[This transcript was generated automatically from audio using AI and hasn't been reviewed by a person -- it can contain mistakes, including plausible-sounding sentences that were never actually said. Treat it as a starting point, not a verbatim record.]

[0:00] Good morning, everyone. Thank you for joining us this morning.
[0:12] Well, good morning. Welcome, members of the
[0:13] public media and those of you who are representing financial institutions, the cannabis industry,
[0:18] and public agencies. I am John Chung. I am the state treasurer, and I'm going to introduce
[0:24] Tim Schaefer, my senior deputy, for a few remarks housekeeping matters. Okay, thank you, treasurer.
[0:31] We have a, we have a full house today and just want to let everybody know that there is an overflow room.
[0:38] If you go out the door here, my colleague Blake Johnson, who's got his hand up, will direct you to the overflow room, which is just a couple of doors down the hallway.
[0:47] And that will save the standing room only.
[0:51] Second thing is, if this is like church, so we're going to request that everybody's silence your cell phones, please, so that we're not interrupted by the chirping and chiming of the latest tweet.
[1:06] And then finally, finally, the treasure will introduce members of his staff to pick up speaker slips.
[1:19] He'll do that periodically throughout the proceedings this morning, but if you would just make sure that you, if you have a wish to be heard, please identify yourself to someone on the staff and they'll get you a speaker slip and we'll get that underway.
[1:35] And I think that's all the housekeeping that we have at this point. Did I miss anything? I miss anything? I think we're good. Okay, Mr. Treasurer, there you go.
[1:43] Thank you, Tim.
[1:44] I also want to extend a warm welcome to each of you who may be joining us via live video,
[1:49] a streaming.
[1:50] And thank you for all participating in this cannabis banking working group.
[1:55] This is our second meeting of this group.
[1:57] I want to first encourage all of you to stay involved.
[2:00] This is a difficult challenging but critical issue.
[2:04] And so the greater input that we gather from all of you, the better the decision making that
[2:08] this body can come to.
[2:09] What we are learning will help our 16 person panel develop the recommendations at the end of these series of meetings on how to provide banking services to the newly legalized cannabis industry.
[2:21] We have much to accomplish and as I mentioned the task is not easy.
[2:25] Let us take a moment to orient us all and remind everyone of the mission of this working group.
[2:31] On November 8, California voters pass Proposition 64 and legalize the recreational use of cannabis.
[2:37] The legal sale of cannabis for recreational use is officially scheduled to start on January 1, 2018.
[2:45] Between now and that date, we will be delving into depth into the problem posed by what we might describe as a potentially significant disconnect between federal policy and the will of California voters.
[2:58] The crux of the problem is that the federal government continues to regulate cannabis as an illegal schedule one controlled substance drug.
[3:06] while dozens of states have moved to decriminalize its use for medical use, recreational use, or both.
[3:14] Now, one of the unique features of constitutional law is a recognition that individual states may engage in just such social and economic experiments as this,
[3:24] independent of the nation as a whole. That much is clear. However, the independence of a state is not absolute in such cases.
[3:32] The United States Constitution contains a supremacy clause that holds federal law is the
[3:38] supreme law of the land.
[3:40] This supremacy clause may be invoked by the federal government to trump state law.
[3:46] Legal scholars, however, note that the supremacy clause is not always so easy to successfully
[3:51] apply.
[3:53] I mentioned this this morning to acknowledge that the supremacy clause is out there, however,
[3:58] However, covering as we were deliberating over our considerations.
[4:03] We do not need to be entangled in or sidetracked by this concern at this particular point in time.
[4:10] But we do need to understand the effect of it.
[4:12] The disconnection between Washington and the states has existed since voters here passed the first medical marijuana law two decades ago.
[4:21] ago. These initiatives combine now with California's and a handful of other states that produce
[4:27] a situation in which possession, cultivation, or distribution of marijuana remains a
[4:33] federal crime, yet the same acts are legal under state law, which brings us to the present
[4:39] state of affairs and the urgent questions we are ourselves facing. People working in the cannabis
[4:45] this industry may be considered violators
[4:47] of the Federal Control Substances Act.
[4:50] This worries banks.
[4:52] Banks are answerable to the federal government
[4:54] in a variety of ways.
[4:56] The Obama administration attempted to call
[4:58] these worries by issuing the so-called
[5:01] coal memoranda and other guidance.
[5:04] The coal memoranda said the federal government's
[5:06] enforcement priorities should probably not include
[5:09] the prosecution of those engaged in marijuana activities
[5:13] as long as those activities were in compliance with individual state laws.
[5:18] This meeting example of prosecutorial discretion, however, did not provide this
[5:24] necessary certainty for financial institutions to serve the cannabis industry.
[5:29] Furthermore, such memorandum could be quickly curtailed in a hard line on cannabis
[5:35] reinstated by the incoming Trump administration and the Attorney General and the
[5:40] Attorney General Jeff Sessions.
[5:42] So there in short you have a summary of what has been brought to us here in Los Angeles today for the second in our series of meetings on this social and economic issue of great import to our state.
[5:54] Today we welcome and we will hear from Professor Julie Anderson Hill of the University of Alabama School of Law who will walk us through the federal state disconnect as well as the federal efforts under the prior administration that aim to provide us with guidance and where we stand now.
[6:11] Now, with the Professor's help, we will hope to clarify what the supremacy issue is important
[6:18] to us in our ongoing discussions.
[6:21] We will also hear from the Director of the Washington State Licker and Cannabis Board
[6:26] which permits the state to retain significant control over its marijuana industry.
[6:31] As a result of their regulatory scheme, the Board is performing a level of due diligence that
[6:36] I can give a financial institution needed reassurances
[6:40] that it knows its customer.
[6:43] And I use that in quotes, right, because it's an important
[6:45] legal provision.
[6:47] In addition, we will learn from a representative
[6:50] of from the Oregon Treasury.
[6:53] At our first meeting, this working group heard
[6:55] from the cannabis industry, financial institutions,
[6:59] and public agencies about problems created by federal law
[7:02] that maintains use of legal cannabis is a crime. Test the money from our
[7:07] working group members, panelists, and public comment provided vivid details
[7:12] about the real impacts resulting from that conflict. It is clear to me there is
[7:18] great urgency to the work that we are doing. As chair of this working group I want
[7:24] to begin by addressing our expectations for our meeting today and to detail how
[7:28] our state is recommending how we proceed.
[7:31] Before we begin, I will call on the members of the working group, asking them to briefly
[7:36] introduce themselves.
[7:38] Then I will describe for members of the public how to ensure that you are heard today
[7:43] and the process that we will be following during the public comment period that comes in
[7:48] the afternoon.
[7:49] I hope you can move risk-like through these matters, after which we will get down to our
[7:54] Our main business of defining the banking industries that they industry, financial institutions
[7:59] and public agencies are grappling with.
[8:02] We will also cover legal hurdles to finding a solution to these problems and
[8:07] discuss what Oregon, Washington, and other states are doing to address these problems.
[8:13] At the conclusion of the public comment, I will offer if you closing remarks and
[8:18] at that time, working group members may also wish to offer their concluding thoughts.
[8:22] We have specifically reserved time for this discussion.
[8:26] Now, assuming we keep everything on schedule, staff assures me that we can finish by approximately 1 p.m.
[8:32] Now, speaking of staff, could all the staff members supporting the cannabis banking work and group please stand up so that you can be acknowledged?
[8:42] Anyone with a suggestion, idea or complaint, especially complaints, please see one of these individuals.
[8:49] Tim Schaefer, to my right, Mark Lipscher, my chief of staff, Colin Lung, Martina Sin, next on his right, Vanessa from our lead shop.
[9:00] We have Robbie from our Southern California office.
[9:03] I know Audrey, somewhere in shop and a whole host of others.
[9:07] At this point, I want to invite the members of the working group to please identify themselves and
[9:11] briefly tell us a little bit about who you are.
[9:14] I am going to suggest that we go alphabetically, and if you don't mind,
[9:18] We will start with Laurie Ajax, Laurie.
[9:22] Good morning.
[9:23] I'm Laurie Ajax.
[9:24] I'm the chief of the Bureau of Medical Cannabis Regulation, and I'm happy to be part
[9:28] of the working group.
[9:28] Thank you.
[9:29] Thanks, Laurie.
[9:30] Alex.
[9:33] Good morning.
[9:34] My name is Alex Allenese.
[9:35] I'm the vice president of government relations with the California Bankers Association.
[9:39] Thank you, Alex.
[9:40] Hezekiah.
[9:41] Good morning, folks.
[9:42] My name is Hezekiah Allen.
[9:43] I'm the executive director of the California Growers Association.
[9:46] Thank you.
[9:47] Matt.
[9:48] Good morning, Matt Cate, I'm the executive director of the California State Association of Counties.
[9:53] We represent all 58 counties in the state.
[9:57] Thanks, Tim.
[10:07] Tim, come on down on behalf of the League of California cities.
[10:09] We represent about 90% of the 400 and 82 cities in California.
[10:14] Tim, David?
[10:17] All right.
[10:18] Who am I on?
[10:19] David Hanescock representing the California Community Banking Network.
[10:22] We represent community banks of California.
[10:26] Patrick? Patrick Kenting Director the employment development department for the largest tax collector
[10:31] in the state for employment. Courtney? Courtney Jensen with the California Credit Union League
[10:39] and the Vice President of State government affairs. Kursheed? Kursheed Co. General Counsel with the
[10:45] California Canada Business Administration and Board Member of CCIA and the National
[10:50] from Canada's Institute Association.
[10:51] Thank you.
[10:52] Selvi?
[10:53] Selvi Stanislaus from the franchise fax board.
[10:55] We are pleased to be part of this working group
[10:57] and this very important discussion.
[10:59] Thank you.
[10:59] Thank you Selvi.
[11:00] Jennifer?
[11:01] Good morning, everyone.
[11:02] I'm Jennifer Lee from the California Attorney General's office.
[11:06] Thank you Jennifer.
[11:06] Fiona?
[11:07] Fiona Ma, Chairwoman of the State Board of Equalization,
[11:10] representing District 2, 23 counties from the Oregon border
[11:14] to Santa Barbara.
[11:16] Nicole?
[11:18] Good morning.
[11:19] My name is Nicole Howell.
[11:20] I am a cannabis business attorney, my firm Clark Burt focuses on representing the industry
[11:25] throughout the state.
[11:26] Thank you.
[11:27] Jan?
[11:28] Good morning, Jan O. and Commissioner for the California Department of Business Oversight.
[11:33] We are the Banking Credit Union Regulator for State Chartered Institutions.
[11:38] And Peter,
[11:42] perhaps I'll join us later.
[11:44] So our first meeting was focused primarily on one question.
[11:48] What impact has the lack of banking access had on your group organization or industry?
[11:54] Today, I would like our group to begin our conversation by briefly revisiting that question.
[12:00] I would then like us to take a deeper dive into the legal challenges we face in providing banking services to Canvas businesses.
[12:08] We are fortunate to have with us today a professor of law who has published an important paper that sheds light on these very matters.
[12:15] I want to use those challenges to guide our efforts in identifying solutions.
[12:21] We cannot survive that solutions without first understanding the problems.
[12:25] I would like to take this opportunity to remind the working group and the public that
[12:29] the purpose of this working group is not to address licensing issues.
[12:33] We are not here to consider IRS taxation issues.
[12:37] We are not here to discuss public safety or policing issues, while those matters are not irrelevant
[12:42] and to our efforts, what we are here to do is to gain an understanding of how to effectively
[12:47] align things to do so that the cannabis industry may fully avail itself of baking services
[12:54] every other business in California enjoys. That's the mission of this working group.
[13:00] If you're following along with this agenda, I'm alerting you to my jumping down to the item
[13:04] described as public comment. I want to give you early instructions. If you wish to make
[13:09] Make a comment, we request, as I mentioned earlier, that you fill out the speaker request
[13:14] form.
[13:14] You should have been offered as you entered today.
[13:18] Please be sure to include your name, your organization, as well as your contact information.
[13:22] This information will aid our working group.
[13:25] As we will revisit those comments and ideas expressed here today, it is the thought of our meeting
[13:30] that we want to make sure that we proceed to this afternoon smoothly.
[13:34] Now, what's within the comment period opens this afternoon?
[13:37] I will call speakers up in groups of three.
[13:40] Also, if your comment has already been covered by another speaker,
[13:43] we will ask that you help use all of our time efficiently
[13:46] and for goal repeating that point.
[13:48] But feel free to come forward
[13:49] and let us know you agree with a previous comment.
[13:52] With time management in mind,
[13:54] I encourage those of you who believe you have solutions
[13:55] that address some of the problems
[13:57] we have already identified
[13:59] to send your thoughts in writing to me or my staff.
