1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 DECEMBER 14, 2016 10 11 12 13 14 ITEM P 15 OTHER ADMINISTRATIVE MATTERS 16 ITEM P4 17 FIELD OPERATIONS REPORT 18 2. CASH PAYMENT ACCEPTANCE ALTERNATIVES 19 20 21 22 23 24 25 REPORTED BY: Kathleen Skidgel 26 CSR NO. 9039. 27 Jillian Sumner 28 CSR NO. 13619 1 1 P R E S E N T 2 3 For the Board of Equalization: Fiona Ma, CPA 4 Chairwoman 5 Diane L. Harkey Vice Chair 6 Jerome E. Horton 7 Member 8 Sen. George Runner (Ret.) Member 9 Betty T. Yee, 10 State Controller 11 Joann Richmond Chief 12 Board Proceedings Division 13 For Board of 14 Equalization Staff: Wayne Mashihara Deputy Director 15 Field Operations Division 16 Julia Findley Chief 17 Financial Management Division 18 19 ---oOo--- 20 Speakers: Jerred Kiloh President 21 United Cannabis Business Alliance Trade 22 Association 23 Marvin Pineda Legislative Advocate 24 Capitol Strategies Group 25 26 ---oOo--- 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 DECEMBER 14, 2016 4 ---oOo--- 5 MS. MA: Okay. We're going to, um, do, 6 uh -- go to the cash payments item and then closed 7 session. 8 MS. RICHMOND: Yes. 9 MS. MA: And then hopefully take a break 10 for Winterfest if we -- 11 MS. FINDLEY: Thank you, Members. 12 MS. MA: -- finish. Thank you. 13 MS. RICHMOND: So our next item is P4.2, 14 Cash Payment Acceptance Alternatives. And we do 15 have a speaker for this item. 16 MS. MA: Okay. Welcome. 17 MR. MASHIHARA: Okay. Good afternoon, 18 Chairwoman Ma and Members of the Board. My name is 19 Wayne Mashihara. I am the Deputy Director for the 20 Field Operations Department. 21 I am here today with Julia Findley, Chief 22 of our Financial Management Division, to present the 23 alternatives discussed in Issue Paper 16-13 labeled 24 Cash Payment Acceptance Alternatives. The purpose 25 of this Issue Paper is to pose alternatives to 26 address the growing amount of tax payments made in 27 cash at BOE district offices, posing a safety risk 28 to employees, taxpayers and the public. 3 1 The BOE Risk and Audit Oversight Action 2 Committee reviewed the issue and developed the 3 alternatives. The committee recognizes these are 4 not one-size-fit-all solutions, but, instead, 5 provide several solutions to consider. 6 I have Julia Findley here, the chair of 7 this action committee, to discuss the proposed 8 alternatives. 9 MS. FINDLEY: Good afternoon. I'm Julia 10 Findley, Chief, Financial Management Division. 11 The Risk and Audit Oversight Committee 12 researched various alternatives for accepting cash 13 payments from taxpayers. I will provide a brief 14 overview of the various alternatives, and then Wayne 15 and I will answer any questions that you may have. 16 Just as some background, um, the BOE 17 district offices do accept cash pay- -- or do accept 18 payments from taxpayers. There's been a growing 19 increase in the number of cash payments in those 20 offices. And in February 2014 the BOE issued a No 21 Cash Policy memo that established, um, an exemption 22 for taxpayers that could, um, provide hardship -- or 23 demonstrate a hardship. And those -- that policy 24 allows the, um -- the district offices to evaluate 25 that request and make a determination on whether or 26 not the hardship qualifies. 27 The BOE has, in recent -- in the past year 28 and a half or so tried to address, um, some of the 4 1 security issues at some of our district offices by 2 installing bulletproof glass, privacy screens, 3 security cameras, um, and CHP services, among other 4 things. Which is the reason why this particular 5 Issue Paper is important, because we are here to 6 look at other alternatives that may be available to 7 the Board of Equalization to accept cash. 8 Alternative 1 is to accept cash payment at 9 banks. I want to preface this alternative, but I 10 won't go into details because of the sensitive 11 nature of Alternative 1 and Alternative 2. I don't 12 want to jeopardize any implementation that may be -- 13 may occur if we proceed with these two options. 14 This alternative, BOE staff would meet 15 taxpayers at banking locations to facilitate 16 payments and deposit -- and deposit process on site. 17 This alternative short-term would provide 18 opportunity throughout the state with payment 19 location options and would require coordination with 20 taxpayers, BOE staff, and the bank to ensure secure 21 and timely deposits of tax payments. 22 Alternative 2 is to create a tax service 23 center at existing government buildings. In this 24 alternative the BOE would partner with government 25 agencies to provide secure locations to accept cash. 26 This alternative requires collaboration with state 27 agencies and requires BOE staffing and supervision 28 while on site facility. 5 1 The first alternative is somewhat of a 2 short-term alternative. This one can be short-term, 3 um -- may be implemented short-term or it could be 4 long-term. And we are reaching out to agencies at 5 this time to try to find locations that fit the 6 criteria. 7 Alternative 3 is to create BOE off-site 8 cash acceptance facilities at strategic locations. 9 In this alternative, the BOE would look for off-site 10 buildings that could be retro-fitted with 11 appropriate security if it does not exist and 12 provide taxpayers with strategically placed 13 locations within the state in which to make cash 14 payments. This would be more of a long-term 15 solution, probably one to two years to implement. 16 Alternative 4 is install cash acceptance 17 systems at BOE offices. In this alternative BOE 18 offices have the capability -- that have the 19 capability of supporting a cash counting room and 20 could facilitate the addition of a heavy-duty safe 21 would be fitted with cash acceptance systems. These 22 systems are a complete package. The safe and the 23 related armor car pickup are managed as part of a 24 contract through banking agreements with the State 25 Treasurer's Office. This option provides same-day 26 credit of cash, as once it is placed in the safe it 27 is no longer the BOE's money, but instead belongs to 28 the bank. 6 1 The acceptance of using -- um, this -- the 2 acceptance of cash using this method remains at the 3 BOE offices fitted with the solution. 4 Alternative 5 is to follow the established 5 No Cash Policy. In this alternative the BOE would 6 continue its current policy to not accept cash in 7 BOE offices unless the taxpayer qualifies for the 8 hardship exemption. Hardship exemptions will 9 continue to be approved by the district office. 10 That concludes my presentation on 11 alternatives posed in the Issue Paper. We would be 12 happy to answer any questions you may have at this 13 time. 14 MS. MA: Mr. Runner. 15 MR. RUNNER: Yeah, um, thank you for -- for 16 the effort. Um, you know, I appreciate especially 17 the alternatives that are there. I think we all 18 know that we're facing some pretty big challenges in 19 this -- in this issue. And with the industry, um, 20 only to be, um -- only to be growing and that 21 particular -- you know, as we -- as we look to the 22 future. 23 Um, I -- I -- I'm, you know, as -- for 24 instance, as I look at Alternatives 1, 2, 3, it 25 seems to me we can be doing that all at the same 26 time. Right? I mean those are -- those are -- 27 those are things that we ought to be trying to 28 figure out how to do, um, see what can work, um, and 7 1 I'm hoping that that would be our -- our -- our 2 process. Because, again, I -- we may be able to get 3 a bank to do it right now. I don't know if we're 4 going to be able to get a bank to do it, you know, a 5 year from now. Um, and so I think we need as many 6 alternatives out there as possible. 7 Which then actually takes me to, um -- to 8 Number 4, um, which again, I'm less -- you know, I 9 don't -- I think -- I think I guess my preference 10 would be, I think we need to see if we can get 11 number -- you know, 1, 2 and 3 working. And if we 12 get 1, 2 and 3 working, and we can get them working 13 quickly, or get one of them to get working quickly, 14 then I don't think we need to do Number 4. 15 But, I think we need to be prepared and be 16 thinking about what happens if we lose some of those 17 other alternatives, you know, such as a bank, and 18 then know what we're going to have to do. 19 So, you know, at this point I'm -- I -- 20 I'm -- it would be terrific if we could go ahead 21 and, for instance, get Number 1 up and running and 22 get it working and, uh, be able to then shift some 23 of those things that are currently happening in 24 offices to that alternative. Um, but, again, I 25 think we need to see if we can do it quickly. 26 The other issue though is that, uh -- and I 27 would hope that we'd continue looking at these other 28 alternatives. I'm just not too excited about 8 1 installing a whole new cash system in each of the 2 offices until we know that we've run out of the 3 these alternatives working. 4 So that would be my observation. 5 MS. MA: Controller Yee. 6 MS. YEE: Thank you, Chairwoman Ma. And 7 thank you for bringing this issue forward. 8 Uh, you know, I know there's heightened 9 attention around this issue because of the recent 10 passage of Proposition 64. But I just wanted to 11 remind the Members and the audience that we still 12 have many taxpayers who don't have access to 13 traditional banking. So this is not just solely a 14 cannabis issue. And particularly in communities 15 where English is not the primary language. 16 Um, so I -- first and foremost, I think our 17 primary consideration and what's paramount is really 18 the safety of our taxpayers and of our employees and 19 the public. 20 So given that, I think the more we can 21 develop Alternative 1 as a sustained long-term 22 alternative would be great. 23 I think just the fact that we're having 24 this conversation with respect to Alternatives 2, 3 25 and 4, because to paint a little target on our 26 forehead that we're going to be open for cash 27 business, I'm not so sure about the safety issues, 28 uh, that will result from that, but probably not 9 1 good. 2 Uh, I also want to revisit the hardship 3 exemption. Because it seems to me if this is going 4 to become a broader issue, that we have to have a 5 uniform policy with respect to the application of 6 the hardship exemption across all districts. Um, 7 and it just doesn't seem to me that it should be 8 arbitrary with respect to it not applying -- 9 applying in certain districts and not in others. 