Law would let agencies accept cannabis cash

Under a new state senate bill proposed by Sens. Toni Atkins and Scott Wiener, local agencies would be authorized to accept cash payments from cannabis businesses for state licensing fees and other payments. The funds would then be transferred to the State Board of Equalization which would then allocate the funds to the appropriate state agency. Municipalities are not required to participate in the program; however those cities that do agree to the program would be able to charge a cost recovery fee of up to 10 percent of the total amount collected.

Although medical marijuana was decriminalized in 1996 in California and last year voters legalized the drug for adult use consumption, cannabis remains illegal under federal law. Because of this, the vast majority of banks refuse to open bank accounts for cannabis companies regardless of compliance with state and local law. Under various federal laws, banks and bank employees can be prosecuted for providing financial services to marijuana businesses.

Marijuana is a Schedule I substance under the Controlled Substances Act, meaning it cannot be prescribed by a doctor and is illegal to possess, transport and grow. Cultivation of marijuana carries a significant prison sentence under federal law. Banks are concerned that maintaining an account or providing other financial services for a state licensed marijuana store could create liability for banks and bank employees as aiders/abettors or co-conspirators to these serious federal drug crimes.

Moreover, the crime of money laundering under federal law occurs when an individual conducts or attempts to conduct a financial transaction involving the proceeds of unlawful activity with the intent to promote or conceal that activity. Because marijuana is illegal under federal law, banks and bank employees could in theory be charged with violations of federal money laundering statutes by simply handling money paid to these lawful dispensaries. The penalty for federal money laundering is up to 20 years in prison.

Lastly, under the Bank Secrecy Act (BSA), banks are required to file Suspicious Activity Reports (SAR) with the federal government when the bank believes a customer is laundering money or attempting to avoid BSA requirements. Failure to timely file SAR can trigger serious penalties for banks and individual employees. Because marijuana is illegal under federal law, a SAR report would theoretically be required for every single transaction with a bank.

In 2014, the U.S. Treasury Department attempted to address these banking issues by issuing written guidance to banks related to doing business with cannabis businesses. This memorandum laid out certain requirements for banks that chose to do business with businesses in the industry. These requirements include filing regular SAR reports for essentially all marijuana transactions and conducting "ongoing monitoring for suspicious activity" of these businesses in order to ensure that the cannabis business is not engaged in illegal acts.

Although the expressed intent of the memo was to provide guidance to banks so that there were more banking opportunities for these businesses, it had the opposite effect. Currently all of the major financial institutions do not openly maintain accounts for marijuana businesses or at least do not openly market those services. As a result, approximately 60 percent of the national cannabis industry is presently unbanked according to the publication Marijuana Business Daily. Cannabis businesses and their employees are thus forced to manage large amounts of currency in their day-to-day operations.

This all-cash business situation presents numerous challenges and risks for these businesses. Managers must account for and report all income in the form of cash. For example, wages and withholdings are often recorded and paid to employees in dollars and cents, who must then properly report that income. Also, many customers would prefer to pay using a credit card or other form of electronic payment, causing an inconvenience on medical marijuana patients and consumers. Large amounts of currency present a public safety risk as any business with large amounts of cash onsite can become a target for robbery.

Despite these considerable challenges, cannabis business operators are still obligated to pay federal, state and local taxes on all marijuana-related transactions. This presents an additional challenge of how to pay the government with these marijuana proceeds. The Cannabis Safe Payment Act is an attempt to address at least that aspect of the problem.

The State Board of Equalization (BOE) is currently the primary agency tasked with collection of payments from marijuana businesses in the state. The BOE only has 22 offices scattered throughout the state. Many of these offices are far from the rural cannabis production regions such as Humboldt. State agencies that currently collect payments from cannabis businesses include the Board of Equalization, Franchise Tax Board, Bureau of Marijuana Control, Department of Consumer Affairs, Department of Public Health, Department of Food and Agriculture, State Water Resources Control Board, Department of Pesticide Regulation and the Employment Development Department. Many of these departments only have a single location in Sacramento.

Under Senate Bill 148, cannabis businesses would be able to pay state fees at local agencies that agree to accept these types of payments. These fees would then be disbursed to the appropriate state agency. In support of the proposed bill Senator Wiener explained, "We need to make it as easy and safe as possible cannabis business owners to pay their taxes and fees, and we should not force them to drive hundreds of miles with a trunkful of cash just to comply with the law."