A Marijuana.com Exclusive Interview With John Chiang

State Treasurer John Chiang knows California’s finances. He’s the only person to date to hold all three of California’s financial positions. He was a member of the Board of Equalization, which oversees tax administration and fee collection, state controller and now state treasurer. He also happens to be one of many candidates running for governor of California.

On a brisk May morning, Chiang settled into an office chair nestled in the brick-lined room of a shared Santa Monica office building to discuss the effects of cannabis legalization and the potential it holds for California’s economy.

Over the years, Chiang’s primary focus when it comes to cannabis has been establishing a financial system that works in spite of the dilemma banks face in providing financial services to cannabis businesses.

Banks are prohibited from handling money from illegal transactions. The federal government considers cannabis a Schedule I substance.  Financial service providers that do handle money derived from cannabis transactions, knowingly or not, risk money laundering charges. As a result, cannabis business owners are forced to handle large amounts of cash, and face ancillary businesses account closures and asset seizures.

In 2017, Chiang wrote to express his support for HR 2215, the Secure and Fair Enforcement Banking Act of 2017, which would have safeguarded cannabis banking activities from federal intervention or seizure.

“These problems will only grow ever larger after January 1, 2018, when the commercialization of recreational cannabis use becomes fully legal,” he wrote.

The bill was referred to the US House subcommittee on Crime, Terrorism, Homeland Security, and Investigations on Sept. 21, 2017.  No progress has been made on the bill since its 2017 introduction.

In 2017, Chiang created the Cannabis Banking Working Group, an 18-member board charged with finding ways to maneuver the conflict created by cannabis’ designation by the federal government as a Schedule I substance. When Chiang delivered the group’s findings later that year, he warned of security concerns and public safety risks if the issue of legal banking for cannabis businesses isn’t resolved.

Those concerns have been echoed by many who wish to see a comprehensive solution to the lack of access to banking options for cannabis businesses.

“Can you imagine a $6.6 billion industry operating in cash? Not only is that an unimaginable amount of cash, it is unsafe,” Assemblymember Reggie Jones-Sawyer, who represents California’s 59th District, wrote in an LA Sentinel op-ed. “It is no secret that cash-only businesses attract crime. As the Chair of the Assembly Public Safety Committee, this is something that keeps me up at night. The inability to bank is a public safety hazard that puts the safety of owners, customers and entire neighborhoods at risk.”

The Cannabis Banking Working Group recommended that armored cars be utilized by the state government to collect cash tax payments from businesses until a permanent solution could be reached, and suggested looking into a state-owned bank to serve the cannabis industry.

“It is important to remember that … there is no durable, fail-safe solution to the banking problem until federal law is changed, and neither the Working Group nor the State Treasurer’s Office endorses any particular product or service,” Chiang wrote in the report.

In January 2018, Chiang joined forces with California Attorney General Xavier Becerra to conduct a feasibility study for a public bank owned by the state of California. The study would examine if the bank would have physical branches or take transactions mostly online, and whether deposits could be insured, among other issues. His office issued a Request for Information on Jan. 29, 2018. A spokesperson for the department replied to an email inquiry for an update that the next step is to send out a Request for Proposals, which they expect to do in the “next couple of months.”

Although tax receipts from cannabis have come in lower than expected, the newly legalized industry has generated $60.9 million in tax revenue from 2018 first-quarter sales that needs to be appropriately accounted for and processed.

On May 30, 2018, the California Senate passed Senate Bill 930 by a vote of 32-6, which would allow licensed cannabis businesses access to a system of state-chartered banks and credit unions regulated by the Department of Business Oversight. The bill must clear the assembly next.

Marijuana.com Interviews John Chiang: Full Interview

What role do you see cannabis playing in the future of California’s economy?

Well, California is one of the vibrant economies on this planet. As we just saw last week, California became the world’s fifth largest economy. … Cannabis will add to our incredible diversity of economic opportunities. When you think about all the areas that it covers from recreational activity to medical research, to agriculture. As we fully explore, as we fully develop those opportunities, it can have profound impacts.

The original estimates were that it would bring in an additional $6 [billion]to $7 billion of economic activity, $1 billion in tax revenues… we’re not on pace for those numbers because of a number of factors. But as people continue to grow, and understand, and work together, we will overcome the hurdles and fulfill the will of the voter of California.

You’ve served in a number of roles, including state controller and state treasurer. What have been the biggest challenges to progress on the cannabis legislation front?

Well, I’m the only person in California history to serve in all three financial offices. First at the Board of Equalization, California’s elected tax authority. … Secondly as the State Controller, the state’s chief fiscal officer, and today as the state’s treasurer.