10 So, I would -- so that basically I think 11 the hardship exemption now with respect to, uh, 12 those -- it's a policy that basically, um, has the 13 taxpayers who can demonstrate that they have a 14 hardship if they're unable to pay in cash, that they 15 can be granted an exemption in that instance. 16 So right now that exemption only applies, I 17 think, in a couple of the districts, and I believe 18 it's not a uniform application; is that true? 19 That's my understanding. 20 MR. MASHIHARA: That's correct. The 21 payments are -- are different. The -- the -- the 22 acceptance of those hardship, uh, applications are 23 different. 24 MS. YEE: So it gets us to be where we're 25 like not a fully "No Cash" policy organization 26 because it varies in districts. 27 MR. MASHIHARA: Well, the policy is a "No 28 Cash" policy. It does provide where taxpayers who 10 1 can demonstrate to the local office administrator or 2 district administrator that a bonafide hardship 3 exists where they cannot access financial 4 institutions to make payments through non cash means 5 can be verified. 6 But there is also an element that the 7 administrator has to approve that. And the 8 administrator, in order to approve that, also has to 9 weigh in considerations in terms of their facility. 10 Is their facility appropriate and secure enough to 11 accept that cash? 12 MS. YEE: So, um, is that the only 13 consideration that they make? 14 MR. MASHIHARA: Well, those would be 15 some of the -- 16 MS. YEE: Okay. 17 MR. MASHIHARA: -- considerations. 18 MS. YEE: Okay. I mean the practical 19 effect of it is that we don't have a uniform cash 20 policy because of that exemption -- I mean there's 21 discretion, right, on the part of the district 22 administrator? 23 MR. MASHIHARA: Well, there -- yeah, we 24 don't have, uh, let's say -- yes, uniform appli- -- 25 uniform acceptance of cash all throughout all of our 26 offices because, yes, there is that discretion left 27 to the district administrator. 28 MS. YEE: Okay. Anyway, I just wanted to 11 1 kind of revisit that because it's going to become a 2 bigger issue. So I think we need to think about 3 whether there ought to be more uniform application, 4 uh -- applications for the hardship exemption, in 5 addition to looking at Alternative 1. 6 And I want to just thank Chairwoman Ma for 7 really trying to deal with this whole banking issue 8 as it relates to the cannabis industry. But at the 9 end of the day, if taxpayers want to be compliant 10 and don't have access to traditional banking, we 11 want to facilitate their compliance. And it just 12 seems to me, from a safety perspective and from a, 13 you know, kind of practical perspective of being 14 sure that they are compliant that Option 1 really is 15 the best among them. 16 I am very concerned about 2, 3 and 4. Just 17 even the fact that we have them on a list and we're 18 having a discussion in public session that, uh, you 19 know, the public safety issues are -- are going to 20 be heightened. 21 MS. MA: Ms. Harkey. 22 MS. HARKEY: Hi. I, um -- I think that we 23 have to take this as a wholistic approach, from my 24 opinion. I don't think you can en- -- you can 25 enforce the same thing state-wide. I think there's 26 different needs. 27 I happen to have reviewed the amount of 28 cash payments in Member Horton's district, and 12 1 they're large but not large dollars. So that means 2 he has a lot of small -- smaller businesses, 3 whatnot, that have, you know, cash -- cash 4 businesses. 5 Uh, my district in particular, we have a 6 "No Cash" policy and we kind of strictly enforce it, 7 and we have not had a problem. We have asked, you 8 know, people to come with a money order or whatnot. 9 We are not set up for cash. And -- and the 10 facilities being located where they are -- for 11 instance, like you've got Riverside, which is on the 12 11th and 12th floor right downtown with difficult 13 parking, elevators that currently go out all the 14 time. You wouldn't want people running up and down 15 with cash in that building. It just might be a very 16 bad scene. 17 I think you invite, uh -- you certainly 18 invite problems, uh, criminal activity, if this is 19 being monitored. And it doesn't take that much to 20 watch somebody come in and out. You know, I mean I 21 think that, you know, what we're getting into is -- 22 is just a little bit difficult. 23 I had asked for this to come forward, and 24 the reason being is that I want to be sure we're at 25 least on -- it's on our radar screen, that we're 26 moving full -- on all burners. Because I think it's 27 really important for the safety of our employees and 28 also for the Board. 13 1 The problem is, is then in the Board our 2 staff are good soldiers. They'll do whatever 3 they're told to do. Unfortunately, I think that 4 that puts us a little bit more -- that we have to 5 take a little more control of this issue. 6 I don't necessarily think that the Board of 7 Equalization's responsibility is to collect cash. I 8 think ours is to collect taxes. And I think the 9 state needs more of a state-wide approach as to how 10 we're going to be dealing with this. 11 It may in fact be that, you know -- that, 12 you know, banking relationships are legitimized and 13 whatnot. But in the meantime, and I'm thinking with 14 the new administration since the -- and let's not -- 15 let's not pretend we're not talking about marijuana 16 here. We are talking about Prop 64. 17 We are expecting a lot more cash on the 18 chance that -- on the chance that, you know, there's 19 no banking relationships available. And I think 20 that California setting itself out again had 21 expected, I believe, on this prop had expected that 22 things would change at the federal level. 23 And I don't know that I'm seeing that. And 24 I don't think we can just rely on that in the years 25 ahead. I think -- I don't want to get stuck in year 26 two, uh, saying, "Oh, my God, we've got to take 27 cash." And then, you know, we have employees at 28 risk. We have, you know, neighborhoods and other 14 1 things. Because I do believe this is going to get 2 quite large. 3 And so I want to be sure that we're being 4 very, very careful, very, very -- have some 5 foresight, that we examine all possibilities. Um, 6 and I do personally -- you know, I mean if it works, 7 you could have a district that -- that -- like, 8 let's say Mr. Runner has, what, 30 counties? 9 MR. RUNNER: Mm-hmm. 10 MS. HARKEY: And he has a district office 11 here or a district office up there. And it's 12 potential that a district office could have the 13 beefed up security necessary to do this. 14 But when you put it in Riverside, you put 15 it in Irvine, in the middle of the -- you know, 16 where you can barely get in and out in the traffic 17 and, you know, I just -- it doesn't work. It 18 doesn't work. I mean I -- you have to think about 19 hostage situations. Um, you have to think about, 20 you know, just general holdups 'cause you got cash. 21 Cash has -- has its whole -- whole 22 problems. That's why a lot of people travel around, 23 that deliver cash, travel around with CCW's. I 24 mean, you know, let's face it, this is not -- not 25 something you want to do. 26 So I just -- I would like to see all of 27 these explored. I think anything we can do to get 28 Number 1 going, although I do believe that'll be on 15 1 a temporary basis. I think temporarily it would be 2 good to have that going. Um, and tax service 3 centers and government buildings, I think if we can 4 get some cooperation because let's -- let's face it, 5 it's going to be IRS and FTB that are going to need 6 to collect tax cash payments, too. If we have to do 7 it, then they do, too. So this is a coordinated 8 effort. And what about EDD and all that? 9 I mean it's all -- if we are stuck, you 10 know, having to do this, it's not just us. And I 11 don't think that we can look at this as just, you 12 know, BOE alone has to shoulder this burden. I 13 think it's very good that we go and explore those 14 locations. 15 Off-site facilities, I think, are a great 16 backup. If we get -- if we have to do this, then, 17 you know, we have to do that. And maybe we 18 coordinate our off-site facilities with other 19 agencies, too. 20 Cash acceptance systems at the office is 21 probably really low on my list, you know. But if it 22 works in the district, if it works in more of a 23 rural area, if it works somewhere that there's good 24 ingress/egress and proper safety, because that's 25 really what we're talking about. We just need one 26 accident and it's -- it's -- it's -- it can't be 27 excused. So we have to be very cautious how we 28 proceed with this. 16 1 And in the meantime, "No Cash" policy with 2 hardship exemption works for me. And I do think 3 it's up to the districts. Because I think that they 4 best know their people. They best understand what 5 options are available in their districts. 6 And, um -- you know, and on the marijuana 7 policy alone, I've heard that, you know, it's -- I 8 mean I've heard from our State Treasurer that, you 9 know, northen California was expected to keep their 10 cottage industry and southern California would be 11 where the big production is. 12 Well, that just indicates to me that we've 13 got a whole separate set of issues here. So I want 14 to be sure that we're looking at this realistically 15 with public safety first, as I know every Board 16 Member here is, and with respect for the differences 17 that our, uh, situations allow. I mean I don't have 18 a lot of little small offices. I have three 19 biggies. And -- and they have a lot of people in 20 them, and they have -- there's a lot of 21 opportunities, uh, like I said, for -- for some 22 danger to the employees. 23 I just want to be sure that that's number 24 one on my list. 25 MS. MA: So before we move forward, the 26 State Controller John Chiang is organizing a working 27 group on this issue. 28 I'm sorry. Did I say Treasurer? John 17 1 Chiang, Treasurer John Chiang is establishing a 2 working group on this banking issue specifically. 