California waits with bated breath for November 8, 2016, when its voters will decide if the state will join Washington, Colorado, Oregon and Alaska in legalizing the adult use of recreational cannabis. Along with the excitement, however, comes anxiety for California regulators, who must figure out how to deal with the huge influx of cash into state tax coffers. California’s regulators are not strangers to the cannabis cash conundrum, as they have already collected cannabis taxes in bags filled with tens, and sometimes hundreds, of thousands of dollars in cash. Without a means of curbing the cash, the passage of Prop. 64 would mean that California regulators will have to grapple with bigger bill bundles, making it even harder for them to regulate and control California’s cannabis industry.
The California Board of Equalization’s Chairwoman, Fiona Ma, is well aware of the challenges that cannabis cash presents. She estimates that California currently collects only one third of the taxes that medical marijuana businesses owe to it. However, because cash leaves no records, she cannot know the exact figure. Prop. 64’s seed-to-sale “track and trace” system would make tax collection easier by tracking all cannabis transactions through a state mandated traceability system. Without adequate banking and cash reduction options for cannabis businesses, however, California regulators will have no choice but to continue collecting cannabis taxes in cash. To solve this, Chairwoman Ma has proposed creating a state bank to accept cash deposits and allow California businesses to make electronic transfers to pay their taxes. While such a bank would lessen cannabis cash for state regulators, it will not diminish the current cash dependency that affects cannabis businesses and consumers.
Some believe that the solution to the cannabis cash and banking problem can only come from the federal government reclassifying cannabis or barring federal regulators from prosecuting banks that serve state licensed cannabis businesses. Given the Drug Enforcement Agency’s refusal to reclassify cannabis earlier this year, this solution is likely years away.
In the meantime, private companies, like PayQwick, have successfully solved the cannabis cash and banking conundrum by focusing on compliance to facilitate business bank accounts for their clients and allowing them to electronically pay each other. To fully eliminate the need for cash, PayQwick allows consumers to use its platform to pay for cannabis via loadable cards, a smartphone app and soon, debit and credit cards. While the options for cutting cannabis cash vary, one thing is clear; California regulators must soon come up with a state-wide solution.