California Senate to pass legislation that would make cannabis charter banks a reality.

The California Senate is proceeding forward with SB 51, a bill that will authorize the creation of charter banks and credit unions for the estimated $8 billion cannabis industry.

The cannabis industry continues to grow, but the federal government has declared marijuana a Schedule I drug which forces California cannabis businesses to deal in cash.

The federal government does not allow the sale of cannabis products. The current scheduling of cannabis by the federal government creates many issues for California businesses. Many landlords, banks and other merchants shy away from cannabis-related businesses for fear of federal punishment.

“Due to the federal prohibition on marijuana, federally funded banks can risk prosecution for offering services to these marijuana businesses. No industry can operate safely, effectively, or transparently without access to financial services,” said Carly Wolf, Policy Coordinator for the National Organization for the Reform of Marijuana Laws.

Since retailers, cannabis vendors, and distributors of cannabis can’t use banks, they’re forced to deal exclusively in cash. this creates new problems for payments of rent, services and goods, and most importantly — taxes.

Senate Bill 51 has bi-partisan support from legislators including California Senate Majority Leader Robert M. Hertzberg and non-profit advocacy groups like NORML.

A similar bill, SB 930, failed to make it through the state senate last year.

“We did not get any feedback from the Assembly Appropriations Chair about why SB 930 failed to advance out of that committee, but we have our suspicions. The bill was met with cynicism from the (Brown) Administration, who saw only red tape, and expressed trepidation at the idea of taking risk to address the issue,” said Herzberg’s spokeswoman Katie Hanzlik.

SB 51 would help to implement tools and better regulatory systems to properly account for sales and taxes, according to cannabis industry advocates.

“Licensed marijuana businesses would benefit because they will be able to gain access to credit cards, bank accounts, and other financial services necessary to operate a business,” Wolf said, “They will be able to pay their employees, rent, process credit card transactions, and more. Consumers would also benefit because they wouldn’t have to make purchases in all cash.”

Hugo Mata, a cannabis vendor, said, “You do need a bank for credit. Unless you have private funding, it’s hard to get things going, or stay afloat when depending on cash flow income.”

Charter banks and credit unions would allow cannabis business to pay their fair share of taxes. SB 51 would lead to increased tax revenue and lift the burdens of counting these large sums of cash, according to advocates of SB 51.

“It is currently incredibly difficult to bring in tax revenue as cash, both for cannabis companies as well as for the state and local entities that have to accept it” Hanzlik, said.

There is much more to be accomplished in order for fairness to the multi-billion cannabis industry, according to Hanzlik.

“Ultimately, the federal government needs to either de-schedule the drug or allow legal cannabis businesses to operate free of fear from the government,” Hanzlik said.

According to Wolf, “The 280E tax restriction, which prohibits marijuana businesses from deducting standard business expenses because of the status of marijuana as a controlled substance, needs to be removed so that they can operate like any other industry without having to pay excessive taxes.” You could paraphrase this.

The California government sees the potential for tax revenues, but the state must help retailers, distributors, and vendors of cannabis. Charter and union banks would have to be privately run with third party insurance protection. The infrastructure would allow for a closed-loop system that would protect these businesses, according to Hanzlik

“During the first quarter of 2018 alone, the state collected almost $34 million in marijuana sales taxes, and the Department of Finance estimates that the state will collect $600 million in cannabis taxes in the upcoming fiscal year. However, unlike most businesses, those in the cannabis industry arrive to government offices with duffel bags of cash to fulfil their tax obligations” Hanzlik said.

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