recently informed that officials within his own agency were incorrectly telling marijuana cultivators and sellers that BOE rejected tax payments made with cash. The BOE generally does not accept cash payments, Horton said, but exceptions are made for the cannabis industry and other types of small business.

The equalization board recently identified 935 cannabis businesses in the city of Los Angeles alone, and 28 percent of them were operating without a state seller’s permit, according to a BOE statement.

The legislation proposing an amnesty program will be introduced next year from Assemblyman Mike Gipson, a Carson Democrat. A draft of the bill is not yet publicly available. But the proposal will describe a time window for marijuana businesses to begin paying taxes or else face criminal prosecution, said Jonathan Feldman, a spokesman for Gipson.

Sacramento’s Fox 40 reports:

Because the use and sale of medical marijuana is not legal under federal law, many bank managers believe working with cannabis related businesses is too much of a risk.

Lanette Davies runs her dispensary, Cannacare like any other business, with one major difference. Banks won’t do business with her.

“What we’ve had to do is not only carry all this cash which is totally ridiculous, we’ve had to stand in long lines to pay bills,” said Davies.

Davies makes a trip once a month to the board of equalization to pay her state taxes, often times with upwards of $20 thousand in her purse. She says she often feels unsafe.

“What, risk to my livelihood and to me, as far as being robbed, and why should I be put in that jeopardy, because I’m in the cannabis industry?” said Davies.


Ma set up a meeting today at BOE’s headquarters to brainstorm ways to make California’s banks compatible with marijuana dispensary operators.

Her idea: a state-run banking system exclusively for dispensaries.

Other ideas which came up in the meeting included an ATM system meant to make cash deposits easier for customers, and create a paper trail for dispensaries so their record keeping would be more concrete, especially when dealing with cash.

Meanwhile, the New York Times reports that The Fourth Corner Credit Union, created as a banking solution for the cannabis industry, has suffered a setback. The Denver-based credit union had its application for a “master account” turned down by the Federal Reserve Bank.

Banking regulators just said no to a financial institution that aims to be the first to serve the expanding marijuana industry in Colorado.

The Fourth Corner Credit Union in Denver applied in November to the Federal Reserve for a “master account,” which would allow it to interact with other financial institutions and open its doors to some of the hundreds of state-licensed marijuana businesses in Colorado.

Although recreational marijuana has been legalized in Colorado, it is still illegal on the federal level, discouraging most traditional banks from working with pot businesses.

The Fed’s branch in Kansas City, which has been reviewing the application, privately informed the Fourth Corner Credit Union earlier in July that it had not been approved for a master account, the credit union said on Thursday.

The credit union, which has the backing of Colorado’s governor, fired back on Thursday night by filing a lawsuit in federal court in Denver against the Fed, demanding “equal access” to the financial system.

The Denver reports the credit union is suing:

Fourth Corner hired anti-money-laundering experts and devised detailed business plans for how it would bank Colorado marijuana businesses, as well as those who supported it or had any tangential dealings with them — the definition of a credit union.

The lengthy lawsuits — one is 46 pages and the other 78 — lay out months of frustration in dealing with the Fed and NCUA, including a number of e-mails that required Fourth Corner to provide information not required by law from other similarly situated applicants.

NCUA told the credit union on July 2 that it was denying its application because “fundamental concerns about the inherent risks of (the credit union’s) business model remain unresolved.”

Risks to the more than 6,000 credit unions NCUA insures through a shared fund were simply too big, the agency said, according to the lawsuit.

In May, Bloomberg reported that banks don’t want cannabis cash.

The financial-crimes arm of the Treasury Department is making it easier to deposit the fledgling industry’s growing revenue, at last count nearly $3 billion annually and almost all in cash. The government wants to tax the revenue and keep it away from organized crime. And it figures banks with strong compliance departments can best help it track the money.

At the same time, federal bank regulators have remained silent on the issue, raising the specter that banks could run afoul of federal drug laws if they accept the cash. That’s left the banking industry dazed and confused about what to do even as legal marijuana sellers in 23 states and the District of Columbia are faced with mountains of cash piling up in warehouses and basement vaults.

“More than 200 million Americans live in states where there is some form of legal marijuana,” said Rep. Earl Blumenauer, an Oregon Democrat, who is pushing a bill on marijuana taxation. “It’s a disservice to these business people to deny them normal access to banking services.”

It’s been just over one year since the Financial Crime Enforcement Network, also known as FinCEN, first provided instructions to banks on how they can both accept marijuana business dollars and still comply with the law. Since then, the industry has been surging. It’s getting financing from investment funds and pot icons like Willie Nelson and the estate of Bob Marley are pitching new products.

Yet few banks have opened their doors, prompting some 100 business people from the cannabis industry to descend on Washington last month to lobby Congress for greater access to banking.

The pressure couldn’t come soon enough. With billions in cash from lawful sales of weed and marijuana cookies and sweets stranded outside the banking system, cash can’t be monitored by banks for possible illegal activity. Local officials in communities where marijuana is legal are also concerned that large stashes of cash in warehouses, businesses and homes could create public safety issues, possibly leading to violent robberies or worse.

Meanwhile, reports on a new bipartisan bill in the U.S. Senate would make it easier for state-legal cannabis businesses to access banking services.

Earlier this month, a San Francisco federal appeals court dealt a financial setback to medical cannabis dispensaries, ruling that unlike other commercial enterprises cannabis businesses can’t deduct business expenses from their taxable income because their product is prohibited by federal law.


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