Medical marijuana is big business in California, and legal. But cannabis businesses can’t take their money to banks without them and the banks risking a visit from the feds.

To get around the fact that cultivation, sale and possession of marijuana remain federal crimes even as a state-sanctioned medical marijuana industry flourishes, Board of Equalization (BOE) member Fiona Ma has suggested creating a state-run bank for pot growers and sellers. They would be able to deposit and withdraw money, write checks and have credit cards.

It would also make cannabiz more transparent and probably rake in significant tax money for the state. A study of Ma’s sprawling, 23-county Bay Area-and-beyond BOE district found that just 35% of medical marijuana dispensaries paid sales tax. A study further south found just 28% of Los Angeles dispensaries were paying.

That’s a lot of money for the state to leave on the table, but it is certain to mushroom if/when the state approves recreational pot. Ma described at a press conference last week how some dispensary owners drag bags of cash into BOE offices to pay their taxes.

Dispensaries have limited options with what to do with their money. The big banks won’t touch them. They can keep it in cash, launder it through dummy companies or try to hunt down credit unions or small banking institutions willing to roll the dice. MJBizDaily has a few suggestions. All of that makes paying bills and employees problematic.

As part of the schizophrenia that has characterized the Obama Administration’s behavior toward California’s marijuana industry, Attorney General Eric Holder acknowledged the banking problem in 2014. “You don't want just huge amounts of cash in these places,” he said. “They want to be able to use the banking system. And so we will be issuing some regulations I think very soon to deal with that issue.”

They did, and the feds continued to bust people in California anyway. The guidelines from the U.S. Department of Justice (DOJ) required financial institutions to review a dispensary’s state-issued license in determining its legitimacy. But licensing in California is done at the local level, not state, so that’s a no-go. 

Ma is not the first member of the BOE to weigh in on marijuana. Board Chairman Jerome Horton said a week ago that he is sponsoring legislation to grant amnesty to pot growers and sellers who fess up and pay their fare share of taxes. He shares Ma’s impression that dispensary owners, in general, want to pay taxes but are inhibited by federal law. His bill isn’t expected to be introduced until next year.

Meanwhile state lawmakers are proposing the bold move of passing a joint resolution urging Congress to pass legislation allowing financial institutions to handle marijuana money. The House Appropriations Committee passed legislation July 23 to allow banks and credit unions to handle marijuana money. It squeaked by 16-14. Three Republicans voted for it.

The lack of something a tad stronger from the state isn’t a result of not understanding the problem. The resolution says:

“The medical, retail, and hemp agricultural businesses are unable to accept credit or debit cards from customers because electronic payments are handled through the banking system. Therefore, transactions must be conducted in cash. Further, these businesses cannot deposit cash from sales into financial institutions. This is a major problem in California as many businesses now have hundreds of thousands of dollars in cash at their locations, which poses a public safety risk to businesses, employees, and customers.”

Marijuana is legal for medical purposes in 23 states and recreational activities in four plus the District of Columbia.

–Ken Broder  

To Learn More: 

California Tax Officials Float State-Run Bank for Marijuana Industry (by Christopher Cadelago, Sacramento Bee)

High Finance: A State-Run Bank for California's Marijuana Industry? (by Allen Young, Sacramento Business Journal)

Marijuana Dispensaries Need Banking Access, California Officials Say (by Kurt Chirbas, Los Angeles Times)

Marijuana Businesses Can Now Use Banks, But Maybe Not in California (by Dennis Romero, LA Weekly)

Banks Still Won't Touch Medical Marijuana Dispensaries (by Ken Broder, AllGov California)

Banking and Payment Processing Services for Marijuana Businesses (MJBizDaily)