Week in Review: Cannabis Bank in CA? + Tight Deadline in NY & Sales Confusion in WA

By John Schroyer

California officials propose a state-run bank for marijuana companies, New York license winners face a tough deadline, and Washington State’s sales figures spur confusion.

Here’s a closer look at several notable developments in the marijuana industry over the past week.

Don’t Bank on It

A proposal in front of the California Tax Board to create a state-run bank for cannabis companies is well-intended but probably won’t get very far, said one prominent marijuana attorney.

“If I were a betting man, I’d probably put my hopes more into federal legislation that’s pending in Congress that would revise the Bank Secrecy Act and (anti-money laundering) laws to allow this,” said Khurshid Khoja, a lawyer with Greenbridge Corporate Counsel. “That’s more of a near-term likelihood than getting a state bank up and running.”

Khoja pointed to the recent disappointment in Colorado, where the Federal Reserve denied a startup financial establishment’s application for a master account to serve the cannabis industry.

“That doesn’t make me very sanguine about the likelihood of a state bank succeeding in the short term,” Khoja said. “I feel like they’re biting off more than they can chew.”

Khoja said the concept of a state-run bank for the marijuana industry is certainly “doable,” but it’s also quite complicated.

To begin with, supporters would have to drum up a good amount of political support, and California is already divided into several camps when it comes to cannabis. There’s also ongoing work on both potential statewide MMJ industry regulation bills at the state Capitol, as well as multiple adult-use legalization campaigns underway.

So siphoning off the time and energy to create a state-run bank probably isn’t in the works, Khoja said.

And They’re Off

Now that New York has awarded medical marijuana licenses, it’s time for the five companies that won to buckle down and get to work. Under the state’s MMJ law, they only have until the end of January to get their dispensaries up and running.

“They’re all racing the six-month deadline,” said New York attorney Adam Scavone.

That means the five companies have just half a year to secure cultivation sites, figure out where their dispensaries will be located, and secure all the necessary permits, along with navigate through all the normal business logistics, such as hiring staff.

According to New York’s MMJ law, any business that isn’t operational within six months of receiving its license could then have it revoked. Which is why many of the applicants began that process months ago in anticipation of winning a license.

“Everyone knew this was coming. I have to believe that all the winners were well-prepared,” said Scavone. “This was made very clear by the Department of Health throughout the process, that they wanted all five organizations to be able to meet that deadline.”

A spokesman for Columbia Care of New York said his company is “very confident” it will be able to make the January deadline.

“We’ve had quick startups in other states,” he said.

An insider connected to another license winner admitted that January will be a “difficult deadline to meet,” but said he believes the company will also be able to pull it off.

However, even if not all the companies have MMJ ready for customers by the time the clock runs out, Scavone said he doubts that the state would start unilaterally yanking permits.

“It’s kind of an empty threat, because if the (Department of Health) revoked their license for not being ready to go in January, then what are they going to do? Go back and start the process over again and leave 20% of New York patients without medicine?” Scavone said. “I can’t imagine they wouldn’t grant some reasonable extension.”

Still, with all the money, time and effort put into the application process, it’s a decent bet that those five companies aren’t eager to gamble their licenses on it.

Sales Questions in Washington State

Confusion is swirling in Washington State after the Liquor and Cannabis Board (LCB) issued recreational sales figures that show a dip in revenue from June.

According to the data, retail shops reported $31.4 million in cannabis sales in July, down almost 6% from a month earlier.

But several industry insiders said the report was skewed by a recent change in Washington’s marijuana tax structure and a shift in sales reporting methods.

Previously, monthly retail sales numbers in the state’s report included a 25% excise tax, said Aaron Varney, the director of Dockside Cannabis.

The state recently replaced the 25% tax with a 37% excise tax that’s only assessed at the point of sale. Varney said he believes the LCB report apparently no longer includes tax as part of the official retail sales number.

“To my understanding, the sales numbers we submit no longer include the tax,” Varney said, adding that July was a positive month for his shop and, from what he’s heard, many other stores.

Varney and others are convinced that the June and July numbers aren’t comparable because of the tax change.

Brian Smith, communications director of the LCB, said in a voicemail left for Marijuana Business Daily that the agency’s numbers allow for an apples-to-apples comparison of monthly sales. But the bureau releases several sets of numbers in different formats, and Smith couldn’t be reached for clarification on whether the retail sales data for July specifically allows for a comparison with the previous month.

Until this is sorted out, the sales situation for July will remain muddled.

Tony C. Dreibus contributed to this report.

John Schroyer can be reached at johns@mjbizmedia.com.

2 comments on “Week in Review: Cannabis Bank in CA? + Tight Deadline in NY & Sales Confusion in WA
  1. Khurshid Khoja on

    The one really important factor underlying my pessimism (which I mentioned to John, but was no doubt inadvertently edited from the story) is that the FDIC regulates state-chartered banks that don’t join the Federal Reserve system (which would be the case for the type of banking institution proposed by the BOE), and that in addition to the Fed regional bank in KC denying a master account to Fourth Corner in CO, the FDIC itself had also previously declined to insure Fourth Corner’s accounts (which in turn triggered the Fed’s action).

    So, if we’re looking to the FDIC to green-light a state-chartered MMJ bank in CA in the short term, we’ll need to first get the FDIC in line with FINCEN and Treasury which will require time and effort. For all that effort, we may as well go for a win for the entire country’s legal MJ industry and push hard for amendments to the Bank Secrecy Act–it wouldn’t require the same herculean effort it would to get federal de-scheduling, or getting everyone at the state and federal level to cooperate on the establishment of a state bank in CA, in part because the National Cannabis Industry Association is helping to lead the charge on those important reforms.

    While admittedly, CA is half the U.S. market–and finding any banking solution for CA businesses would be welcomed–nationwide reform is really the only definitive and efficient way to stabilize the entire U.S. MJ industry, open up the floodgates to capital, and make financial markets in the industry much more transparent, so we can see the see this industry truly blossom as a superior alternative to not only the black market and the Drug War, but also business-as-usual capitalism.

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