3 The first meeting is next Monday, December 19th, 4 10:30, tentatively scheduled for the State Capitol 5 in room 4202. 6 We do have a seat at the table. We will be 7 represented. We will be giving input. So it's not 8 just, I think, the BOE. You're right, everybody -- 9 we have six agencies now that are going to be 10 licensing the agenc- -- uh, the industry. They are 11 all going to face similar problems. Presumably, 12 you know, treasurers and local assessors are going 13 to be seeing more cash accepted, um, you know, in 14 their offices as well. 15 So I'm hoping that with everybody coming 16 forward, we are gonna try to figure out, um, a 17 comprehensive, workable, wholistic solution, um, and 18 maybe many options in case, you know, things don't 19 work out as we're talking about in these 20 alternatives. 21 Number two, Mike Gipson, Assemblymember 22 Mike Gipson successfully sponsored and got his bill 23 signed by the Governor that would, um, abate the 10 24 percent penalty if you pay your taxes in cash to the 25 BOE. So effective, I guess, January 1st. 26 Is it January 1st? 27 MR. RUNNER: Mm-hmm. 28 MS. MA: Twenty, uh -- 2017, anybody who 18 1 pays their taxes to the BOE in cash will not be 2 assessed a 10 percent penalty. Um, and I think that 3 was a good move given that, you know, this industry 4 cannot legally access the banking industry. 5 Cash is still a legal tender, um, you know, 6 and people -- we want people to pay taxes. If they 7 can't have a bank account, well, you know, they need 8 to be able to pay their taxes. And having access 9 state-wide -- I mean it shouldn't be that they have 10 to drive, you know -- you know, six hours to have to 11 pay their taxes. I don't think that is due process 12 administration, good administration of, you know -- 13 of -- of -- of our tax agency. 14 So, you know, we need to figure this out. 15 Um, I hope our banks will, you know, accept cash in 16 different areas under Prop 64. We are going to be 17 also collecting, um, a cultivator's tax. And that 18 means cultivators are also up north, you know, six 19 hours from here, as well as down south, um, you 20 know, another whatever. And so we also have to be 21 able to accommodate folks that they're also not 22 driving 12 hours to pay their taxes, right. Um, so 23 just something else to think about as -- as we're 24 all trying to tackle this issue. 25 MR. HORTON: Question. 26 MS. MA: Mr. Horton. 27 MR. HORTON: Thank you, Madam Chair. 28 This industry is somewhat in its infant 19 1 stages. But I think history kind of gives us 2 guidance on how to begin to deal with this, with the 3 exception of the fact that, uh, the distinction is, 4 is that in California it's legal but from the 5 federal government perspective it's still a felony, 6 uh, to participate in this process. 7 And so therein is an inherent danger. And 8 it's not necessarily just this new administration 9 under the new Attorney General, uh, Attorney General 10 Sessions, if in fact he is confirmed, um, that we 11 have a challenge of this not becoming an issue on 12 the federal level. 13 Congress -- a bill has been before Congress 14 this past year and the previous year to allow 15 banking. Uh, the federal government said no, to 16 take it off of, uh, Title 1, the federal government 17 says no. And I believe, based on all the evidence, 18 that that Legislature hasn't changed, the Senate 19 hasn't changed, the, uh, Congress hasn't changed. 20 In fact they've gotten more hardened in their views 21 as it relates to marijuana. 22 The other, uh, distinguishing factor as we 23 deal with this, with prohibition, is that you have 24 two different, or maybe three or four different 25 groups of -- of individuals. You have the 26 legitimate individuals who honestly want to comply, 27 they want rules and regulations. But with the 28 current tax level, which is somewhere around 70 20 1 percent given the tax, uh, fee associated on the 2 federal level, uh, then 30 -- 18 to 30 percent on 3 the state level, 15 percent excise tax, cultivation 4 taxes and so forth. 5 This -- this -- this product is now taxed 6 at a -- at probably one of the most heavily taxed 7 products in the state of California, which creates a 8 huge windfall for the criminal operations. They can 9 compete now against the legitimate operators and the 10 individuals who want to consume this product and 11 feel comfortable consuming this product and doing 12 whatever they do, can, uh -- can buy it a lot 13 cheaper off of -- off the streets. And quite 14 honestly, we don't have the policing structure or 15 the enforcing structure in order to address that 16 illegal market. 17 Uh, as -- as I've said in the past is that 18 I'm supportive of a cash policy to allow your normal 19 taxpayers to come in and pay with cash, nominal 20 amounts of -- of cash, and I think there's some 21 wisdom in that. But that's not what we're talking 22 about here. 23 Uh, when we talk about hardship to these 24 individuals, we're talking about tens of thousands, 25 hundreds of thousands of dollars coming in, in cash. 26 And so the risks now to our employees outweighs any 27 hardship to any taxpayer who wants the convenience 28 of paying with cash. 21 1 Not necessarily our role to try to solve 2 that problem. And other, uh -- others have been 3 able to solve that problem. They've addressed it. 4 They seem to come up with cashiers checks. Others 5 in the criminal world seemed to come up with a way 6 to address it. Others in the legitimate world seem 7 to come up with a way to address it. Uh, and I 8 think that's where our emphasis should be. 9 If in fact we can provide an element of 10 security to our employees, then the hardship issue 11 becomes somewhat of a non-issue. This is one of the 12 areas that we should govern based on the exception 13 and not the rule. Because in this case the 14 exception is relatively harsh. I mean someone could 15 be shot, kidnapped, and so forth and so on. 16 This is not -- when you're looking at the 17 criminal component, you're dealing with, uh, uh, the 18 Mafia, you're dealing with, uh -- 19 Let's -- let's not get into that in any 20 detail. 21 But, uh, you're not just dealing with 22 legal, legitimate operators. And to some extent we 23 have an obligation to the legimate operators to do 24 what we can to level the playing field for -- for 25 them and to protect them, as we have done with the 26 diesel fuel. We had the similar situation with the 27 Russian Mafia that it infiltrated the diesel fuel, 28 primarily because of the taxes. Taxes were so high 22 1 that the profit margins on diesel fuel were so low 2 that they could actually make money by just not 3 collecting and reporting the taxes, which is 4 indicative of what we see in this industry. 5 We've done the same in the cigarette 6 industry, the alcohol industry. We've faced this -- 7 these challenges, uh, before. And I believe that, 8 uh -- 9 Well, strike that. 10 My concern with changing my position as it 11 relates to hardship and putting more emphasis on the 12 welfare of our employees was the inherent risk. I 13 just don't want to lose one of 'em. I just don't 14 want to lose one employee as a result of trying to 15 accommodate this industry. That is not my 16 objective, and irrespective of the hardship that 17 they have, that's not my issue. 18 From a legislative perspective I believe we 19 can address this. But the current legislative 20 structure allows for more criminal activity, if you 21 ask me. 22 Proposition 64 said so that it's vertically 23 integrated. And the history of converting criminal 24 operations to legitimate operations, vertical 25 integration just takes away all of the 26 accountability and the controls and allows what 27 currently exists in Mexico, Canada, where this 28 product is being cultivated without any control on 23 1 our part and being -- will be and is currently being 2 distributed here through our prisons and on our 3 streets and so forth. That activity is not going to 4 stop. 5 So I would suggest, as we look at this 6 comprehensively, is that we go back and amend or 7 change all of the legislation basically that's been 8 passed and shift the, uh -- shift the excise tax, if 9 you will, and all of the taxes to the distribution 10 level. Establish a three-tier system as we've done 11 with diesel fuel, cigarettes and so forth. It 12 works. Historically it works. And we minimize the 13 number of people who actually need banking. 14 And those individuals at the distribution 15 level, they have a larger resource. So, therefore, 16 they can actually tap into their own resources and 17 pay with a check out of their own resources. 18 The law doesn't necessarily require that 19 you pay your taxes with a check from that particular 20 entity. You can just cut a check from your holding 21 company and pay it. 22 The other concern is, is that, uh -- is 23 that individuals coming in and using the Board of 24 Equalization to laundry their money; where they go 25 in and they make an excessive payment and then they 26 file a claim for refund. Now, all of a sudden 27 they've got a check from the -- from a government 28 entity that they can take anywhere. That's money 24 1 laundering. And we need to begin to sort of take a 2 look at that as well. 3 As it relates to the banking, um, I'm 4 supportive of accepting cash payments at a bank. 5 But let me caution us. We probably want to get an 6 opinion from someone that we are not in violation of 7 the Money Laundering Control Act of 1986, which says 8 it's a federal crime for us to participate in the 9 laundering of funds. 10 So we might want to be a little cautious as 11 we -- I understand that there -- there are 12 agreements out there and I understand that. I 13 understand it is somewhat short-term. But before 14 this agency begins to engage in that, we might want 15 to get a little clarity from Department of Justice 16 and the AG as to whether or not even that activity 17 would be considered a violation of Federal Money 18 Laundering Act. And that it is a known, uh -- it is 19 a known, uh -- from a federal perspective, it is 20 known funds from an illegal activity that we are 21 accepting even -- even in this triangular, uh, 22 third-party relationship. 