Although the California Board of Equalization has collected taxes from marijuana businesses since 1996, the passage of this year’s Medical Marijuana Regulation and Safety Act (MMRSA) creates a whole new set of regulations for legal commercial sales of medical marijuana.

The agency is assessing the impact of the new legislation before its implementation on January 1 with a series of stake holder forums, In these forumns, Board Member Fiona Ma, representing the north coast, is seeking to develop regulatory specifics based on that input over the next two years. MMRSA requires a wide range of agencies and the creation of a new Bureau of Medical Marijuana Regulation to create a comprehensive system of licenses and other laws to oversee commercial cannabis.

In an interview with The Willits News, Ma addressed some of the ways the Board of Equalization is seeking to help cannabis growers, business owners, and others within the industry to come into compliance and participate in the regulatory process. She hopes to address questions of banking, transportation, and the proposed “track and trace” system which will create an identifying method of cannabis products “from seed to sale.”

Although the new regulations begin implementation January 1, agencies expect it may take until 2018 to fully establish a licensing system for cannabis businesses, which will need to comply with all state and local regulations. However, businesses that can document they have been operating in compliance with county and state regulations prior to January 1 will be given priority processing in the licensing system.

Ma said the regulatory process was “still in its infancy.” The various agencies involved in the process are now engaged in doing “due diligence” to ensure the system works for various stakeholders and those seeking compliance. In her most recent transportation forum, she estimated about $1.3 billion a year in cannabis was currently being grown within the state.

One of the biggest impediments to creating a more fully regulated commercial cannabis industry is the issue of banking, the subject of Ma’s first forum. Since cannabis is listed as a federal schedule 1 substance, financial institutions with federal backing or insurance exist in a legal grey area when interacting with cannabis businesses, which will not be fully legal until federal re-scheduling occurred.

Ma has cosponsored Assembly Bill 1549 with north coast Assemblyman Jim Wood, which would create a state credit union specifically for the cannabis industry. She explained one of the challenges in setting up such a system is to ensure that cash deposits can be insured via private insurance with the BOE until changes to federal scheduling occurs.

This week, several California representatives from both parties, including Oakland’s Barbara Lee, sent a letter to the US Department of Justice requesting the agency stop prosecution of individuals and businesses acting in compliance with state marijuana laws, which now exist in over 23 states. “It is counterproductive and economically prohibitive to continue a path of hostilities towards dispensaries,” the letter states, as many larger dispensaries in the state including Harborside in Oakland have faced federal investigations and shutdowns. Several proposals to reschedule cannabis were raised in Congress this year including the first one in the Senate proposed by Bernie Sanders.

Ma emphasized the commonality of the banking issue to all the states with medical marijuana laws, saying it was important California agencies not seek to “start from scratch” but incorporate expert advice and best practices from other legalizing states. After a recent trip to Colorado, she said she was focused on finding user-friendly ways to help California businesses come into compliance with regulations as they are established.

Ma said this issue was particularly relevant in how to establish a “track and trace” system that would provide information in real time to businesses, law enforcement, regulatory agencies, and others in the industry to create a standardized database for cannabis tracking. In Colorado, she said mandated software that wasn’t user-friendly had been a disincentive for businesses, particularly growers, to participate in the system.

“It doesn’t give them real time data or information that they can use to track from the seed to the actual sale,” she elaborated. “We don’t want to have something that’s redundant or not usable for the people that are using it.” Although she expects California’s adoption of such a system will take some time, the topic is scheduled to be discussed in a forum organized by her office in January.

During the November 19 forum focused on transportation, such a database was discussed by California Highway Patrol management, mobile delivery services, and Barry Broad of the California Teamsters Public Council. The group felt such a system would aid regulators, law enforcement, and businesses in ensuring all activity was tracked as being in compliance.

Ma mentioned third party software company Meadow, whose David Hua demonstrated the cannabis delivery software the forum, as an example of the utility of transparent tracking systems, as all Meadow drivers’ deliveries are tracked by GPS.

Ma said that aside from the main goal of ensuring that patient access through the licensed transportation system, she felt increased transparency would improve safety and business efficiency for businesses and regulators both by allowing drivers and transported shipments to be immediately indentified.

She said stakeholder input from currently operating businesses, such as Meadow and Los Angeles delivery service “Speed Weed” helps regulators understand the practical challenges while moving forward in establishing regulations. Ma also mentioned established driver background checks and vehicle identification and safety regulations would be an important part of transportation regulations, as well as more standardized methods for law enforcement to identify intoxicated drivers.

One of Ma’s main goals is establishing ways cannabis businesses can transition from a cash economy to one that employs standard banking practices, which she says currently puts businesses at a disadvantage in a number of ways.

Right now, a 10 percent penalty is enacted on all cash transactions with the BOE, although Ma says the six regional offices in her district do not charge that penalty when individuals or businesses pay their taxes. Assemblyman Mike Gibson is also considering legislation that would formally waive that fee and to reduce unfair penalties to businesses in the industry.

Ma also explained other ways, beyond public safety, that the cash industry puts businesses without comprehensive record keeping “really at a disadvantage.” Once a business starts paying taxes to the BOE, they can be open to an investigation into the prior three years of business, in which the agency will estimate the amount of sales conducted. Businesses can then contest the estimate tax burden, but unless they have adequate sales and other records, they will be “verifying the negative, which is very difficult to prove in a cash industry.”

Ma said the BOE estimates that 75 percent of dispensaries are not currently paying taxes, and the agency is seeking additional ways to aid those trying to become compliant, particularly regarding the payment of back taxes. Assemblyman Gibson is also proposing legislation that would create a tax amnesty for dispensaries in such a category. Ma said her office is drafting a proposal which could create a back tax amnesty for all businesses to ensure that coming into tax compliance was not overly burdensome due to penalties and fines that can accumulate over time.

She also said she would like to explore ways the agency can expand services and increase safety measures for businesses using cash, such as prepaying taxes that would sit in a BOE account until sales tax owed can be withdrawn from the balance.

The MMRSA legislation provides for local authorities to enact different cannabis licensing policies as well as enact local taxes on cannabis businesses. At the end of the last legislative session, Wood proposed AB 1548, which would create a statewide excise tax on commercial cannabis businesses that would go to environmental mitigation and local law enforcement. The language in the proposal would require distributors to pay taxes to the BOE, at a rate of $9.25 per ounce of processed marijuana, $2.75 per ounce of leaves, and $1.25 per “immature marijuana plant.”

Currently, at least ten different businesses in Mendocino county are operating as dispensaries, although they are registered as a range of business types including general merchant sales, alternatives medicines, wellness or alternate care clinics, herbal health, medicinal herbs, and medicinal and medical retail. The county planning offices assesses businesses to ensure they are in compliance with county zoning codes before referring them to the tax assessor’s office; several cities including Ukiah and Willits forbid dispensaries.

Cultivators who are currently selling wholesale are required to apply for a resale permit and estimate their income on goods sold, although only retailers are required to collect and pay taxes on sales. The MMRSA licensing system will require cultivators to work with a limited number of licensed distributors who will test product and sell to retailers.

The full video recordings of Ma’s cannabis forums can be found on the Board Member’s webpage at www.boe.ca.gov/ma/cannabis. Ma recommended those with established or newly formed cannabis businesses begin with BOE publication 557, “Tax Help for the Cannabis Industry,” as well as check out the BOE page devoted to cannabis, both of which are linked to from her cannabis page. Details on upcoming events devoted to “track and trace” in January as well as a small business forum in Lake County will be posted on Ma’s general webpage.