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California Pot Growers Paying Taxes with Bags of Cash

Paul Ausick

Published: April 12, 2019 2:14 pm

Last Updated: January 11, 2020 9:16 am

Perhaps the biggest problem faced by marijuana businesses in states where recreational and medical pot is legal is not being able to find a bank that will do business with them. While the sale of marijuana products is state-legal, the federal government continues to list marijuana as a Schedule 1 drug (along with heroin and cocaine) and nationally accredited banks doing business with marijuana-related businesses could lose their charter or even be charged with money laundering.

The problem reaches its apex when state tax payments are due. Where most businesses write a check or make an electronic transfer of these payments, owners of marijuana businesses show up at state offices with cash. Bags of it.

In Eureka, California, for example, one grower “holds his breath” while he walks the 20 yards from the parking lot into the building. He’s carrying $350,000 in cash, and he’s not unique. California expects to collect more than $500 million in marijuana-related tax payments next year according to a report in The Sacramento Bee.

Collecting those taxes is the responsibility of the state’s Department of Tax and Fee Administration which has 11 offices around the state where marijuana business owners can drop off their cash. The agency has invested in security measures and so far no one has been harmed. But it is a little weird:

State workers are still nervous about the practice, and [tax department director Nicolas Maduors] asked that The Sacramento Bee not identify the locations that accept cash. Cannabis companies call ahead of time. Transactions take place in the presence of security officers.

Some marijuana businesses have figured out ways to use credit unions and other financial institutions to pay their taxes, so all the collections are not paid in cash. And recently a state Senate committee moved a bill to encourage charter banks and credit unions to work with businesses in the cannabis industry, but the federal government continues to be an obstacle.

The proposed legislation would enable banks and credit unions to issue special-purpose checks to marijuana businesses that would only be valid for specific purposes–like paying taxes. The checks could also be used to pay some business costs like rent and contractor services.

Another piece of legislation would allow marijuana businesses to deduct business expenses, something else that they are currently prohibited from doing under federal and state law. The current inability to deduct business expenses has led to the proliferation of non-licensed cannabis business. State Assemblyman Reginald Jones-Sawyer has said that there are 10 unlicensed cannabis businesses in Los Angeles for every licensed business.

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California Pot Growers Paying Taxes with Bags of Cash