23 The -- having, uh, a secure facility, 24 without getting into the details, would -- might be 25 even more helpful. I believe it would be more 26 consistent with, uh, the federal law and more 27 consistent with the rec- -- current recommendation 28 from the Department of Justice; which says that as 25 1 long as those funds are commingled with other tax 2 funds and it's not easily distinguishable, uh, as 3 illegal funds, then we will presume and there's a 4 structure in place that that is the case. That 5 might be the most expeditious way to be able to 6 accommodate the industry relatively quickly if we 7 can -- if we can accomplish that -- that -- that 8 objective. And so, um -- because our employees are 9 secured. 10 And the other thing is that we've got -- we 11 have to -- there's a risk associated with this. We 12 have to look at combat pay, or however you want to 13 describe it, for the employees that are 14 participating in this. Bonding, insurance, extra 15 pay. They are somewhat putting their lives at risk. 16 This is just -- this is not your normal business 17 activity that's taking place. Even though the 18 voters have voted for Proposition 64, the industry 19 hasn't caught up with that. You know. Organized 20 crime is still a major player in this industry, in 21 the state of California, in the United States, 22 arguably in every country in the world. 23 MS. HARKEY: May I just -- 24 MR. HORTON: Thank you, Madam Chair. 25 MS. HARKEY: One more question though. I 26 mean one more thing that ties in with what, uh, Mr. 27 Horton said. 28 MS. MA: Yeah, I was going to comment to 26 1 that, too. 2 MS. HARKEY: With regard -- with -- with 3 regard to, uh, commingling funds, I have had this 4 question, it's out there, and I want to know if 5 anybody can answer me, and maybe not today. 6 But when we start depositing money into -- 7 or when we start accepting money and we put it into 8 a marijuana trust fund, does that not delineate it 9 as what it is? And is that not seizable by the feds 10 should they choose to? 11 I just have this question as to why that 12 was done and did anybody really think it through? 13 And I'm not so sure the way all that initiative is 14 written that anybody really did think it through. 15 So I'm just throwing this out there now. 16 And that's just food for thought for later. We need 17 to investigate that under the same -- same statute 18 of, you know, laundering. 19 MR. RUNNER: Yeah, a couple things. Um, 20 you know, I think my kind of frustration with this 21 discussion is that we've got a today, to- -- a today 22 problem and a -- and a -- and a tomorrow problem. 23 And my problem is that I -- my district has a today 24 problem, um, in that, um, there is a inconsistent 25 interpretation of hardship. And as a result of 26 that, I have a district that basically then borders 27 two districts that have taken a different view of 28 hardship. Which then means that, while somebody 27 1 else may be concerned about their employees and 2 what's going on, what happens is they end up getting 3 in cars and bringing then that deposit to my 4 district. So -- 5 MS. MA: Or mine. 6 MR. RUNNER: Or your -- well, but, again, 7 I -- it's a longer drive. 8 MS. MA: Yeah, that's true. 9 MR. RUNNER: Uh, and mine's a little more 10 convenient. 11 Um, and so I think that that's the -- 12 that's the specific problem that I think I -- I've 13 got, I think we've got to solve, um, in terms of 14 trying to figure out. 15 That's why I think, number one, if we can 16 get number one done, number one solves that. Then I 17 don't have to worry about, you know, at that point 18 then I think we can even make a decision that says 19 we don't take cash into those off- -- any offices 20 and that -- and that we do it through this 21 relationship. And that solves it for everybody. 22 Um, but the practical side to this is we've 23 got offices -- and I get security, I get the 24 concerns and all that. And as a result of that we 25 do have in place security systems. We have -- we 26 have processes. I think we've had a group meeting, 27 right, in regards to how it is that cash is taken 28 into the offices and the processes and how it's 28 1 guarded and how it's protected. Contracts with CHPs 2 and all those things to -- in order to protect that. 3 Um, and so but what concerns me -- I guess 4 this is -- this is, I guess, a question for, um, you 5 know, as I would be concerned about equal 6 application of tax administration. And that is, 7 when you have two offices that are relatively -- 8 that are new, that have basically the same kinds of 9 access to public and all those other things, and you 10 have one office that says, "Oops, I'm sorry, that's 11 a -- that -- we won't give a hardship." And you 12 have another one that says, "Oh, we -- we'll go 13 ahead and accept the cash," I don't think the BOE's 14 being consistent with our policy. 15 Now I get the fact if you've got elevators 16 and concerns that are -- that are -- that are 17 unique, that are different. But when you've got 18 exactly almost the two same kinds of circumstances, 19 where you've got -- where you've got one that we -- 20 that we -- now that we've decided has got risk and 21 so that we don't do it, and another one that says, 22 "Well, we think we manage our risk so you can do it 23 here," it doesn't make a lot of sense. 24 That sounds like -- that sounds like an 25 uneven, um, policy, um, that I would hope as you 26 know our role in regards to making sure that we have 27 consistent policy on these issues, we would try to 28 overcome. 29 1 So I guess -- I mean, let me -- 2 Back to the issue of that as far as overall 3 policy. How do we resolve that? How do we resolve 4 that if we've got two equally based offices, both 5 with the same security issues, both are guarded the 6 same way, and one says, I have a -- one says I'll 7 give -- I'll do a -- I'll do a hardship, and the 8 other one says we don't go a hardship, isn't that 9 inconsistent for us as a Board? 10 MR. MASHIHARA: Well, obviously consistency 11 would be the ideal. We are always trying to strive 12 for that -- 13 MR. RUNNER: Right. 14 MR. MASHIHARA: -- equal application. 15 But the policy does provide that element of 16 review and discretion for the district 17 administrator. And that -- 18 MR. RUNNER: Well -- 19 MR. MASHIHARA: -- always introduces an 20 element of -- 21 MR. RUNNER: Okay. But at what point then 22 does -- what point is it that then those who oversee 23 the administrator take a look at that to say, "No, 24 you're wrong here. You're wrong." 25 You know, because we -- we -- we -- you 26 know -- again, it seems to me either one 27 administrator's wrong or the other administrator's 28 wrong, right? Either -- either one of 'em -- either 30 1 one of 'em is misapplying the hardship or the other 2 one should be applying a hardship. 3 MR. MASHIHARA: Well, that could be -- 4 MR. RUNNER: One of them's wrong. 5 MR. MASHIHARA: Well, no, that could be a 6 possible outcome. But also maybe we're not seeing 7 what they're seeing in terms of, uh, their specific 8 facility. 9 MR. RUNNER: Well, isn't that -- but, 10 again, should -- so shouldn't then our BOE policy 11 then be -- effort be to make it so that it is the 12 same? 13 'Cause here's my -- again, I get down to a 14 very practical problem. 15 MR. MASHIHARA: Mm-hm. 16 MR. RUNNER: And that is, when offices A, B 17 and C don't take cash, they call up other offices 18 that end up taking the cash. And that's an 19 inconsistent application of policy. And, if we 20 really believe that the motivation of that is truly 21 risk, then what we're saying is, "Well, we don't 22 want to risk these employees, but we'll be willing 23 to risk those -- risk those employees." 24 Am I wrong with that analysis? 25 MR. MASHIHAR: Well, no, that process is 26 the judment. 27 MR. HORTON: Well, now that's not -- 28 MR. RUNNER: Hold on. 31 1 MR. MASHIHARA: That would be the analysis 2 each, I think, individual evaluates and tolerates, 3 just as much as a -- 4 MR. HORTON: I think the analysis is that 5 the security element isn't there to protect the 6 employees. 7 MR. RUNNER: Well, again -- well, again 8 that -- 9 MR. HORTON: If all of the offices had 10 security -- 11 MR. RUNNER: Right. 12 MR. HORTON: -- and the element of security 13 was at all of the offices, that you could assure the 14 employees that they're protected, and you have the 15 right employees in place in order to accommodate 16 that, that our -- that our taxpayers are protected, 17 I don't think that that would be an issue. 18 The problem is, is that even the 19 security -- in my mind, the security at the offices 20 that are participating -- 21 MR. RUNNER: Right. 22 MR. HORTON: -- I think those employees are 23 participating because they feel it's part of the job 24 duties not because they they feel that they're safe. 25 Uh, it -- and in other districts I 26 appreciate all of the extra security that exists. 27 And I think that there is a way, if we have the 28 funding, to establish what we're looking to 32 1 establish at the credit tax centers that exist. 2 We can establish those within the BOE. We 3 could establish facilities in each district that 4 have, you know, the protection, the police 5 protection, the physical protection, the armed car 6 protection, the transportation and so forth that 7 protects our employees. That doesn't exist. 8 MR. RUNNER: Let me -- well, let me ask, 9 isn't that what we have in place with the group that 10 got together to create then the safety processes for 11 the taking of cash in offices? Isn't that what the 12 staff did? 13 MR. MASHIHARA: Well, we got together and 14 we did try to provide all the trust, the concerns 15 that were raised -- 16 MS. HARKEY: Right. 17 MS. MASHIHARA: -- and provide the items to 18 enhance security. 19 MR. RUNNER: And do you think you 20 satisfactorily met those needs for the safety of the 21 employees? 22 MR. MASHIHARA: Well, I believe we've 23 enhanced it. 24 MR. RUNNER: Do you believe that the 25 employees are safe? 26 MR. MASHIHARA: I believe that would be up 27 to each district administrator to decide if those 28 were to satisfy. 33 1 MR. RUNNER: Is that right? So -- so -- 2 okay. 3 MS. HARKEY: Let's just say no, George. 