MOORLACH UPDATE — Proposition 64 — February 15, 2017

As a former income tax return preparer, I am really bothered by the underground economy. This is where individuals are paid cash under the table and do not fully report their taxable income for income tax and self-employment tax purposes. It’s a haven for dead-beat dads who do not pay child support to their former spouses. It’s also a haven for undocumented individuals (although they now seem to have a very special status with the majority of the Legislature, so I apologize for even mentioning this segment of our population).

With the recent legalization of marijuana, the Senate Governance and Finance Committee, on which I serve, held a hearing yesterday on the implementation of Proposition 64. In my November election recommendations I opposed Prop. 64 and observed that: This is not working in the state of Colorado (see MOORLACH UPDATE — SB 32 and Propositions — September 18, 2016 september 18, 2016 john moorlach).

Lo and behold, our first witness was none other than the Governor of Colorado, John Hickenlooper. As my sister and her family of six are residents of this wonderful state, I just had to do a quick selfie.

Because marijuana, both medicinal and recreational, is considered a Schedule 1 drug by the Federal government, this industry is prohibited, in most circumstances, from utilizing a bank account. Depositing large sums of cash is considered money laundering.

Medical marijuana dispensaries are currently paying sales tax, but in large all-cash payments. Cultivators and distributors will now be charged excise taxes, as well.
They need access to bank accounts to transact business with the state, as large cash payments are a high risk proposition. And, with bank accounts, there will be a history of business expenditures, including paychecks with appropriate withholdings. I’m sure the current situation allows this industry to make cash payments, which are not reported for income tax purposes, and thus being part of the underground economy.

Since this industry wants to come clean, then the Federal government should assist in this transition. It has much more to gain, than it has to lose.

The Associated Press covers the hearing in the piece below, which has been picked up by numerous newspapers around the nation.

Colorado Governor Talks Pot Challenges in California Capitol

Colorado Gov. John Hickenlooper is telling California lawmakers to set standards for edible marijuana goods and driving under the influence of cannabis as soon as possible to avoid repeating mistakes his state made when it legalized recreational pot.

By SOPHIA BOLLAG, Associated Press

SACRAMENTO, Calif. (AP) — Colorado Gov. John Hickenlooper told California state senators Tuesday to set standards for edible marijuana goods and driving under the influence of cannabis as soon as possible to avoid repeating mistakes his state made when it legalized recreational pot.

The senators heard from Hickenlooper as the Legislature prepares to regulate sales of the drug. California voters legalized recreational marijuana in November through Proposition 64.

Colorado legalized recreational marijuana in 2012 and faced a host of challenges implementing the new policy, from taxing marijuana dispensaries to keeping edible marijuana products away from children.

"We made an awful lot of mistakes as we were trying to wrestle with some of these issues," Hickenlooper said.

California faces a similar challenges implementing Proposition 64. Marijuana sales under the law are scheduled begin in 2018.

"We are in a sprint between now and Jan. 1 to be able to implement the mountain of rules and regulations associated with Prop 64," state Sen. Mike McGuire, D-Healdsburg, said during the committee hearing where Hickenlooper spoke.

Colorado saw a rise in child hospitalization because of kids ingesting edible marijuana products in non-child-proof containers, Hickenlooper told the committee. The state now requires edibles to be sold in child-proof containers and has stricter regulations on labeling such products.

California faces challenges determining how to enforce laws prohibiting driving under the influence of marijuana, Sen. Jerry Hill, D-San Mateo, said.

"There is no real quantifiable, definitive impairment level as there is with our alcohol," Hill said. "That’s been the criticism or the challenge that we’ve been faced with here in terms of defining what impairment would be."

Colorado struggled to quickly pass laws to regulate impaired driving for that reason, Hickenlooper said. He recommended California lawmakers start to address that issue quickly because it will likely take time to resolve.

Marijuana dispensaries generally are forced to pay taxes in cash because federal law prohibits banks from taking their money, which can present a challenge for the state and local governments collecting taxes from the businesses, Sen. John Moorlach, R-Costa Mesa, said. State analysts estimate the California legal marijuana industry could generate more than $1 billion in tax revenue each year.

Other speakers at the hearing, including local and state officials charged with overseeing the marijuana industry, also spoke about challenges implementing regulations so sales can begin next year.

"We are flying the plane while we are building it," said Amy Tong, director of the California Department of Technology.

Marijuana is still illegal at the federal level. Recently confirmed U.S. Attorney General Jeff Sessions has said he opposes marijuana legalization but has not announced specific plans to target marijuana industries in states that have legalized the drug.

Colorado has worked with federal authorities to crack down on black market marijuana sales, which Hickenlooper highlighted as critical to the success of the legal marijuana industry in the state. Hickenlooper said he is optimistic President Donald Trump will not crack down on Colorado’s legal marijuana industry, pointing to comments the Republican made during his campaign indicating he was open to letting states that have legalized marijuana continue to do so.

"We’re optimistic that he’s going to let the experiment continue," Hickenlooper said. "But they’re going to closely watch it, I’m sure."


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