The cannabis supply chain hailed California's passage of Proposition 64, an initiative aimed at legalizing adult marijuana use. The ballot measure achieved a 56 percent majority Nov. 8, 2016, prompting state legislators to issue preliminary compliance guidelines for the fledgling cottage industry. The California State Board of Equalization (BOE) immediately exempted some forms of medical marijuana from sales and use tax. Marijuana buyers will pay a 15 percent excise tax beginning Jan. 1, 2017; growers' taxes are in development, the BOE stated.
Marijuana-related businesses must comply with banking, taxation and payment processing laws, which vary by state, according to industry experts. Attorney Kenneth Berke is Chief Executive Officer at PayQwick LLC, a closed-loop processing platform designed to meet California BOE track-and-trace requirements. "PayQwick has solved the banking problem for the legal and medical marijuana business in Washington and Oregon, so it's well tested and ready for the California market," he said. "We combine the functionality of a PayPal-type B2B payment platform with a consumer-based, prepaid point-of-sale payment vehicle that is safe, secure, trackable and traceable."
Cannabis industry stakeholders must also be mindful of guidelines related to the Bank Secrecy Act and Anti-Money Laundering Control Act (BSA), Berke stated. His company has implemented quarterly on-site inspections, transaction tracking and state-appropriate disclosures. As a federally registered Money Services Business in Washington State and money transmitter in Oregon, PayQwick can facilitate automated clearing house funds transfers between merchants and participating banks, thereby reducing problems commonly associated with handling large amounts of cash.
The BSA, introduced by the Office of the Comptroller of the Currency in 1970 and later amended in concert with the USA Patriot Act, is a compliance program designed to standardize recordkeeping and reporting across U.S. and foreign financial institutions. The OCC formally and informally enforces BSA guidelines, notifying the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) and Office of Foreign Assets Control of any violations or discrepancies.
FinCEN describes money laundering as the process of making illegally gained proceeds appear legitimate. It typically involves placement, layering and integration of illegal funds by routing money through numerous accounts before making bank deposits.
FinCEN takes a narrow view of most cash businesses due to criminals' reliance on cash for money laundering, drug trafficking and terrorism schemes. This can create a Catch 22 for legitimate marijuana business owners whose high-risk status excludes them from establishing bank accounts and whose reliance on cash makes them highly suspect to government authorities.
Nate Bradley is Executive Director and co-founder of the California Cannabis Industry Association, a trade association for the state's recreational and medical cannabis industry. "When we founded CCIA four years ago, we were involved in industry outreach programs and wanted to have infrastructure in place for this historic event," he said. "The passage of Prop. 64 will facilitate cannabis innovation, research and development and create millions of jobs in our state."
Bradley noted that the industry's regulatory process affects all facets of financial services and encouraged merchant services providers to join the association. "As a CCIA member, you'll have access to the industry, networking events and panel discussions and the opportunity to make your voice heard in the regulatory process," he said, adding that merchant level salespeople who join the CCIA will find an abundance of advisors and support.
Following is a partial list of resources affiliated with the CCIA:
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