[14:02] At this point, I want to make sure
[14:04] that we get started in earnest.
[14:05] I will begin with our first panel.
[14:08] Today we have local representatives of the cannabis industry and government.
[14:12] Together they can provide personal testimony as to how they have been impacted by the
[14:17] problems in the banking legal cannabis revenue.
[14:20] Thank you all for your participation.
[14:23] If you could please begin by introducing yourselves, the organizations that you represent and identify
[14:29] by how you and your organization has been impacted
[14:32] by the current state of banking cannabis.
[14:39] Hi, my name is Donnie Anderson.
[14:41] I am the founder of California Minority Alliance,
[14:44] and we have two pre-ICO dispensaries.
[14:50] My name is Jared Kylo,
[14:51] I'm the president of the UCBA,
[14:53] which is the United Cannabis Business Alliance,
[14:56] we're a trade association here in Los Angeles.
[14:58] I'm also an owner of a project.
[15:18] Thank you.
[15:24] Thank you. Thank you for having us. Good. Don't you want to see? Yes. We need banking. Really bad. We had a major break in at our dispensary. This was about a week ago.
[15:36] Well, probably about $6,000 in damages, it was just fortunate that our dispensary repurchase
[15:43] we purchased it from a former NYX checkhassing.
[15:46] So it was well secured, but the sheriffs came and our community scared them off, but these
[15:54] are the problems that we have and that we need to fix with financing and banking and as
[16:01] well as making sure that we can have banking for people that's trying to get in from the
[16:05] small business side from loans as well.
[16:09] So, you know, this is concerns in my community.
[16:12] In my community, you know, we're dealing with a lot of issues.
[16:17] And one of the issues is people want to learn and find out
[16:20] about the industry, but banking will fix a lot of it
[16:24] when it comes to being able to put barriers
[16:27] where people can have financial, you know,
[16:32] what word I'm looking for is,
[16:33] We can have assurance from the banking side because dealing with a lot of cash is rough when you're dealing with cash is very rough
[16:42] So you're gonna elaborate a little bit more about that rough?
[16:46] Yes, okay, let me explain to you one of our managers got robbed coming out of our shop one day
[16:55] And it was just so happy. It was blessing that our neighbors and our community came out and they didn't get nothing.
[17:05] But these are the things that we have to deal with. One of the main things is with security.
[17:10] You can't have a security guard in your shop. You have to have them on the outside. So he can't be armed.
[17:17] So we need to have some things fixed with this in the cannabis industry because we need to be looked at the same as alcohol liquor or any of the things, so you know.
[17:31] Yeah, thank you.
[17:32] Any other comments?
[17:34] I see for now.
[17:35] Thank you.
[17:36] Jared?
[17:37] Well, I'm long-winded, so hopefully I won't go too far.
[17:44] I wanted to make aware that we here in Los Angeles had passed a proposition D about three
[17:52] years ago with about 64% of the voters voting for it.
[17:56] What that did is that reduced the number of collectives here that were operating down
[17:59] to 135 and changed the tax base.
[18:03] And I wanted to make sure that the reason why Prop D now isn't going to be really put into
[18:10] the state MCRSA laws is because of the semantic words of limitly immune. Prop D gave limited
[18:15] immunity to these shops in Los Angeles and MCRSA laws really only give permits to local
[18:22] permit or license dispensaries. So the reason why our trade association was formed was
[18:28] to make sure that we could go to the city of Los Angeles and back to the voters to make sure
[18:33] that we got rid of that semantic word of just limitly immune and put either license or permitted
[18:38] so that we could move into the MCRSA laws.
[18:42] But in doing that, trying to run a campaign became a serious issue because all money that
[18:47] goes towards campaign contributions must go through a bank account.
[18:50] Now, trying to have all of the members of my UCBA now pull into their personal bank accounts
[18:56] to try to pay for campaign contributions, created an increasing hardship, which is a barrier
[19:02] to entry from a lot of these cannabis groups that really are trying to make political movements.
[19:06] But they are forced out of the political movements due to the fact of the lack of banking.
[19:13] Now we have been working with the Office of Finance here in Los Angeles in a very close
[19:19] relationship.
[19:20] It's nice to have people in government look at our industry not only as an emerging industry
[19:25] but also as an existing business structure.
[19:28] Right now, the city of Los Angeles charges a 6% gross tax receipts, which now is put
[19:36] on top of the Board of Equalizations 9% sales tax.
[19:40] Now we've been working really closely with the Board of Equalization, which allows us
[19:43] to pay in cash, allows us to pay monthly payments.
[19:47] But local ordinances and local taxes sometimes are paid in full the year previous.
[19:53] So we've been working with the office to finance, trying to find solutions to the problems
[19:58] of having the kind of tax payments that are due that like to make a comparison to a retail
[20:04] shop.
[20:05] A retail shop like Macy's pays a .0127% tax here in Los Angeles where prop D shops are paying
[20:13] a 6% tax.
[20:15] Now to compare those, I will be open.
[20:18] I had $4 million in gross tax receipts.
[20:21] I have a $220,000 tax due at February 28th.
[20:25] Now if Macy's was to have the same tax liability, they would have to have $188 million in gross
[20:31] tax receipts as well and pay the same taxes due on February 28th.
[20:36] This is a huge hardship for the marijuana industry to not only pay excise taxes at a local level
[20:41] up front before they've even earned the money, and you're asking us to keep this cash in
[20:47] our vault, which Donnie had made a very clear statement that if that cash was left there
[20:52] to pay taxes at the beginning of the year, that might have been a loss.
[20:55] It's also a place where crime can start to like focus their attention, knowing that near
[21:01] the beginning of February 28th, when taxes are due, that we would have a large sum of cash
[21:05] on our site.
[21:07] So these are some of the problems we're dealing with even trying to pay our taxes.
[21:11] Now, we also run into problems when we try to pay our legal representatives.
[21:17] We pay them in cash.
[21:18] Now, they are losing their bank accounts.
[21:20] We also are having bank accounts shut down for contractors, electricians, that lay,
[21:24] security companies, bookkeepers, our tax attorneys, and all these services are necessary to run
[21:30] a business.
[21:30] And even more important to run a business that's going to be in this new era of regulations
[21:34] and to have all these supporting staff is going to be more than necessary to be in compliance
[21:38] with all the new rules and regulations.
[21:40] We have to find a way to be able to pay our supporting business people to be able to support our businesses.
[21:47] And in 15 years being in this industry, I've had eight bank accounts, I've been, I've had to move my bank account eight times.
[21:56] The last time I moved my bank account, we had 53 employees lose their Kaiser insurance.
[22:02] Now, this wasn't just employees, this was the owners of the business, this was the managers of the business,
[22:07] These were the vendors, and these were all the employees, having that lack of banking really created a hardship on everyone who now had to kind of maneuver back into the covered California system, and then all of a sudden we weren't in the bandwidth of November through January to be able to jump into it.
[22:23] And now we're looking at more of these kind of hardships.
[22:27] Okay, so after these 15 years that have been in business, I've never been able to work
[22:32] with a credit card company before, mostly because we've never really seen a really good
[22:36] closed loop system.
[22:38] Every time they're being put to the test, it seems like there is some flaws to be the true
[22:44] answer to digital banking.
[22:46] For the first time in these 15 years, I finally see one company that I've been working with
[22:52] called links. They've been working in Colorado for well over a year doing beta testing on a closed
[22:56] loop system. I've had them in my dispensary now for four months. The reason why I bring this up
[23:01] is because they have taken close to 20% of my cash business into digital money. Now that 20% will
[23:08] now be able to give me the opportunity to be able to pay taxes, pay my employees and pay for insurance.
[23:13] And I know these are trying to look for answers to this. They just so happen to be a part of a gift
[23:18] card transaction, which does about a trillion dollars a year in transactions, and these gift cards
[23:25] are allowing the banks to be able to see who is purchasing a gift card, but they don't care what
[23:29] you pay, what you purchase with your gift card. Been a very big help to me in my shop and trying
[23:35] to pass this along to the rest of my UCBA members. Now, we all know that we have a huge, we don't have
[23:48] But what I do in my shop is I post my taxes on a poster in the front of my window so every person in my community as well as all of my patients see exactly what I pay in taxes so they can see the contribution.
[23:59] I make not only to the city of Los Angeles, the state, but also to my local community.
[24:05] I think this is a good way to show a lot of the people who maybe not understand this industry and how much contribution we really do make.
[24:13] But when you see the disparity between a macy's needing to have $188 million in sales, and we pay the same taxes, I look at my local businesses, I spend, I pay more taxes than the 20 surrounding small businesses to just my one shop.
[24:28] So if we are not going to find this way of helping us with banking, you're now giving all of these other businesses an unfair advantage over the marijuana industry trying to move into the light.
[24:38] And if you continue to, I don't mean you, if the industry continues to kind of push us to the brink of where we have to come up with large sums of cash at the beginning of the month to pay local taxes, we really are kind of running into this problem of where we storing all of this cash who's helping us protect it.
[24:56] And I know that we're here to try to find these answers.
[24:59] But we're also looking at access to capital, like as an industry, if all we have are written
[25:06] receipts, it's hard to go to a bank, well, impossible to go to a bank and get a small
[25:12] business loan to expand your business, to find ways to renovate.
[25:17] And these are also problems because if we want to look and are a big part of this community,
[25:21] we need to be able to show the community that we're rooted there, we're willing to put
[25:25] up, you know, good renovations to show the community how well we want to represent ourselves.
[25:33] So I want to thank this group for coming together.
[25:37] I know that we're just dealing with MCRSA laws, but Prop 64 is also going to exacerbate
[25:43] the problems for the need for banking because the growing volume of cash here is going to
[25:48] continue to be a problem.
[25:49] And I think we are all here to try to find some answers.
[25:53] thank you again for providing me an opportunity to speak today. Thank you very much.
[25:57] Thank you very much. And then I just noticed a couple more staff people that you can also reach out to.
[26:01] So Eric, if you raise your hand and like and Andrew.
[26:05] Thank you.
[26:05] Yeah.
[26:06] Thank you, Jared.
[26:07] Todd again.
[26:08] Thank you.
[26:11] So just for the record, I just want to start out by saying that with my colleagues here, I am not an expert on marijuana.
[26:19] I'm, as you heard, deputy treasurer for the city of Los Angeles.
[26:24] My office, the city finance office, is essentially the treasurer tax collector of the city.
[26:30] So, of course, primarily oversee the treasurer and
[26:32] cashiering functions of the operation, and actually been in this role less than a year.
[26:39] But, and so my experience might be a little bit different than some others, but
[26:42] I'm going to talk to you a little bit about the thought process that I've gone through.
[26:46] that our office has gone through in terms of the perspective of cash acceptance from the
[26:52] marijuana industry in particular.
[26:54] So upon arriving about a year ago, I began doing what any newly arrived finance professional
[27:00] would do.
[27:00] I started reviewing operations with an outside vent and one of the areas that identified
[27:06] if need was cash acceptance.
[27:07] Not so much for the concern of the improper handling of cash but the inefficiency that we had.
[27:13] So we had controls that have been in place for probably 10 plus years and they were working
[27:18] but failed to recognize a lot of advances in cash handling and equipment and practices
[27:23] and thus was highly inefficient.
[27:25] So we've said about educating our staff, reviewing our options, procuring equipment, adopting
[27:29] new procedures and of course with government processes this does take a little time to ramp
[27:33] up to but we're well underway at this point.
[27:36] So, in terms of what this has to do with marijuana, our office collects gross
[27:43] receipts tax on marijuana dispensaries. The passage of Prop 64 has increased the spotlight
[27:48] and urgency in what we do. Fundamentally, we're merely striving to be more efficient
[27:52] in collecting cash. Otherwise, things are not so different. It's not a secret. We've been
[27:57] collecting medical marijuana taxes for years, in fact. Many of the same issues exist for
[28:02] For any cash we collect, cash is dirty, it's counterfeited, cash shrinks, cash is expensive
[28:08] and time consuming, cash represents risk.
[28:11] We'd all probably rather not have to deal with it, but we have and we do.
[28:15] There's also the need to separate some fact from fiction on this topic.
[28:19] Truth be told, our experience has been that the marijuana industry is not primarily a cash
[28:24] area of taxes.
[28:25] In fact, we're seeing about 20% of taxes paid in cash.
[28:28] I think that's an experience similar to what the BOE executive director stated in your December meeting.
[28:34] This is much less than one might expect, but certainly still much more than we would like.
[28:39] So from our perspective, we're continuing to refine and improve processes and equipment so that we can more efficiently process the cash
[28:46] We're already handling while preparing for the future. But this was not necessarily our first impulse.
