Business & Economy

​California proposes armored cars to transport pot tax money

Marijuana plants are grown at Essence Vegas' 54,000-square-foot marijuana cultivation facility on July 6, 2017 in Las Vegas, Nevada. On July 1, Nevada joined seven other states allowing recreational marijuana use and became the first of four states that voted to legalize recreational sales in November's election to allow dispensaries to sell cannabis for recreational use to anyone over 21.
Marijuana plants are grown at Essence Vegas' 54,000-square-foot marijuana cultivation facility on July 6, 2017 in Las Vegas, Nevada. On July 1, Nevada joined seven other states allowing recreational marijuana use and became the first of four states that voted to legalize recreational sales in November's election to allow dispensaries to sell cannabis for recreational use to anyone over 21.
Ethan Miller/Getty Images

California should use armored cars to transport hundreds of millions of dollars in cash tax payments expected next year with the state's legal marijuana market, the state treasurer said Tuesday.

The state on Jan. 1 will enter a new era with cannabis when recreational sales become legal and join the long-standing medical industry in what will become the largest U.S. legal pot economy.

But the new market estimated to grow to $7 billion annually has a troubling flaw: Marijuana remains illegal under federal law, so most banks won't do business with pot growers, manufacturers or retailers. That means marijuana companies typically operate only in cash, including their tax payments that will be 15 percent of sales to the state of California.

State Treasurer John Chiang formed a task force to work on a solution for gathering the money because the state expects to collect hundreds of millions of dollars from pot sales next year.

The armored car tax collection solution came about amid fears that operators carrying large bags of cash could be targets for theft and create problems for the state workers collecting and counting the money.

In a report based on the findings of the state's Cannabis Banking Working Group, Chiang also said that changes are needed in Washington to either legalize pot in the U.S., or shield financial institutions that serve the cannabis industry from possible prosecution.

But that seems unlikely anytime soon, so the report recommended:

Chiang warned in a letter accompanying the recommendations that "the clash between state and federal law threatens to cripple legal California cannabis businesses before they even get up and running."

"The inability of cannabis operations to get banking services means that many of them may remain in the underground economy and not become transparent, regulated, tax-paying businesses, as California voters intended," he said.

During the Obama administration, the Justice Department issued guidelines to help banks avoid federal prosecution when dealing with pot businesses in states where the drug is legal.

But most banks don't see those rules as a legal protection against charges that could include aiding drug trafficking. And they say the rules are hard to follow, in effect placing the burden on banks to determine if a pot business is operating legally.

The number of banks and credit unions willing to handle pot money is growing. But they still represent only a tiny fraction of the industry.

Colorado tried in 2015 to set up a credit union to serve the marijuana industry but was blocked by the Federal Reserve.