The countdown to launch the largest new market for recreational sales in the cannabis industry is almost here and the State still doesn’t have an answer to the million dollar question—“How do we bank the cannabis industry?” Without access to banks, this industry struggles with safety—transporting large amounts of cash to pay taxes, fees, licenses, employees, and other normal operating costs, sometimes traveling and transporting the money great distances. There is the continued need for accountability—keeping accurate records of sales and products to satisfy regulators. And the challenge regarding business management—think about it, in an increasingly digital society with credit cards, online shopping, and making payments on a mobile phone, when is the last time you carried cash in your pocket? I’ve been honored to lend my expertise to Treasurer John Chiang’s Cannabis Banking Working Group, meeting around the state hearing from experts and the public, to find workable solutions to the challenges facing this industry. The sixth and final working group met on Aug. 10 in Los Angeles focused on the controversial, but necessary, subject of public banking.
While California has been a leader in the cannabis industry for several years, other states are now doing their part to ensure these businesses are able to contribute to their economy like any other business model. Oregon, for example, just passed landmark cannabis legislation last year to exempt any bank or credit unions from any state liability for conducting financial services for legal, state-regulated cannabis businesses. While this doesn’t fix the federal liability issues pertaining to cannabis, this is an incremental first step in the inclusion of an industry that simply wants to use bank accounts to safely and efficiently pay their taxes. While Oregon is taking steps toward progress for this industry, more needs to be done to ensure banking is a long-term viable option. California has the opportunity to once again lead the way in this industry and become the first large state to create a public bank. We’ve led the charge and become a world leader for clean energy and climate change; it’s time we meet the challenge on financial services and lead the way for creating a bank that could simultaneously benefit California and taxpayers. This state bank could provide loans to small businesses, utilize smart safes, and allow cash-based industries to directly deposit tax and fee payments into the state account. The money used to finance loans could help bolster other needed programs like health care, affordable housing, public safety, and environmental protection.
The unbanked industry leads to a cash-driven industry. Vendors, state agencies, and employees are paid by cash. It is not guaranteed that all this cash is reported, which impacts families with children: an employee who gets paid by cash and is subject to paying child support may not report their income. This person may no longer be held accountable to their family obligation because there are no bank or payroll records to prove their income. This issue could be resolved with the state utilizing the established bank system to improve the child support collection system and provide safe anonymous banking to domestic violence victims by partnering with the Safe at Home program at the Secretary of State’s Office. It could increase accountability since the state could better audit and track payments from cash-based businesses, ensuring they are paying their fair share of taxes. Better tracking could also increase workplace compliance by enabling regulators to check if proper employment standards such as worker safety were being implemented. And unlike a private bank, the State Bank would be self-insured and able to work with the cannabis industry.
Another benefit is transparency. Since the State Bank is a public bank, it would be under scrutiny by lawmakers, regulators, and the public with the governor being ultimately accountable. Perhaps it could use the existing IBank structure since the governor and the treasurer, among others, have a seat at the table in its formulation. The state could model the State of Washington by requiring background checks from people applying for licenses to assess, if they are a credit risk, creating a buddy system to work with the state bank and/or private institutions, providing due diligence on the companies. There are many potential options, and I look forward to the report from the treasurer’s Cannabis Banking Working group on recommendations on how California could implement solutions.
While there are still details that need to be worked out to make this closed-system bank work due to federal guidelines, there are other, smaller options we could introduce to help the cannabis industry pay their taxes and flourish more expediently. One helpful tool to consider is the use of kiosks in places like state offices around California. While the large payments wouldn’t be feasible here, smaller taxes and fees could be paid by industry operators so they wouldn’t have to travel long distances to make these payments safely, and state agencies would be able to process them quickly and accurately.
In addition, we need to consolidate the myriad of taxes and fees paid by the industry to different agencies. Services should be expanded at the California Department of Tax and Fee Administration (CDTFA) to allow them to efficiently collect and process tax and fee payments from a variety of sources and integrate them with a track and trace program.
While there are certain challenges we must face to make these ideas a reality, it is our duty to ensure we strategically propose the best approach and implement it successfully. I’ve been honored to work with Treasurer Chiang’s Cannabis Banking Working Group, and trust that after our last meeting we will have all the tools we need to do what is best for California, the cannabis industry, and our taxpayers. Imagining success and planning for the future is key to continuing California’s economic growth. After all, the journey of a thousand miles begins with that first step.
As one of the few Certified Public Accountants (CPAs) to ever serve on the California State Board of Equalization (BOE), Board Member Fiona Ma, CPA is a strong voice for businesses and taxpayers. Fiona served as the Chair of the BOE in 2016 and is the current Chair of the BOE’s Legislative Committee.