[28:51] You know, originally we sought to engage our regular business partners, major financial institutions and services that we're accustomed to dealing with, and they certainly have the experience offer the resources and reliability that we in government expect from our business partners and of course knowing the issues presented by for a law, but we figured they must have some creative solutions, right, and that turned out to be not so much.
[29:16] As you all know, they won't touch the cash.
[29:19] That is, of course, unless we touch it first,
[29:21] which does give one pause, certainly an awkward paradigm
[29:25] for us all to be operating in.
[29:28] So what do we do when our tried and shoot business partners
[29:30] aren't an option, who's willing able to intercede
[29:34] and support fund acceptance from marijuana industry?
[29:37] And as it turns out, there's a number of players
[29:39] out there and Jared mentioned one, but why wouldn't I assume
[29:42] that many of the same obstacles major financial issues have
[29:45] wouldn't also apply to these firms, and of course with any new industry, where do you place
[29:50] your chips? The government typically looks for stability, experience, proven results in this
[29:54] partners, and these are things that are difficult to demonstrate in a new industry. Then you hear about
[30:00] A major technological failure, such as what happened in Nevada recently. And you have to ask, you know, just how much can we impose and should we at what costs and at what risk. Now, we then we go to look at maybe at what other California agencies are doing. And in some ways, further complicating the matter is the fact that you have multiple layers of government moving in tandem with potentially overlapping and certainly divergent interests and priorities. The state may require certain technology and reporting.
[30:29] accounting me out their own set of requirements in the city there. So I've
[30:33] spoken to and met with both state and county officials yet I have limited
[30:37] insight into what either are going to do ultimately. How do I establish
[30:42] requirements in the vacuum as we're all effectively racing against this clock
[30:45] that's striking January 1st and then you bring in the government procurement
[30:50] process into the equation and you'll be lucky to see advanced technological
[30:54] solutions in place by then.
[30:57] So what path should we follow?
[30:59] The Los Angeles City Council has asked this question of us.
[31:02] My office is reporting back to Council at the end of this month,
[31:05] and we'll present a range of options from new cash registers
[31:07] at our counters to point of sale software at the spend streets.
[31:12] But how long term do we plan for?
[31:14] Do we invest in building out a bank-like facility?
[31:17] How much some cost do we put in with so much uncertainty
[31:19] at the federal level?
[31:20] Does all get wiped out either because it gets shut down
[31:23] or because financial institutions are now allowed to bank marijuana money,
[31:27] do we align with new financial services supporting the marijuana industry?
[31:31] There's way more questions than answers.
[31:34] And it's difficult to commit to too much not knowing how the long term is playing out.
[31:40] And in terms of the city of Los Angeles, I can't tell you what the city will do yet,
[31:44] but in my opinion, the answer is that which we can mostly rely upon in a swift and prudent fashion.
[31:51] So I'll be putting my money on our tried and true processes, introducing some more
[31:56] best practices and taking some new approaches, all of which will be under our control.
[32:01] So this approach begins with upgrading our equipment, likely installing smart saves,
[32:06] shifting from annual payments to quarterly and monthly to break up payments, increased
[32:10] staffing to meet the increased workload, facility improvements, security improvements, and
[32:16] taking new approaches such as instituting an appointment system to better manage workload
[32:20] and the customer experience.
[32:22] Another key is engagement.
[32:25] We need to supplement our efforts with the experience
[32:27] and knowledge of marijuana industry professionals.
[32:30] To this end, we've engaged with local business people,
[32:32] such as Jared here, to discuss challenges
[32:35] and solutions to mutual issues.
[32:37] It's been very productive for us,
[32:39] and it has led us to make changes
[32:40] and initiate new approaches to how we do business.
[32:43] Establishing this work in the relationship
[32:45] allows transparency, fosters understanding,
[32:48] funding and working together ultimately allows us to be more successful.
[32:51] This is something we'll need to continue to do going forward as our experiences grow
[32:55] and new challenges develop.
[32:58] The final key within our collective control is for us as government agencies to communicate
[33:03] with each other across jurisdictions and level.
[33:05] It's easier said than done.
[33:07] I'm sure many people have gotten just as lost trying to navigate LA's bureaucracy as I have
[33:11] trying to navigate the state for answers.
[33:14] I'm very pleased we've in the city we know the foster relationship with LA County on this
[33:17] topic, including with Treasurer Joe Kelly, who appeared before you in the last meeting.
[33:22] And I look forward to establishing more dialogue with the state.
[33:26] And I don't know if there's an opportunity for me to plug for a good contact at VLE that
[33:31] I can talk to after this, but we need to achieve as much transparency and ease of access to
[33:38] information as possible if we're all going to be operating in parallel and establishing
[33:42] frameworks that work together or at least aren't going to collide.
[33:46] And that's why I so appreciate what Treasure Chung and this working group are doing.
[33:51] It's been fascinating to me to and helpful to hear the relatable experience of others.
[33:56] And while the ideal solution may be outside of our control, there's still much we can do
[34:00] to improve our success in managing the challenges presented by lack of thinking support for the
[34:04] marijuana industry.
[34:06] And transparency in what we're doing and communication amongst us are key.
[34:10] And I think it starts here with this group and now it needs to extend to all of us in the
[34:13] course of executing our plans. So, I hope I've been able to provide some useful perspective
[34:18] in terms of the City of Los Angeles and how we intend to approach the cash acceptance
[34:24] portion of our duties in noting that my comments don't pertain necessarily to audit, as much
[34:33] as how we're going to accept the cash. And, you know, thank you for taking the time to listen
[34:38] to me today. Thank you, Todd. Thank you for joining us. To my left is the Chairperson of the Board
[34:43] of Equalization, Fiona who's been incredibly active on this effort, so she is available.
[34:47] And then David Gao, David, if you would stand, David's the Executive Officer at the Board
[34:52] of Equalization, so I'm sure to go to Fiona, and then David's also available.
[34:57] Thank you, Mike.
[34:58] Yeah, we've been going through this similar exercises that you have, and so we're more
[35:03] than happy to share with you some of our trials and tribulations.
[35:07] I also do want to introduce a couple people from my staff, Tim Morlin, if you could just
[35:12] I understand he's my ledged director and all things cannabis goes through Tim, my chief
[35:19] of staff, Genevieve Jopanda is with me, and then Seth Dalton is part of our outreach team
[35:24] who also does a lot with the cannabis industry.
[35:27] So please feel free to reach out to all of us and again, David Gow is our executive director.
[35:31] He is taking this very seriously.
[35:34] He's a CPA as well and has been with the BOE for 30 plus years so kind of knows the ins and
[35:40] of the agency and hopefully we can try to make this better for everyone.
[35:45] Appreciate it. Thank you. Fiona's really big into CPAs.
[35:48] Yes, I just have one last thing with California being in the cannabis industry since 1996.
[35:56] It's time for us to get it together and LA needs to have a communication with Sacramento
[36:02] because for the only way for us to get it together is through dialogue.
[36:07] It's no way that Colorado or Oregon or Washington should be showing California how we are impacted.
[36:15] We are the mecca for cannabis around the world and when I say the mecca, I'm being
[36:21] reached out to Atlanta, Georgia from the mayor and we're going out there to speak to them
[36:27] about cannabis also.
[36:29] So it's time for us to be the green bear that we should be.
[36:33] So, so what is that Mayor Reed doing in Atlanta that we should be?
[36:37] Mayor Reed is ready to come up full, we're cannabis, they're ready and they ask us to come
[36:43] and help with how we're helping in LA with the ordinance for Proposition M with the City Council
[36:50] with her blessing in them.
[36:51] So they want to make sure we've been reached out by Guam as well.
[36:56] So, it's a few things that we just need to get L.A. and the state to work together,
[37:03] because there's no way that there's been 20 years, two decades.
[37:07] It shouldn't been this long.
[37:09] And we are the shining star for this new industry.
[37:14] So, Cassine, I'm sorry.
[37:16] So, Don, can you elaborate further on what's Cassine doing in specific in regards to banking in Atlanta?
[37:21] They haven't started on that part yet.
[37:23] they just interested about getting an ordinance going, they just reached out and asked us can we come up there and speak to them about what we're doing in L.A.
[37:32] So that's what we're taking up there next week to speak to them about what L.A. is doing. Everyone is waiting to see L.A.
[37:39] Come online when I say everyone everyone is waiting to see what L.A. how we get it together after 20 years.
[37:46] We're still dealing with things with pre-ICO dispensaries that didn't make the Prop D shops,
[37:53] didn't make it to the Prop D because they didn't have, we was getting landlord threat letters back in the day.
[37:59] We was getting ready, my partner won the six years in federal prison,
[38:03] but behind running a pre-ICO dispensary.
[38:08] And when the Feds came in, they came in taking everything.
[38:12] So now we need to make sure that this is a budding industry.
[38:17] That's all.
[38:18] And if we get banking online, I know it's all about the Feds.
[38:22] But if we get our stuff together down here, I think they're going to respect us a little better with this industry.
[38:29] Thank you.
[38:30] I wanted to commend Todd and the Office of Finance here in Los Angeles.
[38:36] They brought seven members of their team to our UCBA Trade Association.
[38:40] We've had direct communication with them about making appointments for cash deposits.
[38:47] We've gone through full discussions on how we are going to pay taxes.
[38:53] And when you have the government officials who are willing to listen to the industry,
[38:57] we do come up with compromises and we come up with solutions.
[39:00] So I really think that we need to start to try to have local offices like the Office of Finance
[39:05] to really make contact with the people who are paying these taxes, because they are
[39:10] going to tell you their hardships, and I can't tell you how much it has been a relief
[39:14] to have someone not only listen, but also compromise their position to allow us to become
[39:19] a part of the tax-paying people of Los Angeles.
[39:23] So I really thank Todd for being here and for being a part of this process.
[39:28] You want to elaborate further on what type of issues have been resolved through that collaboration?
[39:32] Yes, I mean being able to make an appointment to deliver cash gives them an opportunity to staff up
[39:37] They also told us that if we brought in 50s and hundreds that now they have to photocopy each one of those
[39:42] So bringing in 20s not only increases the size of this supposed duffel bag
[39:47] We're bringing in but it also it also it also decreases their time so based on that
[39:53] We have tried to as an industry make sure that we bring in 20s to reduce that staff
[39:57] We've also tried to talk about what it looks like to bring in the amount of money we're
[40:01] bringing in and how much we're bringing in at either time, and they've given us the reassurance
[40:05] that only three people in their office are going to know who's coming in during the
[40:09] appointment and how much money is being brought in, to give us the safety and security necessary
[40:12] to feel like we can trust the tax collectors, and it's not just going to be everyone in
[40:18] the office, it's going to know who's going to be there and how much money.
[40:21] So those are just a couple of the issues.
[40:24] I mean, Todd, do you want to elaborate on some other stuff?
[40:26] Yeah, gladly.
[40:28] I think it's been very productive, very helpful for us.
[40:31] They have obviously unique.
[40:33] Todd, I'm sorry, the end of framework, right,
[40:34] because I think it's probably the first time people are
[40:36] checking and describe treasury management functions.
[40:39] You're going to have these types of discussions.
[40:41] So can you describe that framework?
[40:44] The framework in regards to the application here.
[40:48] Oh, the application process?
[40:50] Sure.
[40:51] So this is something that came about from dialogue with Jared in his group and others in
[40:58] the industry.
[40:59] And so, you know, in the past, we never had anything of that effect.
[41:04] You basically, you come in and you pay your taxes, you know, or get in the queue or what
[41:09] have you if you're coming to a counter and pay.
[41:12] But normally people are paying with check or credit card, maybe a very small amount of cash
[41:17] That's that's being paid at a public counter and in the vast majority of people of course pay online or via the mail
[41:23] so
[41:25] Their challenges particularly unique no one no one comes in with the type of cash that they come in with and
[41:33] And so we really had never
[41:34] adjusted to that reality and and and
[41:38] Jared and his group brought forward the challenges that they face with regard to
[41:44] to delivering cash to the city,
[41:47] and it caused us to recognize a number of shortcomings
[41:51] that we had in our own processes or equipment.
[41:55] Jared mentioned, for instance, the fact that
[41:58] there was no, there was a requirement
[42:00] that we were photocopying bills, for instance.
[42:04] And because of that being brought to attention,
[42:09] we were able to resolve that issue by proper equipment
[42:13] for a counterfeited detection and have eliminated that process actually at this point.
[42:19] And so another issue, of course, is when people are coming in and people tend to come
[42:26] in around the same time of year or same time of months, and they do stand out in a crowd.
[42:32] And sometimes we will have cues outside of City Hall and even outside the block.
