Capitol Alert

California’s retail marijuana industry is struggling. Will tax breaks and banks help?

Unfriendly banks, high taxes and black-market competitors are some of the obstacles that licensed cannabis companies say hold them back as they try to cultivate a new industry in California.

Some California lawmakers want to give them a hand, and they’re considering a set of bills that would in ways great and small fine tune the law governing recreational marijuana.

“We’re all in this for the long haul,” Assemblyman Rob Bonta, D-Alameda, said at a press conference Monday. “It’s incumbent on us to continue to monitor what’s happening and course correct if necessary.”

Some of the bills aim to give cannabis businesses the same opportunities as others — such as access to state tax deductions or the ability to bank — while others look to provide relief to legitimate businesses locked in a losing battle with the black market.

The latter is what Bonta and other lawmakers gathered to address at Monday’s press conference announcing Assembly Bill 286.

Fixing ‘an uneven playing field’

Bonta and other lawmakers drafted AB 286 to give licensed cannabis growers a better shot at competing with black market dealers by lowering taxes. It calls for a three-year reduction of the cannabis excise tax to 11 percent, and the suspension of the flower cultivation tax.

The bill has both Democratic and Republican support. Assemblyman Tom Lackey, R-Palmdale, is one of the co-sponsors.

“The legal cannabis businesses are currently at a huge disadvantage,” Lackey said.

Legislation like AB 286, Lackey said, is one way that lawmakers can “move the ball and begin incrementally” in addressing the shortfalls in the state cannabis regulatory environment.

“Because right now, it’s an uneven playing field that we can’t even out. But there are certain things that we can actually do to have meaningful benefit,” he said.

Bringing a cash business ‘into the 21st century’

Cannabis companies might gain more opportunities to use commercial banks if another bill passes the Legislature this year.

With a license, it’s legal to sell cannabis for recreational or medicinal purposes in California, but the drug remains a Schedule I narcotic under federal law — making it illegal to sell or possess, according to the U.S. Department of Justice.

That has banks and credit unions, which rely heavily on federal backing, hesitant to do business with marijuana companies.

“Banking is on the forefront of the minds of the entire industry,” said Alex Barnett, a policy consultant to Majority Leader Sen. Bob Hertzberg, D-Los Angeles, who helped craft the proposal. “It’s out of the shadows, it’s a legal business.

Senate Bill 51 would authorize banks and credit unions “to issue to an account holder special purpose checks that would be valid for only specified purposes,” according to the bill summary.

Those purposes include payment of state and local taxes and fees, as well as business property rent. It also allows for payment for the services of vendors “physically located in California” and the purchase of state and local bond.

The bill also states that “a person or entity is not required to accept these checks.”

“It’s paying your contractors, it’s paying your taxes,” said Herzberg spokeswoman Katie Hanzlik.

Barnett said SB 51 would “take something that’s a cash business and bring it into the 21st century.”

‘It’s a pressing issue. It’s an urgent issue’

Bills like SB 51 and AB 286 previously were introduced in last year’s legislative session; both bills died in committee. People like Barnett and State Treasurer Fiona Ma, a co-sponsor of AB 286, are confident that their bills will fare better.

For one thing, Hertzberg has more influence now that he is majority leader. New Gov. Gavin Newsom could make different choices than his predecessor, Jerry Brown.

“I would say some of our issues last year arose from the previous administration,” Hanzlik said.

Barnett and Hanzlik said a state commission’s recent finding that it is not feasible to create a state-owned bank to serve cannabis businesses only makes SB 51 stronger. The study undercut a previous proposal promoted by former Treasurer John Chiang to create a state-owned bank.

“(That study) in fact enhances the need for a different sort of fix,” Barnett said.

Barnett said the cannabis industry would rally for Hertzberg’s bill.

“Right now, it’s all a cash business and with a cash business comes attendant risks,” he said. “It’s a pressing issue. It’s an urgent issue.”

Barnett said SB 51 likely will be taken up in late February or early March. AB 286 would likely be heard some time in March.

‘We saw it as an industry that needed to thrive’

Banking isn’t the only thing cannabis businesses can’t do right now in California.

Because of cannabis’ proscribed federal status, marijuana businesses are unable to take advantage of tax deductions that other companies use.

Assemblyman Reginald Jones-Sawyer, D-Los Angeles, has introduced Assembly Bill 37 to change that.

AB 37 would “provide in the Personal Income Tax Law for nonconformity to that federal law disallowing a deduction or credit for business expenses” for cannabis companies, beginning in 2019.

“All legitimate expenses incurred while conducting business are tax deductible expenses and the legal cannabis industry should not be an exception,” Jones-Sawyer’s office said in a statement.

In a press conference on Monday, Jones-Sawyer said that there are 10 unlicensed cannabis businesses in Los Angeles for every one licensed business.

“When we looked at the problem of cannabis, we saw it as an industry that needed to thrive,” he said Monday. “We should have the most vigorous, vibrant cannabis business in the country, if not the world.”

Other business

The Legislature is considering a number of other bills that touch on cannabis in some way.

  • Senate Bill 19, sponsored by Sen. Bill Dodd, D-Napa, includes a provision that the state must study “the degree of water quality and flow impacts related to cannabis cultivation.”
  • Senate Bill 34, sponsored by Sen. Scott Wiener, D-San Francisco, would allow licensed recreational cannabis businesses to donate their product for medicinal purposes, with several limitations, including one that “the donee certifies in writing, as specified, that the medicinal cannabis or medicinal cannabis product will be used as specified.”
  • Assembly Bill 3, sponsored by Assemblyman Jim Cooper, D-Elk Grove, simply makes “technical, nonsubstantive” changes to the 2016 law that legalized recreational marijuana; the changes relate to rules concerning the sale of cannabis to minors.
  • Assembly Bill 141, also sponsored by Cooper, allows cannabis businesses to participate in “informational, educational or training events” for government officials without having to obtain a license. Such events would be closed to the public and on-site consumption of, or provision of free samples of, cannabis products would be prohibited.
  • Assembly Bill 190, sponsored by Assemblyman Phil Ting, D-San Francisco, and Senate Bill 73, sponsored by Sen. Holly Mitchell, D-Los Angeles, are a pair of matching appropriations bills that include several payments out of the state Cannabis Control Fund to various departments and agencies.
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Andrew Sheeler covers California’s unique political climate for the Sacramento Bee. He has covered crime and politics from Interior Alaska to North Dakota’s oil patch to the rugged coast of southern Oregon. He attended the University of Alaska Fairbanks.
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