Why Cannabis Tax Collection Is Awful: How Cities Are Leveraging Tech To Steer Away From Spreadsheets

Desert Hot Springs, California is outsourcing its cannabis tax management to Monarch Technologies, a leader in cannabis payments and compliance solutions. The company announced the partnership, that aims to improve regulatory compliance and optimize tax revenue collection through Monarch’s tax management software.

In an exclusive interview with Benzinga, Christian Fea, Monarch Technologies CEO & co-founder, shared details about this collaboration. He also talked about the impact on the often overlooked cannabis fintech sector.

Addressing Tax Compliance Challenges

“Cities, counties, and states face increasing complexity in calculating, assessing, collecting, and remitting fee revenue from cannabis businesses,” Fea said. “Most of these government entities have passed legislation, ordinances, and regulations in the past five years which technologically often piggyback on the back end of old legacy software systems.”

Surprisingly, Fea said that many municipalities still rely on outdated, unreliable methods like Excel spreadsheets or do it by hand. Monarch’s compliance system automates their entire process, solving these issues and making tax systems more reliable. 

Fea explained how Monarch nabbed the contract after joining the League of California Cities in 2023, representing most of the 482 cities in the state. The League advocates for cities on key topics, relevant policy and tax issues. This membership led to the partnership with Desert Hot Springs (DHS). After presenting the solution at the Annual Fall Conference, Monarch’s platform caught the attention of city officials. Following meetings, the DHS City Council approved the Monarch Tax Authority (MTA) Platform, effective July 1, 2024. The city currently oversees 46 cannabis licenses.

Read Also: Cannabis Taxes: Weight, Potency Or Price? Impact On Businesses, Patients And Consumers

Enhancing Cannabis Tax Management

“The accurate and precise data captured by the MTA through its surveillance of the Marijuana Enforcement Tracking Reporting Compliance (METRC) system in dispensaries is shared with the city officials on a real-time and legally compliant basis. It enables city officials, compliance, and finance departments to better monitor adherence and arrears and quickly deal with and respond to budgetary items,” Fea said. METRC is a widely adopted seed-to-sale tracking system used in the cannabis industry. 

Frank Luckino, newly appointed City Manager of Desert Hot Springs, likes the idea of simplifying yet improving the tax management: “Partnering with Monarch allows us to achieve this goal by leveraging their cutting-edge technology and expertise while reducing the internal resources we must commit to overseeing the tax and compliance components of our program. This is a win-win for our community and the local cannabis businesses,” Luckino said.

Fea added that “The key objectives and features of Monarch's Compliance System include accurate fee calculations, comprehensive assessments, timely remittances. Also the establishment of bank accounts for cannabis operators, and the issuance of relevant detailed reports. Desert Hot Springs' key objectives include enhanced compliance, predictable monthly revenue, operational efficiency, and improved transparency.”

The Future Of Cannabis Fintech

Fea also shared his forecast of fintech in the cannabis sector: 

“The Marijuana Policy Project reports that taxes derived from the licensed sale of state-regulated cannabis products totaled more than $4 billion in 2023. The need to convert payments from a ‘cash is king’ mentality to an automated compliant digital system is inevitable,” Fea said. “Safety and security considerations alone suggest that cashless transactions via ACH (Automated Clearing House) and mobile phone applications will be the mechanism that government entities, cannabis operators, and the general public will pay for legal cannabis products in the future.”

In the first three months of 2024, California cannabis companies recorded $1.2 billion in taxable sales, although the industry has been struggling. So making sure that every cent is counted essential.

• Read Next: California Cannabis Industry Is Drowning In Debt: $732M Owed In Taxes, 72% By Companies Already Closed Down

To learn more about fintech, taxes and compliance in the cannabis industry, come, join us at the 19th Benzinga Cannabis Capital Conference, coming to Chicago this Oct. 8-9. Get your tickets now before prices surge by following this link.

COVER: Image created with AI tools.