[42:40] And so it's very conspicuous.
[42:42] And so it was obviously apparent to us that there would need to be some extra precautions
[42:49] and extra measures put in place for cash acceptance for folks in this situation.
[42:55] So we've actually been piloting a new program with a number of dispensaries in order to allow
[43:01] them an opportunity to call in or email into us, establish a time that they'd like to come
[43:08] and then we'll confirm with them and then ensure that we have the proper staffing available,
[43:13] so that they can come in and be dealt with immediately and expedited out of there.
[43:18] And that's something that we're going to look to expand from here because I think it has worked out
[43:23] quite well so far. Go ahead. I mean, this wasn't an email sent to us. This was seven members of the
[43:31] office of finance that came to our group and laid out the plan to us while we negotiated and or
[43:37] compromise with different points that we're going to be a hardship for our group.
[43:41] We were talking about how we can bring security guards with us to make sure that the people
[43:46] who are to ensure the safety of our employees were bringing cash from mittens back to the
[43:51] office of finance.
[43:51] We discussed armored cars, like what it would mean like for a group like ours to hire our
[43:56] own armored car and bring it to the office of finance.
[43:59] We also talked about the different locations that would be more secure and that would feel
[44:03] feel more comfortable for the employees that would be remitting these taxes, where that
[44:07] would be the most safe and secure place.
[44:10] When you discuss all these things and we have understanding of why government made these
[44:14] decisions and how they will compromise to make sure that we have the same safety that they
[44:19] do, that is what this dialogue really created.
[44:24] And I think if we can encourage this dialogue to happen on a municipal level with the people
[44:28] inside their community in this industry, we'll find these kind of little nuances of
[44:33] answers that will be available because these are not the same answers that another city will have.
[44:38] The City of Los Angeles had some very unique ones due to the building size, the location, the
[44:43] security at that location, the ability to staff up and have the number of money counters and the
[44:48] size of the safe. That was really had to be discussed on the kind of minutias. So that being the
[44:55] communication there, having seven of their members come to talk to us personally really makes
[45:00] It says feel like they really care about what the answers are for our industry as well as for their employees. Thank you, Jared. Different, different focus. So the interface between you and your banks, the city of Los Angeles is made. So with the increase in cash that you are now handling, the, what is that requiring in regards to the PY, your staffing, what does it, what does it do to the costs for your banking, and how are you planning for that? Yeah, it, we've been dealing with it for a number of years.
[45:29] And so, you know, some of those costs have been kind of set for us in terms of our experience.
[45:37] Certainly, we would like to attempt to reduce those to the extent possible, and hopefully
[45:41] that's something that eventually, eventually we can get to.
[45:45] The banks have effectively told us, and not just our bank, but, you know, many banks
[45:50] that we've talked to on this issue, as well as armored carriers.
[45:56] effectively said that they can't have any direct relationship with it, and there were
[46:02] things that we sort of explored, well, you know, what if, you know, we could arrange
[46:08] armored carrier service, you know, and you pick it up for us or what if we arrange and
[46:14] it's delivered to you, and you know, time and again, we were told essentially that, you know,
[46:20] It's got to go through you first and unless that happens, there's no way around it or hands
[46:28] are tied.
[46:29] There are other companies out there that apparently are providing some of these services.
[46:35] I think it's definitely worth continuing to evaluate and have dialogue as to what they can
[46:43] bring to the table.
[46:44] But I know that we're not there yet and it's something that we need to continue to have discussions
[46:49] with and understand how they work relative to others that we deal with in the financial
[46:56] industry. But going forward at this point, we're kind of accepting this as sort of a cost
[47:02] of doing business. And our hope, of course, is that the industry continues to find ways
[47:12] as it has to mitigate or limit the amount of cash actually coming in. And I'm pretty sure
[47:18] That's what they want to, I know that none of them want to be in a position with a large
[47:24] amount of cash and having to transport that all over the city.
[47:29] Any member of questions or comments?
[47:31] Yeah, Jan.
[47:33] No, and Department of Business Overside, Todd, thank you very much for your work.
[47:37] You talked a little bit about POS machines, can you elaborate a little more of what you're
[47:42] thinking?
[47:43] and it sounds like you want them in the dispensaries or in the businesses.
[47:48] That is a topic of discussion and that is something that our city council has
[47:53] asked us to weigh in on and I think there's different perspectives on it.
[47:57] One is from the cash acceptance perspective which is more mine and then
[48:02] there's another perspective maybe from the audit perspective of our office.
[48:07] And so with these point of sales and there's multiple options out there
[48:12] And in a way, even the company that Jared mentioned is also, you know, in that regard point of sale because they're with the card and you're basically like a type of gift card type of situation that they're recording out there at their dispensary.
[48:28] But there's a number of different options that have developed over the course of the past few years.
[48:36] And so there's, I think where we kind of have a concern around the cash acceptance perspective is still how how is that cash getting to the city ultimately and do they have?
[48:53] Do we legislate something like that where we're requiring them to bring cash in these current carriers who may or may not have all the required?
[49:04] insurance, et cetera, and given kind of the backdrop with the federal government.
[49:11] And so that is, I think, still a question that we have to understand better.
[49:14] But from the audit perspective, I think that point-of-sale equipment makes a lot of sense
[49:22] because it allows you, per view, into what is happening at the dispensaries or other aspects
[49:31] of the vertical for marijuana, and so one of the concerns you have in audit, of course,
[49:38] is, you know, how are we going to audit these firms?
[49:40] You know, how are we going to send people out there, you know, to what inherent risks
[49:44] that does act create?
[49:47] And so as Jared said, there's receipts, but not necessarily a lot of really validated information
[49:58] that we may be tend to rely on in terms of how we're auditing firms.
[50:04] And so having a point of sale system that captures everything that's coming through,
[50:10] that would potentially allow us to capture that information and
[50:14] or review that information and establish whether or not we're receiving the tax payments
[50:21] that we should be relative to the sales that I've made.
[50:23] I think to the conversations we've had about point of sales has really helped with the
[50:29] analytics and also helps with kind of the accountability when it comes to seeing patterns.
[50:34] Patterns of flows of people versus how much per patient come in so that we can see patterns
[50:40] because right now we're trying to make sure that if we understand these patterns we can
[50:44] see who is under reporting, who's double booking, and so these point of sales systems are
[50:48] going to be super important for us to come online as soon as possible because now this is
[50:52] This is what we've talked about.
[50:53] We even talked about even offering some point of sale systems to create partnership letters
[50:57] in case there were some tax problems or increasing tax payments over time that there's going
[51:03] to have to be some accountability.
[51:05] These point of sale really do give us accountability.
[51:07] I gave the office a finance, not only my P&L statements on our last meeting so they could
[51:11] see not only what I operate as a business, so they could see that I'm not stuffing cash
[51:16] in a mattress.
[51:17] like I really do operate as a not-for-profit under Prop 215 and they need to understand that.
[51:22] I think when you deal with taxes and insurance and all the other things that a normal business has to go through,
[51:27] it's the illegal businesses that aren't paying taxes that don't have insurance,
[51:31] that may be stuffing cash in their mattress, but the legally operating ones are trying to stay above board.
[51:38] We have accountability through a point of sale systems and we want to make sure that we don't get pushed into a taxation
[51:43] that pushes us, pushes this industry back to the black market.
[51:46] So if you can see our analytics and you can start to make decisions on what taxation
[51:50] will be appropriate based on our previous receipts, then you'll be able to start making
[51:55] decisions on what taxation will be appropriate.
[51:57] So, and that's the discussions we get to have with the office of finance and we get to offer
[52:01] this kind of information coming from a group that has legally operating dispensary owners.
[52:06] We get to offer these kind of things because as a group we hold each other accountable.
[52:10] We give each other good business practices.
[52:12] And when you allow business trade associations like ours to really flourish, we now get
[52:17] to hold each other accountable and it's self-regulating, and we get to take that self-regulation
[52:22] to the office of finance and tell them what we've done, and then we get to come to a conclusion
[52:26] from there.
[52:27] I hope that answers your question from my standpoint.
[52:32] I have two questions.
[52:33] First is for you, Todd.
[52:35] I understood you correctly.
[52:36] You said that only 20% of marijuana businesses pay taxes and cash.
[52:40] I wonder what what are the other forms of payment look like from the other 80% fair?
[52:48] And this is speaking for say last year
[52:51] Primarily by check we had about 66% that came in by chief and
[52:56] a small portion by ACH
[52:58] very little credit card and electronic transfer
[53:03] Thank you, and Donnie you mentioned something that pertains to payments and
[53:09] With regard to on-site security, you said that you cannot have security guards inside your place of business and they cannot be armed.
[53:16] Why is that?
[53:17] They have to be outside.
[53:18] I don't know. We still try to figure that out.
[53:20] Is that so to look Lord Ned's or State Law?
[53:22] I think it's from Sacramento State Law.
[53:26] Thank you.
[53:27] You're welcome.
[53:30] Yes. Thank you.
[53:31] I have, ultimately, three questions, mostly for you, Mr. Bowie.
[53:37] The first one, you listed a number of procedural changes that you make.
[53:41] Is that something you could share with us?
[53:43] I hope to review that could be very helpful.
[53:46] Sure.
[53:47] It's a number of different things that we did.
[53:51] I don't know if I have a document that captures all of them, but I think effectively, it wasn't
[53:58] so difficult because, honestly, our processes were so antiquated, and so I think we've probably
[54:05] reduce about, on large sums of money, we've probably reduced by a good 33% of the time
[54:12] it takes to go through it. And that was primarily by adding counter-fancy devices or counting
[54:23] devices. So lack of that or having enough of those was causing us to take other ancillary
[54:30] types of precautions when it came to kind of see and that really added to the
[54:37] time. So instead of having instead of running through a machine we have
[54:40] people you know doing bill by bill by bill by bill and $100,000 is a lot of
[54:46] bills and and so it was taking hours you know to go through one you know you
[54:54] know deposit. So like I said just that alone is significantly reduced the amount
[54:59] of time. And then I think with regard to something we haven't done yet that we're really looking
[55:07] at and probably going to do is the utilization of smart saves, which I think will even further
[55:14] reduce our exposure with the cash as well. And of course get the money into the bank quicker
[55:19] and reduce our handling.
[55:21] Okay. And the second question I guess is sort of a two-part question here. You know, currently
[55:26] currently under the property framework, the community of businesses that's able to work
[55:31] with the local government is very narrow. I think that there's many, certainly within
[55:37] our industry, that are hoping that number will expand a bit. How are you prepared to
[55:42] scale these efforts and are you reaching out to folks who are you making any efforts to
[55:49] do outreach to folks who are not currently regulated? And if not, is there a way that we could
[55:54] start talking, you know, just to flag some of the numbers, our membership in L.A. when
[55:59] we pulled them 80% don't have bank accounts. And so that's a that's a striking difference
[56:04] from what you're experiencing. And then, you know, over the next 9 to 18 months, I think
[56:08] we're going to have some tensions. So, are you ready?
[56:11] Right.
[56:12] So we don't know yet in Los Angeles with regard to the initiative in March, and of course
[56:20] what will come to pass and even what the outcome will be relative to how many
[56:27] dispensaries and other operators in this industry is going to be. Is it going to be maintained at
[56:34] the less than 200 or is it going to proliferate? So we're basically sort of guessing in that regard.
[56:44] So at this point, we're looking to scale based on some metrics around our current experience
[56:52] with cash and the payment of cash and the number of dispensaries and essentially set staffing
[56:59] according to that model.
[57:01] So if it's 200, we need exit, it's 400, we need wide.
[57:06] At some point, though, it could become so huge that potentially if it was allowed to,
[57:15] that we would have to come up with a whole different model.
[57:19] Certainly, I think we have about, speaking to your point, I think we're aware that there
[57:25] might be more cash out there that we're certainly not getting.
[57:28] We know that there's, I believe, about 1,000 dispensaries that are on the register in the City of Los Angeles.
[57:37] Only about 200 of them are paying.
[57:41] And so what that other 800 represents, I do not know, but it may well be that they are primarily cash.
[57:51] I just want to say that what we create the system for the property shops who have already
[57:57] a system of point of sale and have already been kind of regulated with taxation, we're
[58:01] creating the system to be streamlined for the rest of the industry to kind of move into
[58:05] the same space that we've created.
[58:07] After March, yes, everyone's going to have a tax up to cultivators, manufacturers, everyone
[58:12] in the industry will be part of this tax system and being able to work with this group right
[58:18] right now to create a streamlined system allows the office of finance to be able to scale
[58:23] up to what will be Prop 64 and MCRSA laws as well as measure M laws under Los Angeles.
