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As most banks and credit unions continue to shun California's marijuana industry, state lawmakers are looking at a new way to help cash-saddled cannabis businesses pay their taxes: cryptocurrency.

Legislators this week introduced a bill that would require the state starting in 2020 to accept stablecoins, or digital currency tied in this case to the U.S. dollar, from cannabis-related businesses seeking to pay their excise or cultivation taxes. Assembly Bill 953 would also allow, but not require, counties and cities to do the same for local fees.

The proposal is the latest attempt by the state to find an alternative to the huge sums of cash that arrive at state offices when taxes are due. California Treasurer Fiona Ma recently testified before a congressional subcommittee that, as a member of the state's tax-collecting board of equalization, "duffel bags and sometimes suitcases of cash would arrive quarterly at some of our designated offices."

"And some business owners had to drive 350 miles to pay their taxes," she said.

Cannabis tax revenues, including sales taxes, totalled $103 million for the last three months of 2018, according to the state Department of Tax and Fee Administration.

State leaders have grappled with how to reduce the amount of cash, and the associated threats of crime, that permeate the licensed marijuana industry. Late last year, outgoing Treasurer John Chiang rejected the idea of launching a public bank to serve marijuana-related industries, citing a report that found the move too risky and expensive.

Legislation that would have created a closed-loop financial system for cannabis businesses and their vendors died last year in the state Assembly. And this year, a new bill would charge the Bureau of Cannabis Control with developing safety rules for marijuana businesses transporting more than $1 million in product, cash or a combination of both.

Digital currency platforms offering an alternative to traditional financial industries have tried to gain a foothold in marijuana space with limited success.

Online payment processor Paysafe last year retained Paul Hastings to lobby Congress on cannabis and "related financial services issues." Other companies such as Hypur Inc. and Tokken Inc. have tried to lure marijuana-related businesses with transaction-tracking and payment processing services.

Paul Hastings offices in Washington. Photo: Diego M. Radzinschi/The National Law Journal

Stablecoins, named for their stability since they are pegged one-for-one to the dollar, have not been without scrutiny, especially because they are required to show they have enough reserves to cover every token issued.

Stablecoin startup Basis closed shop in December, citing onerous securities regulations. Cryptocurrency giant Tether faced questions last year about whether it carried enough fiat currency to back its tokens. A December 2018 report by Bloomberg News, which reviewed Tether bank statements, suggested that the company had the necessary billions of dollars in its accounts to back its digital coins.

 

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