Loyola University Chicago School of Law, JD 2019
In November of 2016 voters in California passed the Adult Use of Marijuana Act which legalized the sale and use of marijuana throughout the state, similarly to states such as Colorado and Washington. Starting January 1, 2018, it will be legal to go to a licensed dispensary and purchase marijuana for personal use, without needing a medical marijuana card. However, marijuana possession or use is still a federal offense; navigating the new law can be hazy.
It is important to note that California law does not overrule federal law or the Controlled Substances Act, nor does legalization in California mean that a person can’t be arrested or fined for marijuana possession or use. The Adult Use of Marijuana Act (AUMA) does not apply to federal property meaning that possession on federal lands may still result in criminal charges. Even under the AUMA public use or consumption of marijuana is illegal and subject to a fine.
California has a long history with medical marijuana, which has been challenged many times under federal law. Most famously in Gonzales_v._Raich where the Supreme Court decided that under the commerce clause that Congress may criminalize cannabis even when legalized for medical use. It stands to reason that if Congress may criminalize medical marijuana, that full legalization may still be criminalized. Under the AUMA persons in California who have medical marijuana cards are still able to purchase marijuana (along with anyone else over the age of 18) and may be exempted from the sales tax.
The impact on taxes
California stands to make a massive amount of tax revenue from the AUMA. Currently the sale of marijuana in California is taxed at between 7.5-9.25% (plus local taxes between 10-20%). As of January 1, 2018, any retail sales will be subject to an additional tax of 15%. The new taxes could result in up to five billion dollars in tax revenue to the state which is already one of the largest economies in the world. Washington and Colorado surpassed one billion dollars in annual sales after legalization, while California’s medical marijuana sales already topped two billion dollars – illegal sale of marijuana accounted for over five billion dollars alone.
State-run banks, or all-cash business
The AUMA, while it legalized marijuana, has not solved all the problems that California dispensaries previously faced. Many banks refuse to do business with dispensaries because marijuana remains illegal at the federal level. Therefore, many dispensary businesses must conduct their businesses entirely in cash. One possible workaround to this looming problem could be for the state to create its own public bank to handle the massive influx in legal sales. A bank run by the state would need to be overseen and insured by the state, not the FDIC. With no oversight from the federal government, creating a new bank is a risky venture.
Even if the state were to create their own bank, the federal government could still block the state bank from being able to operate within the Federal Reserve banking system. It’s extremely unlikely that under the current federal regime that this will change, and so a state-run bank may have no federal protection.
Ultimately, while the AUMA has legalized and will tax recreational marijuana use in the state of California, many regulations still apply. There will still be no public use of marijuana, no use on federal lands, and driving while high will result in a DUI – as well as restrictions and regulations regarding the cultivation of marijuana. If the legalization of marijuana in California is successful in both generating tax revenue, as well as finding a solution to their banking problem, other states may follow suit. Already Colorado and Washington have shown that their programs have been successful, and a state with the size and influence of California may push other states that are considering legalization over the edge. Billions of dollars in tax revenue could be appealing even to deepest red states as a means to balance their budgets. The AUMA may provide a framework for other states to follow.