[58:31] And so I guess you know my question then to you Jared would be are you making efforts to
[58:35] get out into the business community beyond the small group because we do see some very distinct
[58:41] differences in the characteristics and we've had some very different experiences and so are
[58:45] are we actually building a system that works for everyone's needs at the local level?
[58:49] Well, I think because most of the people who are paying taxes with bank accounts, what
[58:55] you're doing is you're limiting the people who are scared to be in that system.
[59:00] We've kind of made an estimate of about $25 million should have been received in 2016
[59:04] and only 9.7 was received.
[59:07] So we kind of are on the feeling like if we open up the system more to cash, that more
[59:11] of these players will start to feel like they have an opportunity to pay their taxes
[59:15] and not under report, or not report at all,
[59:18] or feel like they have to be pushed into the shadow.
[59:20] So I think that this streamlined system
[59:22] really does create that space for more
[59:25] of these tax remittance to be collected.
[59:27] Also to your question, I don't think I addressed,
[59:29] but is that yeah, we're certainly open to more discussion
[59:34] with others, and so if that's something
[59:36] that you'd like to have a follow-up on that today.
[59:39] To your question, Heather Kaya,
[59:41] we also go out in our community,
[59:43] the Southern California coalition and we work with churches, local churches, we work with
[59:49] neighborhood councils and we work, we go around and make sure what's the problem is and what
[59:56] the communities have issues with in my community, in my district.
[1:00:00] We have more rogue shops than anywhere. And that's a problem. And I'm working with Marquise
[1:00:05] Hare's Dawson to identify the rogue shops to make sure that we put it into it. When the
[1:00:11] shop is open at 1 o'clock in the morning, and it's around the corner from my mom's house
[1:00:15] and this issue, so we need to get out to the community and make the community feel that
[1:00:21] they are part of this, instead of alienating. You know what I'm saying? Making cannabis alienated.
[1:00:26] This is just like the local grocery store, but we're going to hire more people, trust me.
[1:00:34] Thank you.
[1:00:35] I actually had a question on the POST, but I'm going to say that for our panel C coming up.
[1:00:39] The old thing I think is, Boltzmann's solution is going to be a technological answer, but I was thinking about this when you're talking about the flow and how the money comes from dispensary to the city.
[1:00:54] And I just kind of made me think about this and kind of think about flow chart of, you know, basically you have like I keep
[1:00:59] had this vision of like an armored truck blown into the city hall and even the city all taking out these pallets of cash and
[1:01:04] taking it into the, you know, wherever that goes.
[1:01:09] But then you know, then you take that to the bank and the bank takes that to the Federal Reserve basically.
[1:01:14] I mean, that's kind of how it works.
[1:01:15] There's a lot of steps in there that's that's that's probably the process and my question.
[1:01:20] And I imagine that the bank that you,
[1:01:22] I know there's a couple of national, large,
[1:01:24] national banks that the city deals with.
[1:01:25] And I imagine they even threatened a closure account
[1:01:27] if you bring this cash in, which is kind of,
[1:01:31] it's interesting, you think about it,
[1:01:32] because there's another lot of folks who run that risk.
[1:01:36] But the thing that also kind of caught my attention
[1:01:38] is when you said that 66% was done in check.
[1:01:40] So that would tell me that there are some folks
[1:01:42] who do have a bank relationship currently
[1:01:44] who are able to write those checks,
[1:01:47] that? Is that correct? And is that it? Are those institutions that are, we have those
[1:01:53] relationships, are they understanding that what the business does and everything?
[1:01:57] I might be able. This is a conversation we had had about four months ago with the office
[1:02:04] of finance about why they were receiving a majority of their payments through checks and
[1:02:10] stuff. It's like a collective a nonprofit, collective does not have a bank account. We have
[1:02:15] management companies that manage all the retail sales and employees and everything of
[1:02:20] those accounts.
[1:02:21] So when the office of finance gets a check, it is probably 100% time not directly from
[1:02:27] the nonprofit elective.
[1:02:29] So what you're doing is you're now pushing, you know, you're pushing the collective to
[1:02:32] have a management company so that they can have a bank account.
[1:02:36] And really, this is not, this is a place where you tell the bank that you are a retail management
[1:02:41] company.
[1:02:42] There's no denying that you are one, but now we have to pay those with those checks.
[1:02:47] And so that's where the balance is, and if you don't tell the rest of the industry how
[1:02:51] this works, then they don't have the ability to have a bank account.
[1:02:55] And even then, how do you deposit money into your own management company's account?
[1:03:00] And so that's where part of the problem is, is we lose these management accounts all the
[1:03:04] time through banks because we deposit too much cash into them.
[1:03:07] That's why I've had 8 and 15 years, because as soon as they see how much cash you bring,
[1:03:13] then they start to like deny you services.
[1:03:16] So I think that's where this is, and if we allow these nonprofit or these collectives
[1:03:21] to have bank accounts, then you will be seeing more checks from them.
[1:03:25] But this is a conversation we had had, because I wanted to finance to understand, I guess
[1:03:31] the loopholes or the hurdles we have, to make sure that we get you the money, because
[1:03:36] you know you don't want cash.
[1:03:37] We don't want to walk in because right now at the downtown office of finance, there's a six-story
[1:03:42] parking structure, 500 yards away. I have to walk through what is
[1:03:48] essentially a homeless encampment with a duffle bag full of cash walk across the street, go through security, and
[1:03:54] sometimes they then stand in line. I mean all of that is a safety risk. And so, you know, it would be really nice to be able to have
[1:04:00] to have this access to banking, but, you know, we are limited in that.
[1:04:04] So, hopefully that answers your question about why or where it comes from.
[1:04:08] I kind of want my assumption was, so I appreciate that.
[1:04:10] Understood, thank you.
[1:04:11] Yeah, we pay it ours, we'll catch your checks.
[1:04:15] Thank you.
[1:04:17] Jared, I'm wondering if you can walk us through one of these gift card transactions, and
[1:04:21] I'm wondering what the practical limitations are with those types of transactions.
[1:04:25] It seems like it's probably a workable solution for retail.
[1:04:29] Are there wholesale applications for it?
[1:04:31] Can you facilitate wholesale transactions
[1:04:34] through these gift cards or is that a non-starter?
[1:04:36] No, they're actually working currently right now
[1:04:38] to be able to pay vendors off for their products as well.
[1:04:42] Right now to go through the process,
[1:04:43] someone comes in with their credit card,
[1:04:46] a driver's license, and we take both of those
[1:04:50] and scan them through a swipe card.
[1:04:52] The swipe card populates all the fields
[1:04:54] with their name, address, and California ID number.
[1:04:59] And then we also slide the credit card number which also takes the same information.
[1:05:05] If those two things are verified, then the funds are now agreed upon that we put those funds onto a gift card.
[1:05:11] The gift card costs I think $3 to load the card like it would be a normal transaction fee for an ATM.
[1:05:18] Then that gift card now is used like a credit card for whatever amount is there, whatever's left on the gift card shows a balance.
[1:05:26] And then that gift card can be loaded onto through a website as well, so it doesn't have
[1:05:31] to come into the dispensary to add more money to it, but the initial loading of the card
[1:05:37] has to be a verified California driver's license and credit card that matched those.
[1:05:42] And this company is trying to find ways to be able to pay vendors in larger sums through
[1:05:46] this gift card transaction so that there can be ways of getting money into cultivators' accounts
[1:05:52] into manufacturers, so they're not all vendors who come into our shop, have to be paid and cash,
[1:05:57] and then they run into the exact same problems as bensaries do.
[1:06:00] I think dispensaries are just more in the limelight than the others,
[1:06:04] so I think we don't really understand what the hardships are for cultivators
[1:06:09] and all the rest of the industry and vendors.
[1:06:11] What's the current limitation on those transactions right now?
[1:06:14] How much can you put onto a gift card?
[1:06:17] What's the maximum that you'll be able to do for a customer application coming in?
[1:06:21] Currently right now, $500 is the maximum transaction per gift card, and I think that's a larger
[1:06:29] law than this company is trying to stay in compliance.
[1:06:34] Okay, very good.
[1:06:35] I'm going to end this line of question just because I need to get Julia so she can testify
[1:06:39] and catch her like back to Alabama, but I want to thank the first set of panelists for
[1:06:43] your terrific comments.
[1:06:44] Thank you.
[1:06:49] I'm going to have Tim make some quick update.
[1:06:52] Okay, we've been getting some electronic traffic that those people who are trying to stream
[1:06:59] this are not able to access the video stream and I'm told because I'm certainly not
[1:07:05] an expert in this that it works adequately and well with Internet Explorer but may not
[1:07:12] work with Chrome and it may not work with Firefox or Mozilla.
[1:07:18] I don't know about Safari, that's up in the air, but let's just, nope, I'm told that Safari doesn't work.
[1:07:25] All right, so if those of you who are texting your little hearts out to others,
[1:07:32] would please indicate to those on the other end of your communication that Internet Explorer is the way to go,
[1:07:39] we'll solve some of the frustration at that end. Thank you.
[1:07:43] Very good. Thank you. For our next section, we have just one panel member. As I referenced
[1:07:47] early Julie Anderson Hill, Ms. Hill has written extensively on legal issues surrounding
[1:07:53] the current state of cannabis banking and as among the foremost experts on challenges
[1:07:57] this working group seeks to address. Julie, welcome.
[1:08:01] Thanks for having me. It's great to be here. Do we know how I advance my slides?
[1:08:14] Perfect.
[1:08:15] Thank you. I guess that it's great to be here today. I'm primarily banking a lot
[1:08:20] expert. I teach at the University of Alabama School of Law and of course nothing I say represents
[1:08:26] anything that they think. Before I taught law I practiced law at the Washington DC office of
[1:08:34] Skadenarp's. I represented large financial institutions that found themselves in government
[1:08:39] investigations and then before I was a lawyer I worked at community banks in a variety of positions,
[1:08:46] including payment process, and so I've been doing banking for a while.
[1:08:50] And the way I came to become interested in marijuana banking was that I've often studied the intersection between what the law says
[1:08:58] and how regulators actually enforce the law, which I think is one of the issues that you face when you talk about cannabis banking.
[1:09:05] And so, a few years ago, when I was starting to think about this problem, I decided the
[1:09:12] way for me to get a good sense of what was going on is that I would stop at some marijuana
[1:09:18] dispensaries in Colorado, my family lives in Wyoming, so we traveled through the Denver
[1:09:23] Airport more than we would like, and so we just decided we would stop on the way to visit
[1:09:28] my family to many of their jokes, as you might expect, and see what was going on with
[1:09:33] banking and marijuana. So one of the places that I stopped was the choice organics in
[1:09:39] Fort Collins, Colorado, it's a dispensary. And you walk in and there's this sign right
[1:09:44] when you first get in that says we only accept cash, but there's an ATM located at the
[1:09:49] entrance. So I thought, well, that's pretty interesting. What they've done here is they've
[1:09:53] had some third party provide an ATM and then people who come to the shop to buy things
[1:09:58] can go get cash from the ATM and then use that in the shop. And I guess that doesn't
[1:10:03] to really solve the problem of what the business does
[1:10:06] with the cash, but at least from the customer's perspective,
[1:10:09] it makes it easy for them.
[1:10:11] So I go out and I look at the ATM and it's out of order
[1:10:15] and so I go back in and I say, what's the deal with the ATM?
[1:10:17] And they said, oh yeah, that worked really great
[1:10:19] until the third party ATM company figured out
[1:10:22] that we were a marijuana business.
[1:10:24] And then their bank said they couldn't offer ATMs to us anymore.
[1:10:29] And I tell this story because I think
[1:10:31] but it's indicative of many of the solutions
[1:10:34] that marijuana businesses come up with.
[1:10:37] They work for a short amount of time
[1:10:39] until everyone figures out what's going on,
[1:10:41] and then when somebody actually says down and thinks about it,
[1:10:44] they realize that it poses a lot of legal risk,
[1:10:47] and so it worked for a little while,
[1:10:49] but maybe it's not a long-term solution to the problem.
[1:10:54] The other thing I found is I visited marijuana shops
[1:10:56] in Colorado, less than a number of them do have bank
[1:11:00] accounts, almost all of them with Wells Fargo. I didn't take pictures of them to protect
[1:11:05] the bank accounts of those marijuana businesses, which I thought was interesting, especially
[1:11:15] because if you ask banks why they don't serve a marijuana industry, they say things like
[1:11:23] the spokesperson of Wells Fargo says. We buy by all federal laws and the distribution
[1:11:28] in sale of marijuana is illegal, so we don't think the sale of medical or recreational
[1:11:33] marijuana, in spite of the fact that when you go to businesses, many of them have those
[1:11:39] bank accounts.
