Recreational Cannabis Legalized in California

As of January 1, 2018, California became the nation’s largest state to legalize recreational cannabis sales. California will treat cannabis like alcohol by allowing people 21 and older to possess up to an ounce of pot and grow six cannabis plants at home.

California cities including Santa Cruz, San Diego, Shasta Lake, San Jose and West Hollywood have already licensed businesses for recreational cannabis sales however the City of Los Angeles has delayed accepting cannabis business applications until Jan. 3.  Kern County, is among municipalities in California that have banned all commercial cannabis activity. And other cities have postponed taking any action opting instead to see how the new market rolls out in other cities.

California’s cannabis black market is huge. An estimated 15,000 illegal cultivation sites exist in Humboldt County alone, a prized growing area in Northern California known as the “Emerald Triangle”.

The state of California will impose a 15 percent excise tax on retail purchases of all cannabis and cannabis products, including medicinal cannabis. Cultivators will pay taxes on buds and leaves they sell, which is expected to be passed on to consumers at retail counters and local governments could apply additional taxes.

In Los Angeles, new taxes and fees could push up the retail cost for a small bag of cannabis by as much as 70-percent. Cannabis operators have expressed fear that hefty new taxes will drive consumers into the black market. The state expects to bring in $684 million in cannabis tax revenue next year, with that number increasing to $1 billion in several years. Los Angeles has predicted that it could pull in $50 million next year.

Although legal in California cannabis remains a Schedule 1 illegal drug at the federal level.

Federal law prohibits banks and credit unions from taking cannabis money. So what to do with all that cash? In 2015, Colorado tried to set up a credit union to serve the cannabis industry but was blocked by the Federal Reserve. A court ruling last month could open the door for another attempt.

Around the country, the Oregon Department of Revenue built a fortress-like office for dropping off and counting cash.

Some cannabis businesses have tried to open bank accounts by setting up management companies or nonprofit organizations with ambiguous names – in other words, by misleading the banks. But those accounts can be shut down if a bank realizes where the money is coming from.

The Los Angeles City Council has proposed creating a municipal bank that would serve cannabis businesses.

 

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