While the legalization of marijuana is a contentious political topic, a fact that is not contentious is that in the 33 U.S. states (and the District of Columbia) where marijuana has been legalized for sale in some capacity, it has thrown off a fairly large chunk of tax revenue in the last year.
The federal government alone collected an estimate $4.7 billion in taxes from legal cannabis companies last year, an amount of money that is undoubtedly a sizzle for the federal coffers. Nearly $5 billion in new revenue will always be a sizzling event.
There’s just one, small, fizzly problem for the IRS. The vast, vast majority of that revenue is being paid in cash.
Unlike most American businesses, which pay electronically or by check, most of these marijuana-product firms were forced to pay their federal taxes in cash.
To put that in context, a billion dollars is a ton of cash. And that’s not being idiomatic – we’re being darn close to completely literal, as $1 billion in $100 bills weighs 2,200 pounds, and a ton is 2,000 pounds. So the $4.7 billion coming into the federal government in cash is close to about five tons of money that must be dealt with.
This is not by statute: There is not a requirement that cannabis companies pay their taxes in cash. It is a side effect of the fact that while marijuana is “legal” for some uses in nearly three dozen states, according to the United States federal government, cannabis is a Schedule I narcotic. That means any bank that operates across state lines in the U.S. faces the possibility of losing its charter for AML violations or facing prosecution under the federal RICO statutes if they offer services to cannabis companies.
The government has provided some guidelines as to how financial service institutions can work with the legal cannabis industry in a compliant manner, in the form of 2013’s Cole memo. But that Obama-era Justice Department set of rules was revoked in 2017 by the new administration. The Justice Department went on to offer local U.S. attorneys broader reign to prosecute the cannabis industry.
And though local U.S. attorneys didn’t really do so, the uncertainty is such that most banks steer clear of the cannabis industry. Very few banks offer services, and those that do often don’t publicize them.
“The reality is 99 percent of banks don’t want to mess with them, [because] there’s a lot of internal compliance if you’re going to serve the cannabis industry,” noted Jim Marty of Bridge West CPAs, a Colorado accounting firm that represents roughly 250 cannabis businesses and license holders nationwide.
And so cannabis is an entirely cash-based business for 70 percent of those involved in it: Employees are paid in cash, bills are paid in cash and taxes are paid in cash.
This means customers pay in cash, their employees are paid in cash, and their taxes are paid in cash.
Hence the IRS and its five tons of cash to process.
Or, if reports are correct, the IRS has actually outsourced that process to a Virginia company for $1.7 million. The Mitre Corporation, according to its website, is a “private, not-for-profit company to provide engineering and technical guidance for the federal government.”
How exactly it helps the IRS count and manage all that cash is something of a mystery. The contract is for helping with “large cash payments for processing cannabis federal taxes,” but neither firm has offered any comment on what exactly that means.
What is known is that neither side seems to be much enjoying them. To pay federal taxes, the current process requires cannabis businesses to schedule an appointment with the IRS to go to its local offices and make a cash deposit. A secure space is set aside to count it all, and there are two IRS employees inside the room at all times.
And, because all cannabis industry tax returns are in paper form, they are also nine times more expensive to process than the electronic returns filed by most other businesses, according to Julie Hill, a law professor at the University of Alabama and an expert on banking regulations and the legal marijuana industry.
For its part, the IRS has tried to push the system toward bank accounts and electronic payments, to get out from under the cash pile. Until 2014, it assessed cannabis companies a 10 percent tax penalty for paying their taxes in cash, until a lawsuit persuaded them to drop the penalty if a business had made a good faith attempt to open a bank account and failed.
Proponents of the industry remain hopeful that banking services are coming soon – though given cannabis’ status as a Schedule I narcotic and the fact that the IRS has signed a contract to outsource the counting of all the cash, it seems “soon” might be a relative term.
Alibaba’s Singles’ Day: A sizzle as the eCommerce retailer beat its previous record and logged $30.8 billion in sales, far outstripping the previous $25.3 billion seen last year. As much as $1.4 billion of that tally happened in the first two minutes.
Amex, China Cards: Amex became the first U.S. card network to gain access into this huge market, in tandem with Chinese JV partner LianLian Group. China’s central bank is letting Amex handle payments in yuan; Visa and Mastercard are also seeking permission to build their own networks in China.
Contactless Card Payments: Tap and go is ready to get going. Chase said it will enable contactless payments across its Visa cards on a rolling basis through 2019, and that 10 million of its cards in the U.S. should be contactless-enabled by January.
Apple Suppliers: Seemingly one after another, members of the iPhone ecosystem reduced guidance or warned of top-line shortfalls as the tech behemoth dialed back orders of its signature phones. Some, like Lumentum, saw stocks slammed by more than 30 percent.
Snap Subpoenas: The U.S. Justice Department and SEC have subpoenaed the firm for info on its 2017 IPO. The inquiries are reportedly tied to the class-action lawsuit for how Snap misled investors about how competition (such as from Facebook) was impacting its growth.
Uber: The company posted results Wednesday (Nov. 14) that point to slowing growth, as bookings were up 6 percent sequentially, a far cry from the double-digit growth that had marked that metric for all of 2017. Red ink continues, with a billion-dollar loss for the quarter that ended in September.