In January 2018, state and local authorities will begin issuing licenses for the sale of legal recreational marijuana. But what do you need to know before you rush to the dispensary? Information courtesy of Ballotpedia.com. Video produced by Emily Zentner/The Sacramento Bee
In January 2018, state and local authorities will begin issuing licenses for the sale of legal recreational marijuana. But what do you need to know before you rush to the dispensary? Information courtesy of Ballotpedia.com. Video produced by Emily Zentner/The Sacramento Bee

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Politics & Government

Can armored cars protect California’s $1 billion marijuana payday?

By Adam Ashton

aashton@sacbee.com

November 07, 2017 01:22 PM

UPDATED November 08, 2017 01:54 PM

A fleet of armored car companies from Arcata to Chula Vista may play a critical role next year in collecting hundreds of millions of dollars in taxes from the state’s cannabis industry, Treasurer John Chiang said Tuesday.

He issued a report summarizing banking options for the state’s $7 billion marijuana industry with seven weeks to go until California becomes the country’s largest market for legalized recreational marijuana.

The industry is still largely barred from accessing banks because of federal restrictions on cannabis. That presents a challenge for companies that want to pay taxes and government agencies that want to collect the revenue.

“The simple act of paying taxes can be a nightmare,” for cannabis businesses because of the banking restrictions, Chiang said.

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Chiang’s report reflected the findings of the so-called Cannabis Working Group, which brought together industry representatives, labor groups and government officials since voters last year approved an initiative to legalize recreational marijuana.

The players probably won’t find a final consensus unless the federal government lifts restrictions on marijuana or agrees to allow banks to do business with cannabis companies. That’s why Chiang and other members of the working group called for greater advocacy to federal lawmakers.

“That’s where the hard part is,” said Beth Mills, spokeswoman for the California Bankers Association, which participated in the working group. The marijuana businesses are “in violation of the federal law, and it’s illegal for (banks) to be in business with these entities.”

Chiang’s report included four recommendations, one of which could create a competitor to private-sector banks. He suggested that lawmakers consider launching a state-backed bank that might be able to do business with the cannabis industry and give Californians an alternative to traditional banks.

It’s a long-shot that would require lawmakers and the governor to agree to it. It’s also unclear whether a state-backed bank doing business with marijuana retailers would be able to gain federal deposit insurance, Mills said. The report calls for an initial feasibility study.

California anticipates collecting about $1 billion next year from the cannabis industry. It’ll become one of eight states that have voted to legalize recreational use of marijuana.

Other states also have struggled with how to collect taxes from marijuana growers and retailers. Washington state discourages the industry from paying taxes with cash. Some credit unions and small banks there have offered banking services to the industry.

Oregon allows cannabis growers and retailers to pay taxes in cash, but the businesses must deliver the money to the state capital in Salem. The state’s Department of Revenue asks the companies to give it two days’ notice before dropping off the money.

California’s Department of Tax and Fee Administration accepts cash from taxpaying medical marijuana dispensaries. It also uses armored cars to move the cash around the state, according to officials from the department.

The Cannifornian, a website that covers the state’s cannabis industry, found that 13 cannabis companies made the state’s top 500 list of tax scofflaws. The companies owed a combined $12.2 million.

Chiang said he was open to having the armored car companies travel to cannabis companies, or an established a dropoff point for the businesses.

Adam Ashton: 916-321-1063, @Adam_Ashton. Sign up for state worker news alerts at sacbee.com/newsletters.