Pot backers hope California vote will pressure Congress to ease laws

When Lynette Davies, co-operator of the Canna Care medical marijuana dispensary in Sacramento, pays her California taxes she needs to haul a bag with $20,000 in cash to the state tax office.

“That’s really unsafe for me, and it’s unsafe for my employees to have this cash in the store,” said Davies, whose business is legal under state law as a result of California’s 1996 vote on the use of medical marijuana. “All because the banks that want to bank with us can’t.”

Marijuana advocates are counting on Californians to vote to legalize recreational weed this fall, bringing pressure on Congress to end anti-pot policies that include federal obstruction of banks doing business with the industry. California is nearly six times larger than any other state that has legalized pot for recreational use, and its potential cannabis market has been estimated at nearly $7 billion.

“You’re talking about the largest state with the largest population and therefore the most members of Congress,” said Mason Tvert, communications director for the Marijuana Policy Project, a group that lobbies for pot legislation. “It would have a ripple effect that impacts the entire nation.”

The pot industry, though, has an outspoken opponent in Democratic Sen. Dianne Feinstein of California, who opposes the legalization initiative and voted last month against giving the industry access to the banking system.

Financial institutions won’t work with marijuana businesses because weed remains illegal under federal law. Some marijuana businesses manage to put together quiet relationships with small banks or credit unions, but generally financial institutions want nothing to do with the onerous federal reporting requirements that come with doing business with a pot dispensary.

Pot businesses often are forced to pay employees in cash and cannot get startup or expansion loans.

“It’s so hard because we have to deal with huge amounts of cash,” said Davies, who sells medical marijuana in Sacramento. “Every day I have to go out and get money orders to pay my bills.”

Taylor West, deputy director of the National Cannabis Industry Association, is hopeful that a California vote this fall to legalize marijuana for recreational use will convince Congress to loosen the rules.

“California is the sixth largest economy in the world,” she said. “This is not some small experiment. This would be a major state making a clear decision to create a regulated market.”

Feinstein was the only Democrat to vote against an amendment in the Senate Appropriations Committee last month that sought to forbid the use of federal funds to penalize financial institutions that work with marijuana enterprises operating legally under state laws. The amendment passed, but a similar effort in the House of Representatives failed, making its future uncertain.

Feinstein’s office said in response to questions that she wouldn’t support changing the federal banking laws without more understanding of the effect of state marijuana laws on issues such as driving under the influence and safeguards to prevent youth access.

Robert Capecchi, who works on federal issues for the Marijuana Policy Project in Washington, said he hoped Feinstein’s views would soften if California voted this fall to legalize adult recreational use. He said he hadn’t expected California’s senior senator to be so opposed to marijuana legalization, given her state’s attitude toward weed.

“That surprised me when I started doing the federal stuff over here that we didn’t have a chance with Feinstein,” he said adding that “we would certainly welcome Sen. Feinstein’s evolution on the issue.”

The California Legislature passed a resolution last year urging Congress to allow financial institutions to work with marijuana businesses without fear of reprisal. The resolution was sponsored by California’s Board of Equalization, which oversees the collection of state taxes and fees.

The biggest issue, said Board of Equalization member George Runner, is the danger of so much cash.

There have been repeated incidents of violence, including the horrific torture of the owner of a Newport Beach medical marijuana dispensary whose kidnappers thought he’d stashed cash in the Mojave Desert.

Runner said forcing businesses to operate in cash also made it difficult for the state to prove how much tax they owed. If California legalizes recreational marijuana this fall, he said, there will be a lot more pot businesses in the state, and they’ll be forced to operate in cash.

“In my opinion both the violence and the lack of compliance to collect the proper amount of tax will increase,” he said.

John Hudak, who studies marijuana policy at the Washington-based Brookings Institution research center, isn’t sure what the impact of California legalization would be. He notes that the states where recreational marijuana is now legal – Washington, Oregon, Colorado and Alaska – aren’t big enough markets for the banking industry to pick a fight with the feds.

California could change the game, however. “If the California market booms there will become a point where the financial services sector will look at that and say, ‘Hey, we can make some money here,’ ” Hudak said.

Big banks will win if they decide to work with the marijuana industry and dare the feds to intervene, he said.

“Bank of America or somebody just might do it, and play a game of chicken with the Federal Reserve,” he said. “As we’ve seen the past few years, the government is not in the business of putting bankers in jail.”

Sean Cockerham: 202-383-6016, @seancockerham