California Wants More from Its MMJ Dispensaries

California Wants More from it's MMJ Dispensaries

It would be safe to say that California tax officials are notoriously creative when it comes to eking out as much tax revenue as humanly possible. The proof is in the pudding, just ask about any business that has migrated out of California in recent years for greener pastures, aka states with much lower business taxes. Yet lately California has been dropping the ball and leaving piles of money behind because of its continuing failure to come up with any coherent way for the many dispensaries throughout the state to pay their fair share of taxes.

It has been nearly 20 years since California voters passed Proposition 215 and legalized the use of medical marijuana. The federal government has been slow to follow California's lead, and this has complicated relations between the two ever since. In reality the state only collects a small amount of the sales-and-use taxes that are owed. Looks like the California bean counters are out to change things and line the state's coffers a bit more.

Because of the big, gaping 'gray area' that is our federal marijuana laws, dispensaries are at constant risk of having their assets seized if they choose to put their funds into traditional bank accounts. The result of all this is an atmosphere of mistrust coupled with fear, making for strange uncertain times.

“Because of federal law, people in the cannabis industry aren’t allowed to have bank accounts,” said George Runner, a Republican member of the Board of Equalization, a state tax-collection agency. “Cash-based businesses are very hard for the BOE to audit. If we can’t analyze a bank account, we can’t accurately audit a business.”

“It’s a huge safety risk to have dispensaries pay their taxes by carrying duffel bags into BOE offices with hundreds of thousands of dollars in cash,” he added. Runner called on the federal government to legalize bank accounts for dispensary operations, which is more important now that California has banned such cash payments for those in the cannabis industry.

The end game for the state is to create “a living document that allows flexibility to adjust as new needs are identified, such as legislative and/or regulatory changes, along with ballot initiative(s) related to the cannabis industry.” In plain English: the Board of Equalization expects voters to eventually legalize the recreational use of marijuana and wants a solid tax plan in place by then.

Runner is actually opposed to the full-out legalization of marijuana, but his new approach could help to rally supporters, many of whom view this as an absolute tax bonanza from the state’s biggest cash crop. However some say that the size of California's cannabis industry is over exaggerated, and point to states like Colorado, Oregon, and Washington where marijuana is highly taxed, but proceeds from taxes amounted to far less than what had been predicted.

Some California cities have put moratoriums on dispensaries, essentially banning them, but they might have a change of heart if they see a large monetary benefit. In short, once a government figures out a way to tax a business, it is less likely to crush it into smithereens. Federal rules may be to blame for the current state of things, but it's really hard to understand the slow progress given California's business tax history and knowing that millions upon millions of dollars are at stake.