I’m the state’s banker and so we know that when Prop. 64 passed, there were some unaddressed issues in regards to the initiative. No. 1 was tax administration. At the Board of Equalization, you had the various elected board members treating cannabis tax collection differently. They need to get that squared. They have legitimate businesses and business owners who want to do the right thing. And you had the tax authority not making it clear, not making it easy for legitimate business owners to pay their taxes. That’s not right.

Secondly, we’re facing extraordinary hurdles out of Washington D.C. I put together, after the passage of Prop. 64, an 18-member Cannabis Banking Working Group to figure out what we can do to mainstream cannabis businesses. We know that they don’t have access to financial institutions, so banking is incredibly problematic.

You have employees, and this isn’t just here in California, but elsewhere in the United States of America, who lose their banking access because they know that they’re affiliated with cannabis businesses. Access to credit, access to insurance, those are all incredibly troublesome. It’s important that we come together to bring the cannabis businesses out of the shadows you have people who want to do the right thing and voters have demonstrated their will and we ought to fulfill the will and make sure that we make it easier to facilitate that economic activity.

What are some barriers you would like to see removed, and what type of effects do you anticipate would result from the removal of those barriers?

Well, the barriers we’re facing immediately and the barriers we’ve faced for the past year plus here in California, after the voters passed Prop. 64, was Washington D.C.

The new administration has taken a course and set us backwards. President Obama, under his administration, had the criminal justice system move forward with the Cole Memorandum. We know that … the Cole Memorandum was rescinded by the Attorney General. The Attorney General has been a major obstacle, and he is a part of an administration that, frankly, hasn’t provided clarity. … We heard a few words from Trump regarding his negotiations with Cory Gardner, for those who aren’t familiar, from Colorado, there appears to be some progress, but still no clarity as to whether that resolution only applies to Colorado or if it applies to the rest of the United States of America.

And so, the Trump administration should deschedule cannabis and then they ought to provide leadership in regards to clear instruction after that, and support with regulatory agencies and others so that we can bank, and then we can clearly have a tax administration plan, so that we can mainstream businesses.

You have thousands upon thousands of individuals who want to do the right thing, who are invested personally, monetarily on different resource fronts to make this business, this component of the economy successful, but because we’re not getting leadership from Washington D.C. that in so many different respects this area is paralyzed.  

 Do you believe the current regulatory environment contributes to forward movement in cannabis legalization? If not, what would you like to see changed?

Well, there’s so many different areas. We know that there as split jurisdictions, so they’re continuing to work through the issues. We know that back in Washington D.C., as I’ve just articulated, is putting up major hurdles.

I’ve tried to bring to bear some of the issues. Another finding and recommendation of the Cannabis Banking Working Group, was to try to bring together various parties so that we can access the information so that we can help individuals, and small business fulfill their responsibilities to the regulatory agencies. For a lot of small businesses, for those regulatory agencies, often times there’s a massive financial hurdle.

Small businesses are trying to get the capital. Compliance costs can be out of their reach. So, why don’t we get that information to the individual business owner whose filling with the city, filling with the county, filing their reports for the regulatory agencies. Let’s get that information into a database so when they have to submit it to a federal regulatory agency or somebody else, it’s easily accessible. Instead of making it difficult for those who are trying to comply, who are trying to do the right thing. Let’s try to make sure we can expedite the process, simplify the process, and make it work for all.

On Tuesday, May 8, 2018, it was announced that tax revenue from cannabis sales came in lower than expected, mostly due to the lack of licenses that have been issued across the state. How would a Chiang administration work with local governments to increase legal cannabis business licensing?  

Well, we have to share information. Often times people are trying to reinvent the wheel. Let’s just see what works effectively. We don’t want to tell local jurisdictions you don’t have local input. But for the hurdles and objections that have been addressed, that there’s information on, that there’s research been done, let’s make sure that there is a platform that you can share it so people understand.

And then, let try not to operate so much in silos. Often times, people feel the frustration of government operating in silos. Make sure that we look at this holistically. Let’s make sure that we are efficient in regards to the permits the rules, the regulations. That there is a harmonization of the various agencies, so that if you fulfill the rules and requirements of one agency, you’re not running afoul of another regulatory agency’s rules and regulations. So, let’s remove those obstacles.

Is there anything else you would like to cover that we haven’t addressed?

If [individuals]need any background information, I would like to encourage them to check the Cannabis Banking Working Group report that we just disseminated. If you’re interested in trying to push this along with the powers that be in Washington D.C., please join the consortium that we put forward. If you’re interested in some of the other solutions, another thing we did was, how to overcome the cash concerns, just read our report, I think that it would be very instructive.

And most importantly, we live in a democracy, participate in the process to ensure that your voice is heard, that thoughtful solutions are being offered, that you work with others so we can get the coalitions needed, so that we can be successful in moving California forward.