4 They're not safe when they're taking cash. That's 5 the bottom line. 6 MR. RUNNER: Hold on. Let me -- let me -- 7 again -- again, if that's the case then, then I 8 think we need to inform the administrators or our 9 staff that we shouldn't take any cash. 10 MS. HARKEY: That's our policy without -- 11 without an exemption. 12 MR. RUNNER: No, no. We -- 13 MS. HARKEY: That's the policy. 14 MR. HORTON: That's not his policy. Why 15 don't we have -- 16 MR. RUNNER: Well, hey, guys, this is my 17 time and you guys can have your time in a minute. 18 It just seems to me -- 19 MR. HORTON: The Board Member has to be 20 there whenever the cash is accepted. 21 MS. MA: George. Sorry. Mr. Runner. 22 MR. RUNNER: Yeah, here's the issue. The 23 issue is that we have inconsistent application of 24 policy. I, for one, think that we need a consistent 25 application of policy. I really don't care if the 26 policy is "We don't take any cash," and therefore no 27 cash is done. And -- and -- and we don't do it and 28 then we just have to then answer to whoever as to 34 1 why we're not collecting the cash. I'm okay with 2 that. 3 But what I'm not okay with is having two 4 different philosophies out there, to where we say we 5 believe that there's safety issue in this district 6 but we don't believe that there's safety issues in 7 that district. 8 And I don't believe -- you know, to make a 9 point, I think, for what I believe management should 10 be doing, because I don't think management's in a 11 position or shouldn't be in a position to then 12 decide, well, we're gonna let everybody decide on 13 their own. 14 Somebody may make a wrong decision. You 15 wouldn't -- you wouldn't want to make -- an 16 administrator to make a wrong. Somebody should be 17 watching to ensure that their decisions are good, 18 both in regards to being too liberal or too 19 conservative in regards to the issue of taking cash. 20 That's why people get supervised. 21 So I think that's my concern, is that in 22 that regard. And, again, I appreciate and I think 23 I -- I don't have any issues with some of these 24 alternatives. The problem is that most of these 25 alternatives are all not today or tomorrow. 26 Now, again, if we could make one of these 27 today, then I will be fine. And then I will know 28 that indeed we can have a consistent policy where we 35 1 just decide that we take no cash and we have this 2 alternative. 3 MR. HORTON: Well, alternative -- 4 MR. RUNNER: And that's -- and that's okay 5 with me and that's fine. 6 But what I don't -- what I don't think is 7 healthy for us as an agency is to have inconsistent 8 policy when it comes to that. And ultimately then, 9 what I'm hearing at least described is no real 10 supervision in evaluation of the decisions that are 11 being made by the administrators at their individual 12 locations. 13 So that's my concern. 14 MS. MA: And I think that's why it's on the 15 agenda. And I think that's why Ms. Yee is -- is 16 here, engaged in this issue because of some of the 17 issues you brought up. 18 Mr. Horton. 19 MR. HORTON: Members, I think we should do 20 everything we can to accommodate the legitimate 21 operators. Don't get me wrong. 22 Um, but I think the risk assessment -- 23 first, I think we ought to meet and confer with, 24 uh -- with the union to kind of determine whether or 25 not this is part of their, uh -- part of that whole 26 process given the risk element and given the 27 historical position the Board has taken as it 28 relates to employees and putting them at any kind of 36 1 risk. But that's a whole nother discussion. We may 2 be outside of that. 3 For me, it boils down to, Is the security 4 there? And, quite frankly, I -- I concur that all 5 of our employees are equally valued, you know, and 6 are far more valuable to -- to -- to the Members of 7 this Board than the marijuana industry and their 8 hardship or their accomodation. 9 And I don't know if the administration or 10 the district administrators are really in a position 11 to make that determination. Maybe what we ought to 12 do is contract with an outside source that has that 13 skillset and can go in and make that assessment and 14 say, okay, here's what you need in order to have the 15 level of security. We cannot guarantee that your 16 employees are going to be safe. But at least there 17 is a level of security here that can do the best we 18 can. And we provide additional insurance for those 19 employees, additional compensation for those 20 employees. 21 What we may have here is not a desire to 22 fix the problem. We may have a desire to pay for 23 fixing the problem. And that's a budgetary issue 24 and a desire or the intellectual knowledge to be 25 able to go forward and do what we've done 26 historically with Al Capone and the rest of the 27 criminals that decided to legitimize their 28 operations, uh, in our system. Could be cigarettes, 37 1 liquor, and diesel fuel and all these other things. 2 And so the road map is there. Uh, and I'm 3 just simply saying in my case, although there may be 4 some perception that I may have taken a position not 5 to do -- not to accommodate folks who have recently 6 been legitimized here in the state -- in the state 7 of California -- and, again, the legitimate folks I 8 want to accommodate them. But the criminals, I -- I 9 really -- that are operating in this business, I 10 don't have a whole lot of sympathy for them, uh, and 11 don't want them engaging with our employees. 12 ---oOo--- 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 38 1 ---oOo--- 2 MR. HORTON: The position I took, 3 basically, Members, was to say, "I no longer want 4 to, uh -- it's your call." 5 You know, I was actually encouraging folks 6 to take that risk. And primarily because it 7 appeared as if, though, we were headed towards a 8 larger solution. That, legislatively, we were going 9 to get more controls, checks and balance over this 10 industry to protect the legitimate operators. At 11 the same time, protect our revenues, and protect 12 our -- oh, number one, our employees and our 13 taxpayers. That didn't happen. 14 The -- the legislation passed does very 15 little to protect -- Proposition 64 does very little 16 to protect its -- protect our constituencies, or our 17 taxpayers. The legislation passed doesn't have the 18 Board of Equalization involved in that process. In 19 fact, we were sort of singled out. Couldn't even 20 get $10,000 so we can go in and participate in that 21 process. 22 I commend the State Treasurer for his 23 involvement and his leadership. I commend 24 Member Ma -- Chairwoman Ma for her engagement in 25 this process. And those have been the leadership in 26 moving it forward. 27 But we've got to look at this 28 legislatively. I think we ought to establish a -- 39 1 that these sales tax as a trust fund. Therefore, 2 the tax is -- is due at the time that the consumer 3 actually pays it over, which allows us not to 4 collect it at all. Just send an armor truck to the 5 facility and have them collect it. 6 If, in fact, we're working on a letter to 7 send to the Department of Justice to see if the 8 Department of Justice will buy off on that, and say 9 that that's okay, that we should do that, and the 10 other measures that we can take. 11 But as it relates to our employees, I'm not 12 gonna make that judgment call that they're safe. I 13 don't think an administrator can make the judgment 14 call that they're safe. 15 I think that they're -- and, quite frankly, 16 we all know that they're not safe from a criminal 17 element just because you put a security guard there. 18 All due respect to security guards, you 19 know, and police officers, and so forth. They put 20 their life on the line every day, and they end up, 21 you know, risking their lives. I'm not asking our 22 employees to do the same. 23 So, um, I agree, Mr. Runner, there should 24 be consistency. I -- I just think that the primary 25 consistency that we should have is security and 26 safeguarding our most valuable resource. And that 27 is the people who work for the Board of 28 Equalization, and the people who visit our offices, 40 1 and the community in which these individuals live. 2 MS. MA: Controller Yee. 3 MS. YEE: Thank you, Chairwoman Ma. 4 I mean, I think the staff has heard from us 5 in terms of exploring these options more deeply. 6 I guess what I want to say on the hardship 7 exception is that, um -- I mean, I guess at the very 8 least I would like to encourage all of our offices 9 to apply the hardship exception. 10 I mean, there are even -- I think some 11 offices aren't even making it known or available, if 12 that's even a possibility. And so if we could have 13 at least that threshold of where taxpayers 14 understand that they have the ability to request 15 one, that might be a start. 16 But to continue to look at how we may be 17 able to get some uniformity around the application 18 of the exception, if you could do some more work on 19 that. 20 Obviously, with all the considerations that 21 have been expressed about safety first and foremost, 22 but, um, I mean, we're gonna be -- this is gonna 23 come into play. I mean, this is the business and 24 the world we're entering into. 25 And as Mr. Runner points out, these options 26 aren't near-term options. And so we're gonna have 27 to figure out how we don't really compromise some 28 districts at the expense of the other because of an 41 1 inconsistent policy. 2 MS. MA: Yeah. And -- and I have been 3 pushing for that as well once retailers take the 4 tax, sales tax, they should be able to remit it more 5 frequently than once a month. 6 Right? 7 And so as we have talked about it here 8 before, I understand that taxpayers can bring their 9 tax payments in more than once a month, more than a 10 quarter, if they want to bring in their tax payments 11 every day to a BOE office, you know, for safety 12 purposes. I mean, at least on the street, um, they 13 are able to do that. So we did clarify that that is 14 a possibility. 