An owner of a medical marijuana dispensary in Los Angeles prepares his monthly tax payment in June. When recreational marijuana becomes legal on Jan. 1, the industry will be flooded with cash because federal law prevents it from banking. Jae C. Hong AP file
An owner of a medical marijuana dispensary in Los Angeles prepares his monthly tax payment in June. When recreational marijuana becomes legal on Jan. 1, the industry will be flooded with cash because federal law prevents it from banking. Jae C. Hong AP file

Foon Rhee

Associate editor, editorial writer and Viewpoints editor

Foon Rhee

California’s pot industry will be awash with cash. How dangerous is that?

By Foon Rhee

frhee@sacbee.com

November 16, 2017 04:00 PM

UPDATED November 17, 2017 12:09 PM

We’re used to being told that pizza delivery drivers carry less than $10 or $20 in cash to discourage would-be robbers. Marijuana deliverers will be limited to a tad more – $3,000 in product, plus cash from customers.

That’s just asking for trouble.

 
Opinion

It’s only one of the many ways that when California’s brave new world of legal recreational marijuana starts Jan. 1, it will be cash only – no checks or credit cards please. And it’s a good bet that the flood of millions and millions in cash will be one of the biggest problems, besides public health and driving while impaired.

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The new statewide regulations issued Thursday by the Bureau of Cannabis Control, the Department of Public Health and the Department of Food and Agriculture cover ownership, testing, record-keeping, labor agreements, cultivation, renewable energy and much, much more – all in hopes that recreational pot legalization goes smoothly.

The bureau’s 115 pages of rules seem to take the dangers of marijuana delivery seriously. Besides the $3,000 limit, they require that the cannabis products be in locked containers and not visible from outside the vehicle, and that delivery vehicles have alarm systems and GPS trackers. Delivery workers would have to be at least 21 and could only make rounds between 6 a.m. and 10 p.m. Oh, and they couldn’t consume any cannabis while making deliveries.

But blocked by federal law, the regulations don’t fix the overarching flaw: lots of cash. This defect also wasn’t really addressed in Proposition 64, which voters overwhelmingly approved last year to make California the nation’s largest market for legal recreational pot.

Already, there have been armed robberies at pot grows, distribution centers and medical marijuana dispensaries. Just Wednesday night, police say two men and two women used rifles and handguns to take large amounts of pot and cash from a dispensary in North Hollywood. The danger will only increase as the amounts of hard-to-trace cash increase in what is projected to be a $7 billion a year industry.

State Treasurer John Chiang sees the problem and is trying to do something about it.

“It is unfair and a public safety risk to require a legal industry to haul duffle bags of cash to pay taxes, employees and utility bills,” he said in a statement. “The reliance on cash paints a target on the back of cannabis operators and makes them and the general public vulnerable to violence and organized crime.”

So earlier this month, he released recommendations that seek to eventually give cannabis businesses basic banking services, including checking accounts and credit cards. Until then, he suggested that state and local agencies contract with armored courier companies to pick up taxes expected to top $1 billion a year from pot businesses, count the payments and take the cash straight to a bank.

Now, Sacramento businesses bring their taxes every month to City Hall, where the cash is processed and sent out with other cash payments by armored truck.

“Thank goodness there haven’t been really any issues,” says Joe Devlin, the city of Sacramento’s chief of cannabis policy and enforcement.

While a network of armored cars may help public agencies, marijuana businesses still have to figure out what do with the rest of their bounty. Other recommendations of the treasurer’s 18-member Cannabis Banking Working Group include looking at the feasibility of a state-owned bank and organizing a lobbying group among the 44 states where pot is legal in some form.

But it seems highly unlikely that federal law will be changed with anti-drug crusader Jeff Sessions as attorney general. Marijuana is still ridiculously stuck on Schedule 1 of the most addictive and least helpful drugs.

Armored cars are only a “stopgap solution,” says the California Bankers Association, which represents small and community banks and which was part of Chiang’s working group. It says only reform of federal law, including immunity for banks that work with marijuana businesses, can resolve the problem. A state agency will hold a workshop with banks and credit unions next month to discuss possible approaches to cannabis businesses.

It’s particularly troublesome in small towns in Northern California where marijuana is big business and the cash flows through lots of other local businesses and personal accounts.

In Sacramento, which is well ahead of other cities in getting ready for legal recreational marijuana, the city would allow as many as 30 storefront dispensaries that could also offer deliveries. That includes existing medical pot dispensaries that could apply to modify their permits as long as they’re in compliance. That limit of 30 will likely rise based on customer demand.

As part of proposed rules that the City Council is scheduled to vote on Nov. 28, the city would also permit delivery-only dispensaries. Officials say that 180 unregulated delivery services already operate in Sacramento. Who knew? Officials also cite industry numbers that delivery services have 57 percent of the market because customers like the privacy and convenience.

Devlin says there could be more than a dozen permitted delivery services in Sacramento, though he expects consolidation in the market to eventually reduce that number to a couple.

He points out that it’s not just cash to be worried about. A couple of gallons of highly concentrated marijuana extract is worth hundreds of thousands of dollars – and if the tracker is removed can easily disappear into the black market, making a tempting target during transport.

Yes, trucks carry very valuable or high-security cargo all the time, mostly without incident. Yet it would be naïve to expect such a high-profile, lucrative industry – even if it’s officially legal – wouldn’t attract criminals, even violent ones.

When will the feds get their heads out of the sand and recognize today’s reality of marijuana? I’m amazed a really bloody robbery hasn’t happened yet.

Lobbyist Amy Jenkins represents cannabis clients

"No regrets," she tells naysayers who tried to steer her away from this particular career path.

Dan Morain The Sacramento Bee

Foon Rhee: 916-321-1913, @foonrhee