[1:11:41] So, that's obviously what I'm here to talk about today is why marijuana businesses don't
[1:11:47] get bank accounts, and I think that the easiest thing to point to is a thing that Wells Fargo
[1:11:52] points too. That's the federal criminal laws governing marijuana. And we'll talk about
[1:11:59] those in just a minute. But at the outset, it's useful to note the banking structure in
[1:12:05] the United States. So we have what is called a dual banking system. Banks or credit unions
[1:12:10] can be chartered by national regulators, or they can be chartered by state regulators. And
[1:12:16] if they were just sort of two separate systems, we could just go to our state regulator and
[1:12:21] And she could tell us, you know, totally cool, go ahead and do it, and then your life
[1:12:26] would be terrific.
[1:12:27] But as we know, that's not exactly how it works here.
[1:12:33] In part because of the Constitution's supremacy clause, but also in part because of the main
[1:12:39] banking services that the federal government actually provides.
[1:12:44] So, let's start with the federal criminal law, the federal controlled substances acts,
[1:12:51] prohibit manufacturing, distribution, or dispensing marijuana.
[1:12:57] So if you do that, you are violating federal law, even if you're in a state that says
[1:13:02] it's okay, federal law, and from a bank's perspective, it doesn't just end there.
[1:13:08] I mean, they might be able to tell themselves, well, I'm not manufacturing, distributing
[1:13:11] or dispensing, but federal law also prohibits aiding and abetting the manufacturer distribution
[1:13:19] or dispensing.
[1:13:20] And guess what that means, financing these businesses.
[1:13:24] It also prohibits conspiracy to distribute manufacturer or dispense.
[1:13:31] So if you go into your bank and they help you plot out how you might expand your business
[1:13:37] that's conspiracy. And accessories after the fact are criminal. So if a bank helps you
[1:13:45] take your money that you got from your marijuana business, technically that's your an accessory
[1:13:53] after the fact. Now, it being a criminal violation is completely separate question from whether
[1:14:01] or not you'd ever actually be prosecuted for it, but to be clear, federal law goes far
[1:14:08] enough that if someone wanted to, could prosecute banks or bank employees for dealing with
[1:14:16] marijuana or cannabis businesses.
[1:14:20] And that's just the controlled substances that itself.
[1:14:24] On top of that, we have a variety of anti-mondering laws.
[1:14:28] laws. There are lots of different money laundering laws, but in general, what they do is they
[1:14:33] make it a crime to either get money from an illegal enterprise or send money to an
[1:14:41] illegal enterprise. So if you have a drug selling business and you take that money and use it
[1:14:50] for something else, that's money laundering. If you have money that's coming from a clean
[1:14:54] source in music, for example, to fund terrorism. That's also money-long, right? So...
[1:15:01] It was hard for the federal government to enforce money laundering laws until they figured out that they could make banks enforce these laws for them. And so they came up with this law, the Bank Secrecy Act, and they said, look, banks, you need to know your customers well enough in order to prevent money laundering. So you need to know where the source of the money coming in is coming from and what your customers are doing.
[1:15:31] with it. So they have to verify the identity of people in businesses. And in theory, they
[1:15:38] should know if any of their businesses are selling marijuana. And if they don't do sufficient
[1:15:46] due diligence to know this, they could run a foul of these money laundering laws. What
[1:15:50] happens if you commit the offense of money laundering? Well, there are criminal and civil penalties
[1:15:57] used for that, that are substantially for banks.
[1:16:01] So that's on the criminal law side.
[1:16:04] But even beyond that, so sometimes I hear people say, well,
[1:16:08] if we just change the control substance
[1:16:10] is that this would solve all of our problems.
[1:16:14] Maybe.
[1:16:15] But to the turns out, you have lots and lots of problems.
[1:16:21] So even for state chartered banks or state chartered credit
[1:16:26] unions, the federal government
[1:16:27] even outside of criminal law and even setting aside the Constitution's supremacy clause has a lot of control over what state banks do.
[1:16:37] And one of the primary ways that they get control over state banks and credit unions is by providing federal deposit or share insurance.
[1:16:47] So the federal government says if you take your money and you put it in FDIC or NCUA insured institution
[1:16:55] And that institution goes out of business at least $250,000 in your heart or in money will just be given back to you by the federal government.
[1:17:05] And this is supposedly what makes us all happy to go put our money in banks.
[1:17:10] It was a measure adopted after the Great Depression.
[1:17:14] And this works great, but as you might expect with the federal government being the insurer,
[1:17:20] they want to make sure that the insurance they're providing is a good risk, so they want
[1:17:26] to make sure that all these banks that have federal depositors share insurance are safe
[1:17:31] and sound.
[1:17:32] And this gives them lots of authority to tell banks or credit unions what they can do.
[1:17:38] And so they have a plethora of laws and regulations about this, but what I want to touch on today,
[1:17:44] because I think it's particularly important for the cannabis industry, is the FDIC has
[1:17:49] becoming increasingly alarmed by what they call reputational risk.
[1:17:55] The idea is basically that if the bank does something that hurts its public perception,
[1:18:02] that it might cause a run on the bank and this would be costly to deposit insurance fund.
[1:18:07] And under this umbrella of reputational risk, the tell banks time and time again that you
[1:18:14] to be aware of the risk associated with third-party payment processes.
[1:18:20] So what they want is they want banks to assure themselves that if they're dealing with
[1:18:26] an ATM company or a gift card company or someone else like PayPal that provides third-party
[1:18:33] payment processing, that those third-party payment processors are complying with all the
[1:18:39] same laws that the bank would have to, that this third-party payment processing isn't just
[1:18:44] a way to get around anti-money laundering laws.
[1:18:48] And so that's one of the things that makes me skeptical that some of these payment systems
[1:18:52] that we're seeing emerging are long-term solutions for cannabis businesses.
[1:18:59] I think that it's right to think that some of them will succeed for a short amount of time
[1:19:05] until they become successful,
[1:19:08] but then once they become successful,
[1:19:12] regulators are on to them and that's potentially a problem.
[1:19:21] And that's just, so that's just deposit insurance.
[1:19:24] I guess I should mention that for credit unions
[1:19:27] in nine states, California being one of them,
[1:19:31] they don't technically need federal insurance.
[1:19:34] You can get private share insurance that provides a similar amount of coverage.
[1:19:39] In the United States, there's only one company who provides this ASI, ASI says we know about
[1:19:49] money laundering, and we're not providing deposit insurance to banks that want it so that
[1:19:57] they can serve the marijuana industry.
[1:20:00] There's some developers out in Colorado that are hoping to start a credit union, and they
[1:20:06] have begged and pleaded with ASI for private share insurance and ASI laughs at them.
[1:20:12] So to the extent we were hoping that might be a loophole in some states at least right
[1:20:18] now.
[1:20:19] It isn't now put some other share insurance company or some foreign insurance company provide
[1:20:24] share insurance, share in theory. I don't know if any to give you their cards so that you
[1:20:32] can call them. So that's a possibility. Aside from the FDIC, we also have the Federal
[1:20:39] Reserve. And one of the things that the Federal Reserve does is that it provides many of the
[1:20:45] payment systems that we're all familiar with. So if you send an ACH, that happens on the
[1:20:54] federal reserves, ACH systems.
[1:20:57] They have to grant financial institutions access
[1:21:00] to be able to process these electronic payments.
[1:21:04] It's the same thing for large wire transfers.
[1:21:07] If you don't have access to send ACH payments
[1:21:12] as a practical matter, you're not going
[1:21:14] to be a bank for very long.
[1:21:16] That's one of the things you must have,
[1:21:19] not because the law says you must have it,
[1:21:21] but because you want to process transactions.
[1:21:25] And so historically, access to the payment system
[1:21:29] was just sort of given.
[1:21:31] They figured that the FDIC and the financial regulator,
[1:21:36] whether it was the state or the OCC and the other federal
[1:21:41] regulator, whoever was chartering it,
[1:21:43] would do all the due diligence to make sure
[1:21:46] that there was no trouble with the payment processing.
[1:21:48] But that's not how it has to work.
[1:21:53] It's their payment system.
[1:21:55] They can take their ball and go home.
[1:21:58] So that's another potential problem for banks that,
[1:22:03] even if you fix the control substances act,
[1:22:09] if you can't convince the Federal Reserve that this isn't that risky,
[1:22:14] we might wind up in a situation where banks are still having trouble.
[1:22:18] processing payments simply because their regulators think that it's risky, and so I think
[1:22:24] it's a two-pronged problem. One, you've got the law itself and two, you've got the risk
[1:22:30] that you have to acknowledge comes with the industry and you've got to get to a point
[1:22:34] where you can convince the regulators that the risk is not that large, because your risk
[1:22:39] looks very much like the risk of someone that's selling alcohol or something else that some
[1:22:45] people don't like, right?
[1:22:49] So we mentioned earlier I think another thing that we want to be aware of
[1:22:56] is that just because it's illegal doesn't necessarily mean that it will ever be enforced.
[1:23:03] So this is where the Department of Justice guidance first the coal memorandum from 1990
[1:23:08] from 2013 and then just a supplemental memo a few years later said look we
[1:23:17] the Department of Justice understand we can't enforce all the marijuana laws
[1:23:22] we've been relying on states to do that and we're gonna let you know what our
[1:23:25] priorities are seems like a good idea right because then if you're not in
[1:23:31] their priority it gives you some amount of assurance that you'll be okay so they
[1:23:37] If they come up with nine enforcement priorities, many of them you've probably heard of, one is that they want to prevent the distribution to minors or in areas near schools.
[1:23:48] They want to prevent marijuana receipts from going to criminal enterprises, cartels, gangs, things like that.
[1:23:55] They want to prevent the diversion of marijuana from states where it's legal, like in Colorado, to other states where it's not like Wyoming.
[1:24:02] They want to prevent the sale of marijuana as state dispensaries from expanding out into
[1:24:08] the trafficking of other illegal drugs.
[1:24:11] And here might be where one of your concerns about having armed guards in here, the spensaries
[1:24:16] comes from.
[1:24:17] We want to prevent violence and firearms in the distribution of marijuana.
[1:24:23] And so some folks think that means that even state legal dispensaries should be not excessively
[1:24:31] liberal and their use of firearms, preventing drug driving, preventing the growing or use
[1:24:37] of marijuana on public lands. So this leaves, as you might imagine, lots of room for
[1:24:44] state legal businesses assuming the Department of Justice follows these guidelines.
[1:24:52] A few years or so later they follow up with this because banks and marijuana businesses
[1:25:01] are complaining this said nothing about banking.
[1:25:04] So we get some supplemental guidance and it says if you provide banking services to marijuana
[1:25:12] want to really edit businesses, then prosecution might not be appropriate, but if you come in
[1:25:21] a file of those priorities, that's a problem.
[1:25:26] And also banks don't think that you can just bury your head and sand here and rely on
[1:25:32] your customers to do the right thing.
[1:25:34] If you're willfully blind, that's the problem, too,
[1:25:38] and you're in our range of target criminals.
[1:25:47] So all this is great, but that's just the Department
[1:25:49] of Justice.
[1:25:50] Banks still have all these regulators out there.
[1:25:54] And banks probably weren't that concerned about being hauled
[1:25:58] off to jail in handcuffs, because at least for large bankers,
[1:26:04] That almost never happens to them.
[1:26:09] So, they probably weren't that worried about the Department of Justice to begin with.
[1:26:13] Maybe they were worried about some large fines for money laundering, but, you know, especially
[1:26:18] big bankers.
[1:26:19] They weren't that concerned about going to jail, but they were concerned about fines, but
[1:26:26] they had these other regulators.
[1:26:27] They don't want to be shut down.
[1:26:29] They want to make money.
[1:26:30] I mean, that's what they're there for.
[1:26:33] It's a great thing.
[1:26:35] American Dream.
[1:26:36] So, they weren't worried about what about Finson
[1:26:40] and what about the other regulators.
[1:26:42] And Finson said, well, we think that there's a way to comply
[1:26:48] with the money laundering laws.
[1:26:50] And the way for you to comply with this is by preparing a variety
[1:26:55] of time-intensive reports.
[1:26:58] They didn't say it exactly like that,
[1:26:59] but they should have.
[1:27:02] So they said, look, we got all these new reports.
[1:27:04] You know how you're supposed to file a suspicious activity
[1:27:07] reports.
[1:27:08] Well, we have got a whole new bunch of them
[1:27:10] for your marijuana businesses.
[1:27:13] First of all, you should file a marijuana limited
[1:27:17] suspicious activity report if you've got a business
[1:27:21] and you think it complies with all the federal priorities.