15 We're hoping the new CROS system will also 16 enable taxpayers to more frequently download their 17 tax payments, the ones that do have banking access 18 and EFT and credit cards. So I think we look 19 forward to, um -- to that. 20 I also did look into, um, the allegation 21 that taxpayers were prepaying, overpaying their 22 sales taxes and then getting a refund check back 23 from the BOE. 24 I checked in with my district offices; that 25 is not the case in my district office. If -- if, 26 um -- if it is the case, you know, I think we need 27 to look into it. I think people who, you know, want 28 to pay their taxes, want to pay their taxes. They 42 1 don't want to come forward if they are not 2 legitimate or don't want to be in the system and be 3 accountable. 4 Right? 5 Because when you do come in, number one, 6 you need a seller's permit. You know, you're a 7 responsible person, you walk into an office, you're 8 on a camera. You know, you're signing in. 9 So I think, you know, those people who want 10 to pay their taxes are trying to pay their taxes. 11 So, um -- but, you know, I'd like for you 12 to look at that issue one more time. 13 Anyone else? 14 Ms. Harkey? 15 MS. HARKEY: I -- I think we need to 16 establish a refund policy, only looking forward for 17 cash payments. I think that's a separate issue. 18 Right now we have a refund policy. 19 But I do think as we get into this -- well, 20 I'm -- I'm trying to look forward to when this goes 21 viral. And barring things happening, as -- as Board 22 Member Horton has said, where it comes down to the, 23 uh -- a certain level of tax collection, distri -- 24 distributor, I guess, is what he was saying. And 25 we're just taking it from everybody. 26 I think we are gonna run into these kinds 27 of problems. So I think on the -- on the Board, 28 we -- that's just something staff needs to explore, 43 1 is that if you're paying in cash, maybe your 2 overpayment just gets applied to your next taxes 3 due. Maybe there is no straight refund for cash or 4 something like that. 5 I mean, I see how that works. That would 6 be my preference. That would -- that would preclude 7 any -- any issues that way. 8 But all this, I -- I appreciate all these 9 comments. I think everybody's really trying to work 10 with this. And I -- I do appreciate. 11 I would just like to -- do we need a motion 12 on this, just to have staff continue to explore all 13 our turn -- all our -- all our alternatives? 14 I'll make a motion. 15 MR. MASHIHARA: I don't think there's a 16 motion requested. We were just merely -- 17 MS. HARKEY: Oh, okay. 18 MR. MASHIHARA: -- telling the 19 alternatives -- 20 MS. HARKEY: Good. 21 MR. MASHIHARA: -- so the Board has a 22 status of our progress. 23 MS. HARKEY: Status. Then that's good. 24 And I think you've heard the things -- 25 MS. MA: Okay. Well, perhaps maybe you can 26 come back and give us a status update at some point, 27 just because things fall through the cracks if, you 28 know -- if we're not focused in making this a 44 1 priority. 2 So how about in two months? 3 MR. MASHIHARA: Okay. 4 MS. HARKEY: If I show up on 4202, do I get 5 to speak, or do I just get to sit in the audience? 6 MS. MA: Oh, yeah. That's right. Sorry. 7 I am sorry. We have two public members 8 here to speak on this. Thank you. 9 Jerred Kiloh, President of the United 10 Cannabis Business Alliance Trade Association. And 11 then Marin (phonetic) Pineda, Legislative Advocate 12 for Capitol Strategies Group. 13 Thank you for your patience. 14 MR. PINEDA: Thanks, Chairwoman Ma and 15 Members. And it's Marvin. I think I scratched it 16 off. 17 MS. MA: Okay. Sorry. 18 MR. PINEDA: So I'm Marvin Pineda with 19 Capitol Strategies Group here with our client, the 20 cannabis business Alliance Trade Association out of 21 Los Angeles. 22 We're all the Measure D collectives that 23 are in compliance with the law and are paying our 24 taxes. 25 And this is, uh -- paying cash is a -- it's 26 a very -- it's very valuable for us. And we -- we 27 thank the Board for considering this. 28 And I'll have Jerred Kiloh, the President 45 1 of Trade Association that will speak more to this. 2 MR. KILOH: Um, yes. 3 Um, by having the legally operating shops 4 in Los Angeles establish themselves not only in 5 their community, but also with the relationship with 6 government, being able to pay their taxes, it's not 7 just a safety issue for the employees of the Board 8 of Equalization, it's also a safety issue for my 9 employees as well. And I hold their lives to the 10 utmost standard as anyone else's. 11 So I'd like to make that be a point here 12 that, you know, for any of my employees, including 13 myself, to go from one location inside of a parking 14 lot and go into a -- into a Board of Equalization to 15 pay in cash with what could be the size of a duffel 16 bag worth of cash to pay this, we are now being 17 targets. 18 And so having that target there, we do have 19 to find how are we going to, as a group, both 20 government and this industry, find some good ways to 21 mitigate these risks. 22 Now, as we become a more established 23 community and industry, the banking industry is also 24 gonna become more established in its ability to 25 track down who may or may not be people part of the 26 industry. 27 So you may be able to receive cash, may be 28 able to receive checks and electronic payments now, 46 1 but as the banking industry becomes more savvy about 2 who is in the industry as they track any one of us 3 individuals down, you're gonna have less and less 4 ability for these industry leaders who are trying to 5 pay their taxes, have the ability to use the banking 6 system. 7 So, um, having an established, sort of, 8 safety issue between, like -- I'll just say myself, 9 and I have a good relationship with the -- not only 10 the Board of Equalization, but also with the Office 11 of Finance and we make -- we make monthly payments. 12 We tell them when we're coming; they know 13 when we're going to be there. They staff up; they 14 get their -- they get their counting machines. And 15 so they get ready for when we're coming there. 16 The only thing that I am looking for is the 17 safety from getting the cash to the office. Now, I 18 realize the Board of Equalization is trying to find 19 a way to keep their -- their part safe; I'm also 20 trying to keep my industry safe as well. 21 And so that communication that I have 22 with -- with both of the leaders of those agencies, 23 um, I feel like that communication has now gave us 24 ability to be safer. 25 Now, it would be nice if we could, as an 26 industry, whether we hire a bank -- um, an armored 27 car service to pick up, maybe, monthly or quarterly 28 payments. Because if we wait 'til the end of the 47 1 year to pay payments, we are now holding that cash 2 inside of our location, which makes us a bigger 3 target. 4 Now, we want to pay our taxes as soon as 5 possible, because holding that cash is a risk for 6 ourselves. So where do we put that cash? 7 And so I'd rather it be in the hands of the 8 people who are asking for us to pay taxes, rather 9 than sitting in a safe inside of my location, which 10 makes me at higher risk. 11 So looking at some of the options here, the 12 alternatives, Alternative 3 looks like a great one 13 because you are looking at seven agencies looking to 14 gather cash-based -- cash-based payments. 15 Now, I know that working with the 16 Office of Finance -- we're also trying to find a way 17 in Los Angeles -- how are we, as a group, since 18 there are 135 legally operating dispensaries there 19 who are paying their taxes, how are we gonna create 20 a safer system between us and just the Board of -- 21 and just us and the Office of Finance? 22 And so we were working through a system 23 where we could hire -- as an industry, hire a 24 armored car to drop cash off. It'd be nice if there 25 was a location that was not only secure for the 26 armored car, but also secure for all the other 27 agencies that are looking to receive taxes in cash. 28 So I'm -- I'm -- I'm hoping you guys have 48 1 questions for me, because I think I have a lot of 2 answers when it comes to helping this industry out 3 as much as possible. 4 This is my 15th year in this industry. And 5 I've gone through what is 11 bank accounts in those 6 15 years. So every time I move a bank account, I 7 now have to -- I now have to eliminate all the, um, 8 insurance that I pay for all my employees. I now 9 have to change my payroll. 10 And so every time I do that, now that check 11 that I just gave you that may be a part of a 12 now-frozen bank account, now that check may bounce. 13 And so, that is not the -- that's not something I 14 want to have, but sometimes it's out of my control. 15 And having 11 bank accounts over those 15 16 years really does create a hardship. And this cash 17 is -- I mean -- I mean do we have the estimates on 18 the amount of -- on the amount of tax payments that 19 are going to be coming through this industry? Not 20 including the people who have been in this industry 21 savvy enough to find their ways into banking. But 22 now you're dealing with cultivators, delivery 23 companies, manufacturers. They are not as savvy as 24 the people who've been in this industry at the 25 forefront of needing to have bank accounts. 26 So now you're bringing in a whole other 27 part of the industry that is less savvy than the 28 people who are still trying to pay their taxes in 49 1 cash. 2 So you really need to shepherd them into a 3 place that says, "This is where we want you to be." 4 You -- the voters have clearly stated with, like, 5 you know, a 60 percent approval that they want 6 marijuana to be legal in the state. It's up to 7 government officials to find a safe way to collect 8 those taxes, because they do go to good schools, 9 they go to roads, they go to enforcement. They go 10 to a lot of good services that the state really 11 needs and wants to take in. So -- and if cash is 12 the way that we can pay it, cash should be the way 13 you receive it. 14 MS. MA: Okay. Thank you. 15 Ms. Harkey. 16 MS. HARKEY: Just one clarification. Prop 17 64 does not -- funds collected do not go to the 18 General Fund to pay for the schools, roads, and all 19 that. So I just want to be sure you're clear on the 20 proposition. 21 It goes into a marijuana trust fund that 22 then gets granted out, depending on the needs for 23 specific items. 