Marijuana businesses still facing financial struggles as recreational use looms

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In a little less than two months, marijuana can be consumed recreationally in California – meaning no need for the medical card. Financial experts say this is expected to bring billions in tax revenue to the state, but the industry has had trouble getting those tax dollars into the state. Even with the drug being legal medicinally for decades.

Medical marijuana dispensary Canna Can Help (CCH) in Tulare County has grown considerably the last nine years. Staff there said it’s thanks to laws like Prop 64, expanding the legal reach of the drug.

“Seems like we have a lot more people that are starting to come out of the woodworks,” said general manager Weston Fox. “People are less afraid to come on in.”

But while business is booming, federally, marijuana is still defined as a Schedule I drug. That is the same class as heroin and ecstacy.

That status, Fox said, is still holding them back.

The drug’s federal status has kept many banks wary of working with marijuana businesses, even with federal compliance guidelines out there.

Fox said CCH received rejection letters from every single bank and credit union in the county. So, that means everything the business does – from paying employees to paying taxes – is done solely with cash.

“We waste a lot of man hours just trying to pay regular bills that normal people and normal companies can just write a check, or do direct deposit,” he said.

The headache continues with Internal Revenue Code Section 280E. The tax code was created in 1982 to cripple illegal drug trafficking businesses. However, since marijuana is still illegal, it affects the industry’s legal businesses from typical business-related tax deductions. These range from things like rent and advertising costs.

“It kind of cripples the business a lot,” said 420 College CEO George Boyadjian. “It prevents businesses from growing and reaching their full potential.”

Boyadjian helps businesses navigate these challenges through seminars and courses. He said the financial restrictions keeps the industry in a shadow.

“We are legitimate businesses. We want to act like legitimate businesses,” Boyadjian said.

Even businesses looking to contribute to the state’s economy still face difficulties in finding a place to operate. Since many cities and towns are putting a hard no on these businesses to settle in their jurisdictions. Fresno City Council, for example, voted to ban recreational marijuana dispensaries in September.

California state Treasurer John Chiang said this stigma has helped prevent some legal cannabis dollars from getting to the state. According to him, some districts with the state Board of Equalization, a tax agency, turned tax dollars from those businesses away.

Chiang said, “Here you would have individuals who want to follow California law, they wanted to pay their taxes. [But] a couple of [Board of Equalization] offices would not allow the collection of those taxes.”

Weeks after Prop 64 passed, Chiang formed the Cannabis Banking Working Group. The group has been working on banking recommendations for the regulations set to be released in 2018.

Chiang said a banking system will be key to California getting the most fiscally from the marijuana industry. However, problems will continue he said, as long as the federal-state legality gap exists.

“It’s not going to be a perfect pathway unless the federal government allows for this kind of activity and they take cannabis off Schedule I [status],” he said.

While bans remain in place in local jurisdictions, there are some towns embracing the drug, like Coalinga.

“There is a light at the end of the tunnel, “ said Boyadjian. “We’re halfway through the tunnel. We’re still getting there.”

Meanwhile, Fox looks forward to the day he can make a deposit for CCH revenue.

“It would be a lot more even footing for everybody. It’s just a little unfair when we’re going above and beyond to make sure to pay all of our taxes,” Fox said.

The recommendations from the Cannabis Banking Working Group will be released on Nov. 7. The final rules and guidelines for recreational marijuana in the state is set to be released on Jan. 1.

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