More than four years after his state voted to legalize recreational marijuana, Colorado Gov. John Hickenlooper gave words of encouragement as well as caution to California senators in Sacramento on Tuesday regarding California’s efforts to fully regulate its estimated $7 billion cannabis industry in less than 10 months.
“You guys are going to have a steep hill,” Hickenlooper said with a laugh after discussing the challenges his state faced.
Hickenlooper’s comments came during a hearing at the State Capitol held by the Senate Governance and Finance Committee, which focused primarily on how the state will tax both the medicinal and recreational marijuana industries. The passage of recreational marijuana legalization measure Proposition 64 in November now requires the state to set up a taxation and regulatory system around the industry by Jan. 1, 2018. Whether the state can achieve that goal by the deadline was up for debate during the hearing.
Committee Chairman and state Sen. Mike McGuire (D-Healdsburg) was clear in his doubt on the state’s ability to meet these deadlines, especially the implementation of a cultivation tax for tens of thousands of growers throughout the state and in his district, which includes the Emerald Triangle.
“There is no way in hell we’re going to be able to enroll all the growers into this system by Jan. 1,” McGuire said as part of his closing statements. “… It is going to be next to impossible.”
Contrary to McGuire, a representative from the California Board of Equalization, which is responsible for implementing Proposition 64’s marijuana cultivation and retail excise taxes, stated the board will meet the deadline, but acknowledged a significant challenge in regards to banking.
“Issues remain with respect to cash payments,” board Legislative and Research Division Chief Michele Pielsticker said.
This challenge was brought up throughout the nearly four-hour hearing. Due to the federal government classifying marijuana as a Schedule I narcotic with no medicinal value under the Controlled Substances Act, most banks will not accept money from marijuana businesses regardless of whether they reside in a marijuana-friendly state.
As a result of this hurdle, many cannabis businesses operate a cash-only business, which becomes a significant issue when it comes time to pay their taxes to the state Board of Equalization.
Committee member and state Sen. Jim Beall (D-San Jose) asked whether the state could create a state bank to address these issues, but many of the speakers on the panel stated that this option would not be viable because of the need to interact with the federal government, which controls banking.
“I think we have to do something quickly,” Beall said. “I think there is a sense of urgency about the solution.”
The panelists stated overcoming banking hurdles would require an act of Congress, but McGuire again cast doubt on whether this would occur in the near future under a Republican-controlled Congress and President Donald Trump’s Administration.
“Under a Trump Administration, this industry is not going to become easier, it’s probably going to become more difficult,” McGuire said.
Pielsticker said they are exploring options of setting up remote tax payment centers in different areas of the state, creating cash payment kiosks and working with banks to have them accept cash payments. Pielsticker said they plan to begin registering cannabis farmers for sellers permits by December, but she said the cash payment issue will require a statewide solution.
“The cash issue is bigger than BoE alone,” she said.
With the majority of cannabis cultivation occurring on the North Coast, getting those tax payments to the state currently requires a nearly five-hour drive to Sacramento or San Francisco, which presents dangers of its own.
Garberville resident and International Cannabis Farmers’ Association founder and Chairwoman Kristin Nevedal said cultivators will likely have to drive hundreds of thousands of dollars in cash to these locations. By doing so, she said they risk both being robbed or being pulled over by law enforcement and having their cash seized under civil asset forfeiture laws.
McGuire stated the distance alone could deter some cultivators from wanting to pay their taxes, and called for the Board of Equalization to set up a new office or two in the North Coast to partially address this issue.
“To expect folks to come to us is simply not going to work, especially if we want their money,” McGuire said.
Marijuana industry stakeholders also warned against overtaxation, stating that it would likely reduce the small business market and deter individuals from entering the regulated market.
Mendocino County Sheriff Thomas Allmann called for the state to keep asset forfeiture laws in place, stating it is one of the best methods to address the impacts of black market businesses.
“If you want to hurt someone, you take away his money, you take away his car, you take away his dog,” Allmann said.
Allmann further stated that the time is past discussing whether marijuana should be legal, but instead begin working to implement regulations that work for citizens, businesses and law enforcers.
“The more we talk about marijuana,the closer we get to a solution,” he said. “The closer we get to a solution, the better our public safety will be.”
To ensure cultivators and dispensaries are paying their taxes, a statewide track-and-trace system is being developed. The state plans to contract with a third-party vendor to carry out this service, as they do with products like cigarettes, and plan to have a vendor in place by late April.
But being able to integrate this system with the various state departments tasked with regulating the industry as well as informing the cultivators how to use it will be an entirely different task.
California Legislative Analyst’s Office Principal Fiscal & Policy Analyst Shawn Martin said Proposition 64’s deadline has “tasked these agencies with an aggressive timeline” and emergency provisions may need to be implemented to allow departments to meet this deadline.
McGuire said the state needs to present an “honest timeline” to the public about the issues facing the state and its ability to meet those deadlines.
McGuire said he plans to hold another hearing in July or August to update on the progress of implementing Proposition 64 and the state’s expanded medical marijuana regulations.