24 But what I was wanting to say is that I 25 would appreciate if -- what I -- what I see 26 happen -- and this is what I was preaching before 27 Prop 64 even got approved. And everybody thought I 28 was just a naysayer, but I'm not. 50 1 If you -- if this is an industry that 2 really wants to get this done, then they can lobby 3 DC a lot better than we can. The state of 4 California, especially in this last election, was 5 kind of out there. And I'm not expecting a lot of 6 cooperation from the Federal Government for 7 California right now. 8 That being said, if we don't poke the bear 9 in the eye, they'll probably leave us alone. And 10 I'm not seeing the Legislature not poke the bear in 11 the eye. So I'm saying this for the Legislature, 12 too. Just hush a little bit, you know. Tone it 13 down. 14 Because I think we have a lot of issues. 15 And one of them -- this is only one of the issues 16 that we're gonna have -- is trying to figure out how 17 to negotiate this. 18 And so I do appreciate you coming forward. 19 I do appreciate your comments. I do, though, want 20 your industry to continue to either ask the 21 legislators to tone it down, to try to work 22 cooperatively with the Federal Government. Because 23 we're gonna need that in order to get this forward. 24 Otherwise, we're gonna have things seized. And you 25 don't want that; we don't want that. 26 And we don't want all this cash to continue 27 to be running around. Because you say it's 28 dangerous for you, and it's dangerous for us. But 51 1 we're not making profit on this, you guys are. And 2 you -- you need to push this at the federal level to 3 try to get us some help. Because we can't just set 4 the policy. Like I said, we're gonna be stuck 5 having to collect somehow, and we're trying to get, 6 you know, funding to do that and have facilities. 7 We've looked at other states. They have 8 centralized cash facility. One in the state -- you 9 know, different areas. So there is a -- there is a 10 commute time of driving. 11 But I just -- I just think it's -- it's 12 impendent upon the industry to use its influence in 13 the -- in the DC area. And I know there has been 14 some of that done at -- with the House. Maybe a 15 little more at the -- at the Senate. 16 There's a lot more states that now are 17 legalizing this, at least on the medical level. 18 There's gonna be a lot more of a -- lot more 19 pressure. But it's all politics at this stage. 20 Politics. 21 And I would like to see this legitimized 22 and out of cash, so that we can -- we can know who 23 the bad guys are. Right now we don't know. 24 And so we're just, you know -- none of us 25 really are operating within the industry. And so 26 we, you know -- we just don't know. 27 And so there is a risk. There's a risk 28 inherent to you traveling around with it; and 52 1 there's a risk inherent to our offices accepting it. 2 We're trying to deal with that in all areas here, 3 trying to -- but we -- we are going to need, I 4 think, ultimately to get out of the cash business. 5 And I don't know if you're reading 6 anything, but, you know, all these countries are 7 doing away with their currencies at certain levels. 8 There's been talk about doing away with $100 bills 9 in the United States. So you're gonna have more and 10 more truckloads if you're paying in cash. 11 So it's just a big issue. It's a huge 12 issue. 13 MR. KILOH: No, very much agree. 14 I mean, this has -- this has been an issue 15 we've been working on for over 15 years with the 16 Federal Government to try to get some consistency in 17 banking. 18 So it really is a big part of where we, as 19 an industry, have numerous national advocacy groups 20 that petition and go to the federal level on this 21 banking issue on a very consistent basis. 22 MS. HARKEY: Good. 23 MR. KILOH: I think -- 24 MS. HARKEY: So just keep it up now that -- 25 and now you've got a new administration, um -- 26 MR. KILOH: Which changes now our whole 27 approach. Our approach before was, you know, like, 28 we're trying to legitimize just the industry to take 53 1 away safety, now we have to almost say, "Is this 2 industry even legitimate under some new 3 administration?" 4 MS. HARKEY: Well, it was Obama 5 Administration, it's still listed as a Schedule I, 6 drug would not remove that. 7 So I don't think you can say -- I think 8 you're dealing with a nation that's just kind of in 9 infancy for even acceptance of this. We've got some 10 key areas. But, you know, we're kind of left of 11 center in most of the areas that prove this. 12 Now it's coming across the states where 13 it's getting a little bit more mainstream. But 14 that's a --- that's a progress. And believe it or 15 not, most states -- this isn't high on their radar 16 screen. It just isn't high on the radar screen. 17 That was good. 18 Just -- it just -- it just isn't, you know. 19 They've got other issues they're dealing with. 20 We're dealing with this 'cause this is a huge issue, 21 because we've -- we've -- our Proposition has proved 22 this. 23 But I think it's -- it's just gonna be 24 really up to everybody to really try to create a 25 solution. 26 And I know that there's big bucks in this. 27 There'll be big bucks in trying to create the 28 solution; trying to bank it; trying to figure out 54 1 how to do kiosks; how to get money into areas. 2 And I think -- I -- I don't want to see the 3 industry go to sleep on this, any players go to 4 sleep on this, because it's really, really important 5 if we're going to be, you know -- if this is going 6 to legitimize and actually make the impact it's 7 supposed to. 8 MR. KILOH: I think I want to make sure 9 that we're dealing with what is a tomorrow issue; a 10 short-term issue. The short-term issue is we don't 11 have access to banking tomorrow. 12 MS. HARKEY: Right. 13 MR. KILOH: We have cash today. And we'd 14 like to pay our taxes. 'Cause every law that's just 15 been passed has clearly stated if we don't pay our 16 taxes, we lose our license to be able to operate as 17 a legitimate marijuana business in California. 18 So that's the part where I'm like -- I'm -- 19 I'm only sitting here trying to deal with tomorrow, 20 which is pay my taxes tomorrow. 21 Um, and, yes, the industry as a whole is 22 definitely working to legitimize the banking issue 23 for everyone. But as I want to go pay my taxes for 24 2017, I need to know where to go and how safely I 25 can do it, and which people I need to talk to, so 26 that we are in direct communication about how we can 27 safely manage this kind of relationship. 28 Because this relationship is a personal 55 1 one. It's me and someone at an office, who's 2 looking out for the safety of all their employees, 3 just like I'm trying to look out for the safety of 4 mine. 5 And so that communication is we both come 6 from a place of safety, but we're also coming from a 7 place where you need the tax dollars, and I need to 8 pay them. And so this is still the -- this is still 9 the middle ground. Where are we going to meet 10 there? We need to meet somewhere. 11 And Option 3 gives us a place. It's like, 12 well, seven different departments are going to have 13 to start looking about how they're going to accept 14 these cash payments and, you know, if we can have a 15 secure location. 16 I mean, to speak to Horton and Runner's 17 issue, which is, like, how do we get consistency: 18 Well, if we do have outside buildings that are all 19 now put to the same standard, instead of trying to 20 go through each individual Board of Equalization, 21 and where their parking lot is. Because the safety 22 is completely different from every location. It's 23 not a policy thing, it's a -- it's a -- it's a 24 property thing. It's a property difference that 25 creates these different risks. 26 And so if we can get some consistency on an 27 outside location where you do have a third party who 28 comes in and assesses what the security risks are, 56 1 mitigates those, and we have a relationship with a 2 security company that brings an armored car directly 3 to that one location, we're mitigating a lot of the 4 risks by not having any individual who is not able 5 to hold a licensed firearm, who isn't protected by 6 steel behind a door of an armored car, who can drive 7 into a gated -- a gated parking lot, and then drive 8 into a -- you know? It's like, all of those safety 9 issues can be really mitigated with people who are 10 focusing on how do we get it from the cash register 11 into your hands. 12 And so -- and I realize that now the Board 13 of Equalization is finding ways to get it from your 14 hands through, you know -- through, um, licensed 15 armored cars, from your offices into the banking 16 system. I think we just need to find a way to get 17 it from each individual shop or -- or individual 18 payer and get it into the Board of Equalization's 19 hand in a safe way. 20 MR. PINEDA: And we look forward to working 21 with each Board Member. As -- we -- we -- we have a 22 share of that, of the medical marijuana industry. 23 It's the largest in the state. So sometimes we have 24 $100,000 in cash we have to pay. 25 So we look forward to working with you, and 26 we thank you for the time that you have given us. 27 MS. HARKEY: Thank you. 28 MS. MA: Thank you. 57 1 MR. HORTON: Madam Chair. 2 MS. MA: Mr. Horton. 3 MR. HORTON: Madam Chair, I appreciate the 4 staff coming back in two months, but I -- I would 5 suggest that if they can implement this, implement 6 something that, uh -- that works outside of our 7 agency putting our employees at risk, to de-qualify 8 this, it's not necessarily. And I think that there 9 may be an opportunity to do that from the 10 information that, uh -- that I received. 11 The -- to the 132 individuals who are under 12 Prop D, significantly regulated in the city of 13 Los Angeles, I believe, to be an honest group of 14 folks who are trying to comply with the law, for the 15 most part. 16 In LA County it's the other 1600 folks that 17 are operating in LA County without complying with 18 state, local, and federal law that -- that gives me 19 pause, that are actually registered with the Board 20 of Equalization. We have some -- somewhere around 21 400; 132 that are legal, and another 400 that are 22 registered with the Board of Equalization, but not 23 considered part of Proposition D. 24 And then you've got another thousand that 25 aren't registered with anyone, that's collecting 26 cash and selling marijuana, and so forth, illegally. 