[1:27:24] But you've got to tell us a lot of information about it.
[1:27:27] You've got to tell us how much money
[1:27:28] they have and when it's coming in and where they're getting it from and who's running
[1:27:32] this business and you've got to do that at least every 90 days but probably more often.
[1:27:39] So that's a lot of work for businesses that are ostensibly applying with state law.
[1:27:45] But then they said, well there's more of that too because what if you have a business that
[1:27:50] was supposedly complying with state law but you're concerned that maybe some of their customers
[1:27:56] or actually taking marijuana across state lines,
[1:27:59] well then you get a file of marijuana priority.
[1:28:02] So, without tipping off the business mind you,
[1:28:05] and tell us why you think they're violating the law,
[1:28:07] because you know, you're an arm of the federal government's
[1:28:12] enforcement mechanism for money laundering.
[1:28:15] And if you decide to terminate a business as a customer
[1:28:18] because you're worried that they're not complying
[1:28:20] with the law, then you need to file a marijuana termination.
[1:28:26] and if you're getting cash,
[1:28:32] we need you to report that, too. The amount of cash every
[1:28:36] time it comes in, where it came from, who brought it in, where they got it from, probably
[1:28:44] where they got it from.
[1:28:48] And this is not that easy. It's hard.
[1:28:53] And it requires collecting
[1:28:54] lots of information. And so now, even if a bank could do it and do it right and be convinced
[1:29:00] that they weren't making any mistakes is very costly for them and remember they want to make money
[1:29:07] and so they want to pass the cost along to the marijuana industry if they can, assuming I think
[1:29:15] that they can do it right.
[1:29:21] And here's the other thing about the Finson guidance.
[1:29:25] The Finson guidance
[1:29:26] says that if you don't implicate any of these eight priorities, then prosecution may not be appropriate.
[1:29:38] Not is not appropriate. We won't prosecute you. It may not be appropriate.
[1:29:47] I mean, what do they
[1:29:48] think? Bankers can't read.
[1:29:52] So
[1:29:55] the guidance isn't particularly robust. It uses the word may, which
[1:30:00] It doesn't give anyone a lot of assurances, and it sets a very high bar for compliance, especially at the retail level. Think about how a bank is supposed to know that a retail operation is selling to a customer who is for sure not going to turn around and give that marijuana to a minor or someone who's going to take it across state lines, or someone who's not carrying a weapon on them when they buy it. I mean, how do you know that as a bank?
[1:30:28] how do you know that as a dispensary even so how do you come if this really is
[1:30:38] the bar that you have to know these things it's very hard now it might be that
[1:30:45] this is what they say the bar is but their bar is actually somewhere else it's
[1:30:50] happens in banking they say one thing but then they really enforce some lower
[1:30:54] level of compliance. But again, how do you know that? This is risky, particularly for banks
[1:31:00] that already are making money and doing very well. Thank you. And cannabis industry is growing.
[1:31:07] There's a lot of money there, but I mean, if you want, if you're a bank and you already have a good
[1:31:14] amount of business, what makes you want to take this risk?
[1:31:21] So, but fits in super proud of themselves.
[1:31:23] their director says we've solved the marijuana banking problem super
[1:31:28] proud of themselves and they say we know it's working because we get these
[1:31:33] SARS and so we know that people are banking the marijuana industry and we say
[1:31:37] oh really how many SARS have you got and they say we've got SARS from 320
[1:31:43] financial institutions or that's banks and credit unions they also got a few
[1:31:49] SARS from some securities firms, some money services businesses, that's like Western Union,
[1:31:56] a few from casinos.
[1:31:59] Okay, so 320 banks out of 13,000-ish.
[1:32:05] They don't tell you what kind of SARS those are.
[1:32:07] So some of those are marijuana termination SARS.
[1:32:10] Some of those are from financial institutions that figured out they were banking a marijuana business and cut them off.
[1:32:16] Some of them, there's marijuana priority SARS, so they figured out that the business was doing something wrong and they turned them in.
[1:32:25] So it's not clear at all that those 320 financial institutions are ones that are voluntarily banking the marijuana industry.
[1:32:35] Anyway, so if Fincent tells you the problem is solved, they're wrong.
[1:32:44] And another limitation, of course, with the Department of Justice and Fins and Guidance
[1:32:49] is that it's just guidance and that it can change with whoever might be enforcing the
[1:32:56] mechanism at a particular point in time.
[1:32:58] And so it might be that the Trump administration does not see marijuana exactly the same as
[1:33:04] the Obama administration did.
[1:33:07] In terms, President Trump has said that he thinks it's a state-by-state issue.
[1:33:12] Of course, he can change his mind on that at any time if he would like to.
[1:33:18] Jeff Sessions, I get to hear a lot about what Jeff Sessions thinks living in Alabama.
[1:33:24] I remember well when he said that good people don't smoke marijuana.
[1:33:29] He had my mom agree on this point.
[1:33:35] But he's just barely going through the confirmation hearings.
[1:33:39] It's hard to know exactly what he thinks.
[1:33:42] He recognizes that the federal government probably doesn't have the resources for full enforcement of federal marijuana law.
[1:33:49] But at the same time, he's very hesitant to say that there are federal laws out there he's not going to enforce that are not a priority for him.
[1:33:57] So we're at this state where it's clearly illegal, federal regulators have substantial
[1:34:07] authority to regulate banks with respect to risk, and that includes a risk posed by marijuana
[1:34:15] industry directly as well as by third-party payment processors or vendors or that sort of thing.
[1:34:20] And then we have a situation where even the enforcement mechanism that we have working
[1:34:27] now isn't necessarily guaranteed to continue.
[1:34:32] Might be also interesting to think for just a minute about some of the things that have
[1:34:37] been tried elsewhere.
[1:34:39] So Colorado decided that what they would do is that they would have a separate charter
[1:34:44] for what they called cannabis credit co-ops.
[1:34:47] They were going to be financial institution like things that were chartered by the state
[1:34:52] of Colorado.
[1:34:54] They were going to be owned cooperatively by members of the cannabis industry, sort of
[1:35:01] like a credit union, but they said, well, one way we're going to keep the federal government
[1:35:05] out of our businesses, we're not going to have them be federally insured.
[1:35:09] And so that way, at least we don't have the problem with the FDIC or the NC way looking
[1:35:15] over our shoulders simply because they're providing share insurance and we don't have to
[1:35:19] go out and find private share insurance either because they're just not going to be insured
[1:35:24] and this is just what the industry is going to have to live with because they're different
[1:35:29] from everyone else.
[1:35:30] And it seemed like a good idea at the time it was passed but when they were writing the bill
[1:35:38] Well, they came up with a few things that were designed, I think, to make the state not
[1:35:45] be a target.
[1:35:46] So they said that these co-ops had to get access to the Federal Reserve system, which meant
[1:35:52] that you had to convince the Federal Government that this wasn't money laundering, but it
[1:35:59] is money laundering.
[1:36:01] So that's a problem.
[1:36:03] And they also said that you had to comply with all federal law.
[1:36:06] And so, again, lawyers in Colorado can read, and people who might want to start cannabis
[1:36:14] credit co-ops can read, and they looked at this, and they said, well, I can't do that.
[1:36:22] I guess the whole point.
[1:36:24] And so there are no applications for cannabis credit co-ops in Colorado, because on its face,
[1:36:34] If you couldn't do that, that was the whole point of having something different.
[1:36:43] So a group of people who were originally considering a cannabis credit co-op and pushing for
[1:36:50] that legislation decided that actually the better way to go about entering the marijuana
[1:36:56] banking business was to just get a Colorado credit union.
[1:37:01] So the folks that were trying to start fourth-coronored credit union, they applied to the state
[1:37:06] Colorado. Colorado gave them a charter and said, sure, we're happy to let you be a credit union
[1:37:12] in Colorado. But Jeff, so, you know, you know, you need some insurance, but we're going to provisionally
[1:37:19] give you a charter. And, you know, we don't require it, but we think you're probably going to want
[1:37:26] a Federal Reserve Master account, too. So, you know, go ahead, find with us, let us know how it goes.
[1:37:35] It didn't go so well.
[1:37:38] So they applied for a master account Federal Reserve said, I don't know if you're aware
[1:37:44] of this, but it's money laundering, and the NCUA said, no, you're going to bank marijuana
[1:37:52] businesses, no, no.
[1:37:57] And so then they said, well, now that we've been denied, we should ask the court to do
[1:38:03] something about this and as it turns out judges can read and so they looked at the applications
[1:38:15] and said well we don't see a judicial mechanism for forcing federal regulators to engage in
[1:38:24] activity that might be viewed as money wandering under federal law that seems to us like not
[1:38:28] something a court can do. Would your mileage vary if you found a different
[1:38:34] court? I mean we all sort of know that the night circuit is a little different
[1:38:39] than the 10th circuit where Colorado is. I
[1:38:45] don't think so. I don't think even the
[1:38:47] night circuit would go that far but that's just my prognostication so someone's
[1:38:53] perfectly happy to try to run that down in California and see if you get a
[1:38:57] different answer. I think the chances aren't that high.
[1:39:04] So here's what I think. I think
[1:39:07] that the path to marijuana banking is that Congress has to take action to legalize marijuana
[1:39:16] or clearly prevent the punishment of banks that serve the industry. And I think it has
[1:39:24] to happen at the level of Congress.
[1:39:26] I don't think, given the existing state of law, that courts can do it, and I don't think
[1:39:32] that there's anything that can be done on the state level to do it, and I don't think
[1:39:36] that there's anything that can be done administratively to give, even at the federal level, to give
[1:39:43] banks the level of comfort that is useful to them.
[1:39:46] So I should probably mention one thing that's been sort of tried, attached to an appropriations bill was a writer that said that federal resources could not be used in certain states to prosecute people who were complying with who were otherwise complying with state marijuana laws.
[1:40:13] And then what happened is the Department of Justice found medical marijuana users in the
[1:40:20] Ninth Circuit who were complying with state law and prosecuted them criminally anyway.
[1:40:26] The case went up to the Ninth Circuit and the Ninth Circuit said, yes, in fact this
[1:40:31] writer prevents the prosecution of someone who's complying with state law.
[1:40:37] And so some people were very excited about this case, US versus Macintosh, and said,
[1:40:43] this is the opening we've wanted, you know, all we need is this appropriations writer.
[1:40:50] Why it doesn't work this way for banks, I think, is that you've got to understand what
[1:40:56] banks were concerned about from the beginning.
[1:40:59] And part of it was perhaps the criminal law, but part of it is this safety and sound
[1:41:10] is regulation from their regulators.
[1:41:13] And I don't think that an appropriations rider keeps your federal regulators from setting
[1:41:19] your compliance burden so high that you can't comply with it or prevents them from taking
[1:41:25] your deposit insurance if they think that you're too risky and so I just don't think
[1:41:30] that that goes quite far enough which brings me to my second point is that even if you
[1:41:38] legalize or say that states get to decide the question of criminal law, you still need
[1:41:45] a mechanism to make it clear that there are going to be reasonable due diligence requirements
[1:41:52] for banks if they serve the industry.
[1:41:57] So even if the federal government said tomorrow states you decide it could be that the Federal
[1:42:03] Reserve and the FDIC still say you've got to make sure that no one leaving a marijuana
[1:42:12] dispensary is taking that marijuana across state lines or giving it to a minor.
[1:42:18] And if they do that, it doesn't matter how legal it is, banks won't be able to comply
[1:42:25] with it, and they'll be worried about it, and we'll want to avoid the industry.
[1:42:29] So part of the solution has to be getting clear to diligence requirements.
[1:42:38] I think that someone else at some point was going to talk to you about Operation Chip Point,
[1:42:43] which is a federal program that was trying to stem the flow of other illegal activity
[1:42:52] by cracking down on banks that did business with that sort of thing.
[1:42:56] But that's an operation choke point is an example, I think, of a situation where you have
[1:43:03] activity that is ostensibly legal, but you see the great power of federal banking regulators
[1:43:09] to make banks curtail that type of activity in the same sort of think it
[1:43:14] happened here even if the Control Substances Act was changed or marijuana was
[1:43:19] rescheduled. And that's basically what I see is the path. I suppose someone who
[1:43:27] lives in the South should never offer this as a solution but since it's in
[1:43:31] California and other people have already floated this, I suppose another option is
[1:43:36] for you all just to secede.
[1:43:45] Um, Professor, can I ask a question?
[1:43:47] Yes, please.
[1:43:47] So, one and two, the relationship, is that, are you stating that as an end or a, or relationship?
[1:43:55] I think you need both.
