San Francisco Chronicle

recently described the scene as marijuana retailers brought bags of cash to tax administration offices. Some retailers reported bringing in up to $80,000 at a time.

But what other choice did they have? California has opened the door for legal recreational sales with the implementation of Proposition 64 this year, which is bringing a new wave of money-making opportunities for cannabis entrepreneurs. And where there is money-making, there are also taxes. These businesses want to pay their taxes, but without the option of processing transactions and savings in a bank like a normal business, cannabis companies end up paying taxes with cash out of bags.

As our marijuana attorneys can explain, at the heart of this issue is Controlled Substances Act, 21 U.S.C. Section 812. According to the federal government, marijuana is classified as a Schedule I narcotic under this act. A Schedule I classification means that a drug “has high potential for abuse” and has no accepted medical use in the United States. And even under medical supervision, it would not be considered safe to consume. Obviously, nothing could be further from the truth when it comes to marijuana. For more than 20 years, cannabis has been offering relief to patients in California for everything from cancer to arthritis to anxiety thanks to the Compassionate use Act of 1996.Regardless, this classification prevents banks from doing business with most marijuana operations because doing so would technically associate them with criminal activity and put them at risk for money-laundering charges. Some estimates put the number of dispensaries dealing solely in cash at 70 percent.

There are a few possible solutions. But our Los Angeles marijuana business lawyers know it will take courage from elected officials to make it happen. Some cities have proposed publicly owned banks. This would put bank regulations under state control, giving them some freedom from federal oversight. A recent bill in California State Senate, SB930, would create a Cannabis Limited Charter Bank Advisory Board, which would oversee regulations and licensing of charter banks that could offer limited services to marijuana businesses.

And finally, but most importantly, legislators need to keep pushing back on oppressive federal authority. There are still some protections in place that give states room to oversee their own marijuana laws outside of federal rule. The Rohrbaucher-Blumenauer Amendment, for example, was extended recently, preventing the justice department from using funds to go after medical marijuana operations that follow their state laws. But this amendment offers no such protection to recreational businesses. And Attorney General Jeff Sessions is pushing back on all protections, trying to take the country back to the days of treating marijuana like heroin or meth (which, by the way, is a Schedule II drug and therefore considered less dangerous than marijuana according to this absurdist rule). We need a more permanent solution and we need it yesterday.

This is why it is so critical to work with a skilled marijuana business attorney. Our lawyers have the experience and are up-to-date on the constantly changing rules at the local, state, and federal level so we can be prepared to advise you on the best course of action for your business.

The Los Angeles CANNABIS LAW Group represents growers, dispensaries, collectives, patients, defendants, workers and those facing criminal marijuana charges. Call us at 949-375-4734.

Additional Resources:

California Bill Seeks to Legalize Banking for Cannabis Businesses, Jan. 25, 2018, By Peter Fimrite, San Francisco Chronicle

More Blog Entries:

Marijuana Business Perils of Cash-Only Commerce, Dec. 19, 2017, Marijuana Business Lawyers Blog

Prop. 64, which legalized recreational marijuana, was always intended to raise substantial tax revenue for the state. However, it was intended to do so with a 15 percent excise tax on both medicinal and recreational marijuana. The law also imposes a 7.5 percent sales tax on top of that for recreational marijuana, but repealed it for medical marijuana. Medical marijuana buyers have been paying that sales tax since the drug first became available as medicine. The idea was that medicinal users of the drug would get a tax break relative to recreational users once recreational sales start in January 2018. However, there was one problem: The 62-page initiative did not include the January 2018 target date relative to the repeal of the medical marijuana sales tax.

That means the repeal of medical marijuana sales tax in California became effective immediately. It also means that medical marijuana may be obtained tax-free in California until next January, when it will be under that 15 percent tax.

Tax-free sales of medical marijuana are going to leave the state facing a much lower marijuana tax revenue benefit. Those who drafted the law have said publicly it was not their intention to effectively create a tax-free holiday for marijuana. The state’s Board of Equalization has disagreed with this.

If recreational users do become regular customers in the tax-free medical marijuana market, in which they would have an incentive to stay, tax revenues even for 2018 could end up falling far short of what those who wrote the law anticipated. The notion is that if someone has access to medical marijuana, there is no incentive to start instead obtaining it through the recreational market, where they would have to likely find a new dispensary and preferred types of marijuana, only to pay higher taxes.

This was a big part of the reason Washington state shut down its medical marijuana program after the drug became legal for recreational purposes. The medical marijuana market was so loosely regulated and lightly taxed that Washington had no choice but to shut it down if there was any hope of a sustainable recreational marijuana system.

However in California, that’s not an option – at least not right away. That’s because both the recreational and medical systems were both created by the very same ballot initiative.

Under the law, users of medical marijuana have to present a state-issued patient ID card in order to buy marijuana that is tax-free. State officials are looking at this requirement – which costs $100 plus time to weave through the administrative red tape – to stop the state from losing tens of millions of dollars in taxes. That could mean we’ll be cracking down on dispensaries to make sure medical customers have a state-issued ID.

So far, it’s not clear that will work. A recent Board of Equalization analysis found that two out of three dispensaries haven’t been totally compliant with sales tax requirements up to this point.

Dispensaries should consider consulting with an experienced marijuana lawyer in L.A. to ensure they are compliant with all state regulations.

The Los Angeles CANNABIS LAW Group represents growers, dispensaries, collectives, patients and those facing marijuana charges. Call us at 949-375-4734.

Additional Resources:

The marijuana-initiative blunder that could cost California millions of dollars, Nov. 16, 2016, By Keith Humphreys, The Washington Post

More Blog Entries:

California Cannabis Could Be What Autos Are to Detroit, Nov. 2, 2016, California Marijuana Lawyer Blog