27 And so you see the -- the culture that 28 we're having to face when trying to draft some type 58 1 of solution. 2 The other challenge we have -- I think I 3 may have mentioned this earlier, but I think it 4 deserves mentioning again -- is that sales tax is 5 considered due at the time in which they actually 6 declare the tax. So it's not a tax that is 7 currently being held in trust. 8 I believe, you know -- although legal minds 9 may differ on this -- that if it was a tax held in 10 trust, then the armored car industry, who have 11 indicated that they would be comfortable actually 12 picking it up on behalf of the Board and taking it 13 to the bank, and we never even have to see it -- 14 "we" being the Board of Equalization employees -- 15 you have an element of security. You never have to 16 really transfer it. 17 Under existing law, the armored car trucks 18 are actually more restricted than banks of accepting 19 the cash. Because if they accept cash of $3,000 and 20 above, they're subject to the money laundering laws 21 as well, and have to go through the whole reporting 22 and filing and so forth. So there is the -- therein 23 is the inherent challenge in this. 24 There are solutions. The challenge that 25 I'm having, and the reason I'm having pause, is that 26 none of the legislative efforts to date address 27 those solutions. And this is probably the first 28 time that I've actually heard someone say that 59 1 they're concerned about the BOE employees. 2 And so -- not to say that's not the case. 3 I get your primary interest is self -- not you. 4 MR. KILOH: No, I -- I understand. 5 MR. HORTON: Not you. Keep in mind -- keep 6 in mind that -- that -- that -- 7 MR. KILOH: I'm representing the bigger 8 group. 9 MR. HORTON: -- 132, legit; 400, 10 registered, not legit; another thousand, wild wild 11 west going on out there. Um, and so we have to sort 12 of balance those things. 13 But I think that there are Legislative 14 solutions here in California that have not been 15 implemented. In fact, they've gone to the -- to the 16 left of what is -- would be more appropriate as far 17 as providing checks and balances. Which seems to 18 imply an unwillingness to put the checks and 19 balances in place; i.e. Proposition 64 being 20 vertically integrated. You can grow it, distribute 21 it, sell it, and so forth. We can't control that. 22 History has told us we can't control that. 23 Four percent allocation for the Board of 24 Equalization as far as revenue, and that being 25 capped. Nowhere near enough funds in order for us 26 to be able to address the anticipated 50 to 60 27 percent noncompliance. In LA almost 115 percent 28 noncompliance. 60 1 And so we've got those who comply, we've 2 got those who don't. And so I think there's some 3 inherent challenges that we can meet. But the 4 industry, as a whole, has to come to the table and 5 say, "Listen, we're willing to really, really accept 6 those restrictions." A three-tier system that 7 establishes distributor, grower, distributor, and so 8 forth. A shifting of the burden from the legitimate 9 operators to the distributor, because it's far more 10 controlled. 11 If a distributor who has more resources, 12 theoretically, than a dispensary, by a virtue of 13 they just have the capital to get in the business, 14 they have the capital to fund their tax activity, 15 aside from the revenue that they -- they -- they 16 collect in advance from you. 17 So, and that capital exists outside of the 18 marijuana industry. So it makes it easier to find a 19 banking solution for a hundred people, than it does 20 for thousands of people. 21 MR. PINEDA: So, Mr. Horton, if I -- on 22 that distribution, if I may say we're, uh -- we're 23 engaging with other groups on the issue right now. 24 And we plan to continue to engage on it. 25 MR. KILOH: I just want to say something on 26 this. When you talk about being good actors, I 27 mean, my group put together an ordinance for the 28 City of Los Angeles so that they -- we would be 61 1 regulated in a much more -- much -- a much more 2 broader fashion, and that the enforcement piece was 3 going to be much more, um, restrictive when it comes 4 to landlords and users who are outside -- outside 5 the means. Including even advertising, um, for 6 illegal businesses. 7 So, um, as a -- as an industry, I think we 8 are trying to regulate ourselves, because we do know 9 where the -- we do know where the problems are. And 10 so I'd like to say that there are good actors trying 11 to at least work the legislative side to take away 12 some of the bad actors, or the people who are not 13 supposed to be in the industry. 14 And currently, Los Angeles only has 170 15 BTRCs issued to legally operating shops. I mean, 16 everyone else can't pay taxes. I mean, we've -- 17 we've now seen it with the Office of Finance, saying 18 if you don't have a BTRC, you can't pay taxes. 19 MR. HORTON: Well, but let me clarify, only 20 for the record. 21 MR. KILOH: Sure. 22 MR. HORTON: Under the Constitution of the 23 State of California, you can pay taxes, you should 24 pay taxes, you're obligated to pay taxes, 25 irrespective of a license that you receive or don't 26 receive from a local municipality. Tax is due 27 whether -- whether they're criminals, legitimate 28 operators, and so forth. 62 1 And there are those outside of the 172 that 2 are actually paying the taxes. 3 MR. KILOH: Sure. 4 MR. HORTON: I mean, there are those who 5 are not registered with the City of Los Angeles that 6 are registered with us, and they're filing. 7 Of the 132, I don't know that they're all 8 good actors. I know that there are good actors 9 among the 170 that are advocating that the others 10 fall in line. 11 And so I wouldn't -- and so I don't want 12 misconception out there that folks are making sales. 13 I think -- I think -- I think the -- the, 14 quote/unquote, "individuals" that are categorized as 15 dope dealers, selling on the street or selling 16 through their own distribution means, actually owe 17 the tax and should report the tax. And that is 18 federal law dating back to, you know, well beyond 19 Eliot Ness and Al Capone, and that whole -- whole 20 scenario. 21 So, um -- but I commend you for the few 22 that are in the -- are in the business, that are 23 trying, that are there. And I -- I don't 24 necessarily even -- even fault you. I actually 25 believe this is a legislative effort that the 26 Legislature and the Board of Equalization, that we 27 just need to be realistic. We're not gonna come up 28 with a solution until we -- we're realistic that, 63 1 uh, federal law, there's no indication that it's 2 going to change. 3 Over the last -- I don't know -- at least 4 over the last eight years that I know that they've 5 been trying to get it to change on the federal 6 law -- with the new administration -- the old 7 administration wasn't supportive of that. They 8 wanted to provide some freedoms, and they did. And 9 so I just think we need to be intelligent about 10 that. 11 And let me just speak to the staff. 12 Which -- which means that -- I think we need the 13 guidance of the Department of Justice. I think we 14 need the guidance of the Attorney General. And I 15 understand State Treasurer Chiang has gone forth to 16 get some of that. 17 But as an organization, we need, uh, to get 18 advice outside of this organization that begins to 19 guide us so that we can avoid the pitfalls of 20 violating federal law and yet -- and, um, not 21 providing adequate protection for our employees, and 22 at the same time protecting our constituents, which 23 happens to be the taxpayers who are willing to come 24 in and -- and pay their taxes. 25 There are solutions. And I think we can 26 get those solutions, but I don't believe any of the 27 existing law and existing efforts, uh, offer up 28 those solutions, necessarily. But maybe now that 64 1 this is becoming a reality, we can get there. 2 MR. KILOH: Thank you. 3 MS. MA: Okay. Thank you, Members, for 4 this robust, um, discussion. And we look forward to 5 your continuing efforts. 6 And, um, you know, after our meeting on 7 Monday to see where -- hopefully we're all going to 8 be at the same place, rowing, you know, in the same 9 direction. So we look forward to Monday's meeting. 10 It is open. It's at the State Capitol. So please 11 feel free to join us, for anyone who's interested. 12 We are gonna go to closed session right 13 now, and then, um, come back -- set a time? 14 (Inaudible discussion amongst Members.) 15 MS. MA: Okay. We're gonna go to closed 16 session, Members. And when we get back, we'll set a 17 time so everybody knows what time to come back. 18 Is that okay? Okay. 19 ---oOo--- 20 21 22 23 24 25 26 27 28 65 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, Kathleen Skidgel, Hearing Reporter for 8 the California State Board of Equalization certify 9 that on December 14, 2016 I recorded verbatim, in 10 shorthand, to the best of my ability, the 11 proceedings in the above-entitled hearing; that I 12 transcribed the shorthand writing into typewriting; 13 and that the preceding pages 1 through 38 constitute 14 a complete and accurate transcription of the 15 shorthand writing. 16 17 Dated: January 12, 2017 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL, CSR #9039 22 Hearing Reporter 23 24 25 26 27 28 66 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, Jillian Sumner, Hearing Reporter for 8 the California State Board of Equalization certify 9 that on December 14, 2016 I recorded verbatim, in 10 shorthand, to the best of my ability, the 11 proceedings in the above-entitled hearing; that I 12 transcribed the shorthand writing into typewriting; 13 and that the preceding pages 39 through 65 14 constitute a complete and accurate transcription of 15 the shorthand writing. 16 17 Dated: January 15, 2017 18 19 20 ____________________________ 21 JILLIAN SUMNER, CSR #13619 22 Hearing Reporter 23 24 25 26 27 28 67