Most banks still won’t provide services to marijuana dispensaries. California’s Board of Equalization (BOE), the nation’s only elected tax commission, is coming up with a solution. They would like to fill that void and serve as sort of bank for the state’s legal marijuana sector.
‘That should be the minimum until the federal government acts,’ Fiona Ma, a member of the board said. “This is a big problem.” She is in charge of the tax policy administration and tax collections. She envisions the state’s cannabis businesses depositing money into an account with the board. The businesses would be able to withdraw from those accounts to pay employees and taxes through wire transfers. This would be very useful to marijuana dispensaries and allow for a simpler, new means of payment.
California becoming the first state in the U.S. to legalize medical marijuana usage – this law passed by voters in 1996. Now California is in line to legalize cannabis for recreation purposes similar to the other four states (Colorado, Washington, Oregon and Alaska) and District of Columbia that are currently paving the way. Because banking laws havent come up to speed, marijuana-related businesses in those areas are largely forced to operate as all-cash enterprises.
Last month, a Colorado credit union that had aspired to serve that state’s industry was denied the administrative approvals it needed from the Federal Reserve to be able to open its doors. It has filed a lawsuit, but in the mean time, most Cannabis businesses are struggling to find banks willing to accept their business.
As of August 2014, the director of the Finance Crime Enforcement Network said in a speech that 105 banks in the U.S. are known to be doing business with marijuana-related businesses, but Chris Pippett said, those businesses (despite a well-publicized Justice Department memo regarding banking for marijuana sector) are operating in a “gray area”.
“Those memos in essence state the government is not going to devote resources to prosecution. This is not permission,” he said.
Financial institutions willing to take the risk- often small credit union- can expect to find them saddled with additional paperwork. “It’s a lot more work than most banks and credit unions are probably used to doing,” Pippett said.
Also, Janet Sanchez, senior vice president of the Community Credit Union of Southern Humboldt said in California, her credit union had opened just a handful of cannabis-related accounts. “The due diligence, the ongoing monitoring, the granular reporting, the incredible financial and staff time it takes to monitor and deal with these accounts is overwhelming and not worth it” she expressed.
Ma estimates that 35% of the 300 cannabis businesses in her district are paying taxes to the tune of about $28 million a year. “That means 65% are not paying taxes; we as an agency have not gone out and enforced the law,” she said. But without banking (all cash and no paper trail) and the paper trail it leaves, enforcement is tough.
“How do we go out and audit a dispensary when they don’t have any accounts, when there are no banks, credit card wire transfer?” Ma said. Of course, paying tax isn’t exactly easy, especially since the IRS doesn’t accept cash.
“I think we can create some sort of system to deal with some of the cash,” Ma said. “As a state, we’re not subjected to (Federal Deposit Insurance Corporation or National Credit Union Administration) rules. What are they going to do, shut down the state?” Methods like the one she suggested could be a way around those challenges.
Visit the BOE site to learn more about this cannabis banking proposal.