California Forum

Bags of cash, kidnappings, torture – that’s no way to run a California business

In this June 27, 2017, photo, Jerred Kiloh, owner of the Higher Path medical marijuana dispensary, stocks shelves with with cannabis products near Los Angeles in Sherman Oaks. On a typical day, he has told state authorities, $15,000 can change hands in his dispensary. The cash must not only be counted repeatedly to safeguard against loss,but state and local taxes also must be set aside and stored, sometimes for a month or more. (AP Photo/Jae C. Hong)
In this June 27, 2017, photo, Jerred Kiloh, owner of the Higher Path medical marijuana dispensary, stocks shelves with with cannabis products near Los Angeles in Sherman Oaks. On a typical day, he has told state authorities, $15,000 can change hands in his dispensary. The cash must not only be counted repeatedly to safeguard against loss,but state and local taxes also must be set aside and stored, sometimes for a month or more. (AP Photo/Jae C. Hong) AP

With California set to legalize cannabis for recreational use in January, it might seem that running a marijuana business would be a surefire success – “money in the bank,” as the saying goes.

But as it turns out, putting money in the bank is – quite literally – one of the toughest things for a licensed pot grower or seller to do.

Putting money in the bank is – quite literally – one of the toughest things for a licensed pot grower or seller to do.

And that is bad for stimulating entrepreneurship, especially in low-income communities that could benefit from new business formation. It is also terrible in terms of protecting public safety.

The basic difficulty is this: Because marijuana is still considered an illegal substance under federal law and banks are federally regulated, many large financial institutions won’t provide services to cannabis businesses. Meanwhile, those firms that do handle pot-related banking needs often charge an exorbitant amount to cope with the cumbersome paperwork and oversight that the feds require – as much as $5,000 to $7,000 a month for growers and dispensaries.

The result is that a mere 30 to 40 percent of cannabis businesses around the country have bank accounts, according to a survey in late 2015 by Marijuana Business Daily. That leaves 60 to 70 percent to deal strictly in cash – an extremely dangerous proposition, especially in certain neighborhoods.

As Willie Sutton famously noted, robbers go where the cash accumulates. And the potential for violence is all too real. Five years ago, the owner of a medical-marijuana dispensary was kidnapped from his Newport Beach home and tortured by assailants who thought that he was burying cash in the desert outside Palm Springs.

When you deal only in cash, taking care of the simplest tasks can become fraught. Consider, for instance, what the owner of a Sherman Oaks dispensary goes through to pay his local taxes. He can’t mail a check to City Hall or arrange payment through his bank. Instead, his efforts look perversely like an illegal drug deal.

“Right now, at the downtown Office of Finance, there’s a six-story parking structure 500 yards away,” Jerred Kiloh told California State Treasurer John Chiang last year at a public meeting on cannabis banking. “I have to walk through what is essentially a homeless encampment with a duffel bag full of cash.” This, of course, is for the privilege of paying taxes that he could probably evade, given the untraceable cash in the duffel bag.

Another avenue that some growers and dispensary owners are going down is to open a bank account under false pretenses. Rather than reveal that they’re selling dope, they resort to telling the bank that they’re selling, say, exotic tea. This is not legal. But many feel they have no other choice.

So, what do we do now?

Until the federal government adjusts the regulatory roadblocks – unlikely in the Jeff Sessions era – states like California have a moral imperative to create a parallel banking system to support the marijuana industry.

Fortunately, some elected officials are trying to move in this direction.

In Congress, Republican Rep. Dana Rohrabacher of Orange County has convened a Congressional Cannabis Caucus, and Oregon Democrats Sen. Ron Wyden and Rep. Earl Blumenauer have introduced S 780 and HR 1824 to protect financial industries from federal prohibitions on cannabis.

At the state level, Democratic Assemblyman Reginald Jones Sawyer and Sens. Scott Wiener and Toni Atkins are working to pass legislation that would offer banking solutions, improve public safety and provide better opportunities for minorities to get involved in the cannabis trade. And Chiang, for his part, has created the Cannabis Banking Working Group, which is also trying to find a way to tackle the issue.

But with January fast approaching – and California poised to become the world’s largest marijuana market at $7 billion, by some estimates – odds are that recreational marijuana use will burst on the scene without safe and transparent financial services in place for most of those growing, selling and transporting marijuana.

And that promises to bring on a host of serious problems. In fact, you can bank on it.

Brad Rowe is the chief executive of BOTEC Analysis, a public policy consulting firm, and a lecturer at UCLA’s Luskin School of Public Affairs. He can be reached at brad.rowe@botecanalysis.com.

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