Pubdate: Tue, 30 Aug 2016
Source: Sacramento Bee (CA)
Copyright: 2016 The Sacramento Bee
Author: Foon Rhee


Marijuana is the very definition of a cash crop -and the windfall 
will only grow if California voters legalize recreational pot in November.

But what to do with all that cash?

It's a pressing problem  and it isn't fixed by Proposition 64.

The big hurdle is that the federal government still treats marijuana 
medical or otherwise  as an illegal drug. So major banks and other 
financial institutions won't take pot businesses as customers for 
fear of losing their federal charters. That forces dispensaries and 
other marijuana businesses to deal almost entirely in cash, an 
invitation to robbery and shady accounting.

Jason Kinney, a spokesman for the pro-Prop. 64 campaign, says while 
the measure can't change federal banking laws, it does make sure that 
the state receives tax revenues and also requires stricter safety 
measures for marijuana businesses.

While the feds haven't relented even after Colorado, Oregon and 
Washington state made recreational pot legal  so banking efforts 
fizzled in those states  proponents say because California is such a 
huge market, the pressure for change will build if Prop. 64 passes.

California's marijuana market is projected to mushroom from $2.7 
billion in 2015 to $6.5 billion by 2020 if recreational pot becomes 
legal, according to a study released last week by two 
industry-related groups. Even in the world's sixth-largest economy, 
that's a big chunk of change. A lot of people are poised to make a 
lot of money, and some are helping fund the legalization campaign.

Though polls suggest Prop. 64 has a good chance of passing, voters 
will still have to sort out lots of issues and sift through a barrage 
of competing ads. As I make up my mind, I'd feel a lot safer with a 
better idea of how the avalanche of cash will be handled.

The California Bankers Association is also concerned and urges 
federal officials to address the problem. Rodney Brown, the 
association's president and CEO, told The Bee's editorial board 
recently that he hopes the ballot measure "elevates" the issue in 
Washington, D.C.

George Cook, CEO of El Dorado Savings Bank, said California is coming 
to a crossroads on this problem as more local governments allow 
marijuana cultivation.

Last year, some members of the state Board of Equalization floated 
the idea of a state-run bank to handle marijuana deposits, but it has 
gone nowhere.

The bankers say it's a bad idea. Of course, they do. If they get the 
marijuana cash, it would increase deposits and loans, their bread and butter.

Kinney says that a state banking structure for pot businesses isn't 
possible, and even if it were, including it in the ballot measure 
would have opened it up to a court challenge.

Lt. Gov. Gavin Newsom, who is out front promoting Prop. 64, led a 
blue ribbon commission that produced a thoughtful and detailed road 
map last year for legalization, including ways to protect children, 
consumers and the environment. But its 93-page report mentions the 
banking problem only in passing, saying it has forced dispensaries to 
act as "cash businesses that are the targets of robbery and violent 
crime." And it just recommends urging the federal government to 
provide better access to banking.

In a statement, Newsom repeats the Prop. 64 campaign line: There's no 
"silver bullet" on the state level, but passage of the measure could 
spur Congress to act. He also points to provisions in Prop. 64 to 
force transactions from under the table, including tax stamps, 
seed-to-sale tracking and audits. facebook twitter email Share

The commission report also cited the problem of "massive cash 
payments" being delivered to tax collectors. The Legislature is 
trying to fix that, approving Assembly Bill 821, which would before 
2022 let marijuana businesses pay their state taxes  which could rise 
by hundreds of millions of dollars with recreational pot  in cash 
without penalty. Under current law, there's a 10 percent levy on tax 
bills of $10,000 or more a month that aren't paid by electronic transfer.

But even if Gov. Jerry Brown signs the measure, it wouldn't address 
all the cash in the first place.

A small group in Congress is pushing to update federal marijuana laws 
to keep up with legalization by states. That includes removing 
banking barriers and allowing pot businesses to operate much like 
other companies.

But the latest effort stalled in June. A House committee killed a 
budget amendment that would have prevented federal regulators from 
penalizing financial institutions that work with legal marijuana businesses.

If California is counting on federal bureaucrats and Congress to come 
to the rescue, we could be waiting a long time.
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MAP posted-by: Jay Bergstrom