[1:43:56] So, I think you, you need a change to federal law that makes it clear that banks aren't going
[1:44:02] be punished under criminal law, and then I think you need reassurances or limitations
[1:44:09] on the risk regulating authority, federal regulators, so that the due diligence requirements
[1:44:18] are not set too high.
[1:44:19] I think you have to have both otherwise as a practical matter you're not going to wind
[1:44:22] up with, with cannabis banking.
[1:44:25] And then you've spoken to pieces of it, but I just want to raise it because there's a discussion
[1:44:31] amongst some that advocate for a state bank claiming or stating that it would not have
[1:44:38] be subject to all the rules and regulations and laws subject to national and state banks.
[1:44:46] So can you can you think of any application where they're not subject to the same rules or
[1:44:51] they're immune from some of those provisions?
[1:44:53] Well, it depends on what you want your state bank to do.
[1:45:00] To do, right? Do you want your state bank to have access to a payment processing system provided by the Federal Reserve? If you do, you have to play by their rules. There's no getting around that.
[1:45:17] If you have a state bank that processes marijuana payments using its own system, you have to be aware that that state bank is still violating federal law.
[1:45:29] You still have the control services act.
[1:45:33] You still have the anti-money laundering laws, and it might be that that's fine because
[1:45:42] no one will ever prosecute you for it.
[1:45:45] That's, I think, the view of most state taxing authorities.
[1:45:51] They all know that they're getting money that is from an illegal source under federal law.
[1:45:59] But state taxing authorities have just decided that, well, okay, let the Department of Justice
[1:46:05] come in and arrest us all and let's see how that goes, you know, they think as a political
[1:46:11] calculation that that's not going to happen.
[1:46:13] And so you think the same thing would be true with respect to a state-owned financial institution.
[1:46:24] But where I really see the trouble coming is that when that state financial institution
[1:46:28] and wants to deal with a financial institution
[1:46:31] that's not a state financial institution.
[1:46:34] And everyone knows that that state financial institution
[1:46:36] was created for basically one reason
[1:46:38] and that was marijuana payments.
[1:46:42] Does the federal government have the power to make it
[1:46:45] so that no bank can actually do business
[1:46:47] with your state bank?
[1:46:49] Yeah, absolutely.
[1:46:52] Would they do that?
[1:46:55] I'm a law professor.
[1:46:57] Get the political science folks in here.
[1:46:59] and ask them. I mean, I don't know. I think that's a harder calculation. I think it's a harder
[1:47:05] calculation, the more states you get that we lie, some form of marijuana, but I don't know.
[1:47:13] That's a risk you'd have to decide if you were willing to take.
[1:47:19] So I agree with everything.
[1:47:21] After two years of talking about all these experts, I came to the same conclusion you did.
[1:47:25] But the State Board of Equalization has been collecting taxes, co-mingled funds for
[1:47:30] the last 20 years.
[1:47:32] And you're not in jail?
[1:47:33] We're not in jail.
[1:47:34] And so my first proposition was, why can't we do more at the State Board of Equalization?
[1:47:42] Franchise Tax Board collects taxes, EDD collects taxes.
[1:47:46] I mean, we are all collecting taxes at the state level, right?
[1:47:49] So, you know, I think all states, actually, as we're going around talking different states,
[1:47:57] they're all doing the same thing.
[1:47:58] Every state agency is collecting money that is co-mingled and putting it into whatever
[1:48:03] their bank is.
[1:48:05] If some of those stylists do go to the Fed, right?
[1:48:08] Yeah.
[1:48:09] Right.
[1:48:09] And you've heard me say, I'm like California, we're like the biggest money laundering in the country,
[1:48:15] probably, right?
[1:48:16] So, you know, if we're doing it and everybody's state is going to do, you know, 23 states
[1:48:23] now have passed some sort of law and everybody wants to collect taxes, everybody is going
[1:48:27] to be doing it at the state level.
[1:48:32] Well, my parents taught me that everyone's doing it, excuse, doesn't always work.
[1:48:39] And that's really the trouble here, right?
[1:48:42] The trouble here is that you don't know at what point you're going to provoke the federal
[1:48:49] government.
[1:48:49] It's just hard to know that in advance.
[1:48:52] So it could be that you'd be, you could get away with doing more.
[1:48:58] That could very well be the case, but that's just it.
[1:49:02] You're getting away with doing more and so when you cross the line, I can't tell you where
[1:49:10] that enforcement line is. In fact, as a lawyer, I'm supposed to tell you it's illegal.
[1:49:19] That's the pesky trouble with lawyers. They put these ethical rules in and we're supposed
[1:49:22] to tell you when you're doing stuff that's illegal and so that's what they do and it makes
[1:49:26] us unhelpful. But that's the trouble. You don't know where, could you do more? Maybe, but
[1:49:35] you don't know where the line is. Where's the line where you would provoke the federal
[1:49:39] government into taking action against you.
[1:49:49] I'm with the credit unions and one of our
[1:49:52] concerns and not only the CSA and other stuff is the RICO Act. I was wondering if you
[1:49:57] would talk a little bit about that because if we fix the deposit problem we still have
[1:50:01] the lending problem and we can't just have a lot of deposits and cash come into our institutions
[1:50:06] without also lending that out. So I was wondering if you could maybe talk a little bit about
[1:50:10] that.
[1:50:12] So, Rico is designed to prevent criminal enterprises, the question is about how the
[1:50:23] Rico statues, racketeering and corrupt enterprises would prevent credit unions or other financial
[1:50:33] institutions from lending, even if you solve a deposit problem, let's see you get it so
[1:50:38] that credit unions can accept money coming in, what happens when you lend it out.
[1:50:47] And there are all sorts of problems when you lend it out.
[1:50:52] One thing that might happen is that you'd be subject to criminal forfeiture law.
[1:51:01] The business itself is subject to criminal forfeiture laws, and so it could be that when
[1:51:07] your collateral is seized and the cannabis business doesn't pay you back. You have no real
[1:51:14] recourse for that. Another problem even beyond the recose statutes is just with basic contract
[1:51:23] law. At common law, contracts are that are made for an illegal purpose or not enforceable.
[1:51:32] And so you go to a court to try to enforce the lending contract you've made with the borrower.
[1:51:43] Now, you say, well, but I go to a Colorado state court to enforce my Colorado or go to a California court to enforce my California contract.
[1:51:53] And they would be sympathetic because we legalize marijuana here.
[1:51:59] What happens if you've got to find answer across the board or what happens if you just
[1:52:05] got that one judge, you think the electorate got it wrong, so yeah, you've got problems
[1:52:12] on the lending side too.
[1:52:15] Now to be clear, the problems on the lending side go away if you can get both of these things
[1:52:21] to happen.
[1:52:22] If you don't have a recode problem, if it's no longer illegal, illegal, or if you can't
[1:52:28] punish the industry for banks that serve the industry, same with your due diligence
[1:52:34] requirements.
[1:52:34] They go way down too.
[1:52:36] So, if you use this way to solve your deposits coming in, I think you also solve almost all
[1:52:43] of your back end problems on lending too, but yeah, lending is hard and financing is hard.
[1:52:50] For those who are interested in the forfeiture issue that Professor Hill raised, that's going
[1:52:55] to be part of the discussion in the next working group meeting.
[1:53:01] Thank you.
[1:53:05] Professor, can you talk a little bit about the process of clarifying the due diligence
[1:53:10] requirements that be through rewriting the regulations themselves or through some clarification
[1:53:15] vacation process then by a regulatory agency?
[1:53:18] How might that come about?
[1:53:23] So, I think one thing is that you could just do it
[1:53:28] with congressional action, all right?
[1:53:31] It, you could spell out a safe harbor in a federal statute
[1:53:37] that said if you've done these five things,
[1:53:43] we're going to presume that that's the gold standard and if it turns out that some marijuana
[1:53:50] escapes across state law and the bank's not responsible.
[1:53:54] So you could use congressional action if you've done these things, you fall within a safe
[1:54:00] harbor.
[1:54:01] You could do the same thing with regulation.
[1:54:05] The trouble with regulation, administrative rules, is that you have to convince the
[1:54:13] regulator, but they want the rules. And so federal regulators could create a safe harbor
[1:54:20] that says we don't push for anything beyond this. This is what we think the gold standard
[1:54:26] is. But if regulators don't want to do it, that's a problem. And also, if they don't do
[1:54:35] it through rules themselves, if they do it through guidance, you have the trouble that
[1:54:39] it's very easy for administrations or even different administrators within an administration
[1:54:46] to change their mind or to not follow the guidance because I think that this one particular
[1:54:51] case is different. So I think from a bank's perspective, you probably prefer congressional
[1:54:58] action, but if you couldn't get congressional action here, an administrative rule would give
[1:55:03] you substantial comfort. If you can't get an administrative rule, might you be happy
[1:55:09] enough with very clear guidance, maybe it's possible that on the second prong here, very
[1:55:16] clear administrative guidance would give banks enough security that they'd be willing
[1:55:23] to take the plunge, but I think that bank's preference would be in that order, congressional
[1:55:29] action, administrative rule, it's hard to change, and then very clear guidance.
[1:55:39] That's basically being, I was going to be my question, so I won't make you go through
[1:55:42] that whole answer again. But great presentation, by the way, I think we were trying to articulate
[1:55:48] some of these same points in our last December 19th meeting and you showed us that we didn't
[1:55:52] do as well a job doing that. So thank you for your time here. And also, I don't know if
[1:55:58] you're going to be here for this afternoon for the second or third panel, the C panel, but
[1:56:01] on the POS issue, I had the same question that was going to be my question for this afternoon
[1:56:05] was how do you clear that?
[1:56:08] How are you bypassing the voter reserve process?
[1:56:11] So I'm going to still say that until the seat panel.
[1:56:15] And the other thing, I kind of was thinking about when
[1:56:17] I kind of take all this into consideration
[1:56:18] and kind of think about, now what can we do?
[1:56:20] It always seems to me, it goes back to the federal side
[1:56:22] of things, back to Congress.
[1:56:24] And if there's some way, it doesn't have
[1:56:25] to be overly complicated to figure out
[1:56:27] is there's just some way to have a safe passage type
[1:56:29] legislation that just kind of gives you a pass?
[1:56:32] And I know that because then what happens from theirs
[1:56:34] and the regulators take that and they actually write the rules as they interpret the legislation
[1:56:38] as they see it.
[1:56:39] But so you've already done a good job on going through all that, so I'll leave it there.
[1:56:48] Thank you very much for your presentation and your articles, really very informative.
[1:56:53] On the question of back to the public bank question for a second, and on the question about
[1:56:58] whether the federal government could prosecute the state for running a public bank, and this
[1:57:04] is a little bit more of a constitutional law question, so I don't mean to put you on this
[1:57:07] lot about it.
[1:57:08] But what about the argument under sovereign immunity
[1:57:12] article 10 of the Constitution that says powers that are not
[1:57:15] specifically given to the federal government
[1:57:17] or reserved to the states?
[1:57:19] What do you think about that kind of an argument
[1:57:22] with regard to the public bank?
[1:57:25] So first of all, I do my best to avoid all constitutional
[1:57:29] law questions.
[1:57:31] I said it might not be fair, so I apologize for that.
[1:57:34] So the trouble is still, I think, that
[1:57:49] it's clear that the federal government has authority
[1:57:56] to promulgate at least some rules with respect to criminal law, and I think it's also reasonably
[1:58:04] clear that those laws are fair game for states. If a state beside it just wanted to run a cocaine
[1:58:14] producing outfit, if that was your rate and make money, I think that no one would have trouble
[1:58:21] on a constitutional law level when the federal government shut them down. The trouble with constitutional
[1:58:28] law as I see it, which is why I don't do constitutional laws that it's not actually law.
[1:58:35] We have a constitution that is written down that nine, or I guess now eight, justices
[1:58:43] on the Supreme Court get to say what that means, and we don't really have any idea for
[1:58:49] sure how it comes out because the framers never thought about what's going to happen when
[1:58:55] in California as marijuana that they want
[1:58:59] to be able to be sold and it's illegal under federal law.
[1:59:03] So I think that there's some reason to argue
[1:59:08] that if they did prosecute the state,
[1:59:12] the federal government would have authorities
[1:59:13] to do that, would the Supreme Court
[1:59:15] who would have to ultimately decide that,
[1:59:18] would the Supreme Court decide that?
[1:59:22] I don't know, probably depends on when it comes up
[1:59:25] who's on the court. I mean, this is why most professors love con law because they just say whatever they think and they can't be wrong.
[1:59:38] Okay, very good. Thank you very much. We will call up. Thank you very kindly for your comments.
[1:59:54] And now we turn to our last panel today, which is made up of people who can speak of the progress being made in getting banking.
[2:00:00] Good morning, services to cannabis businesses in other states. We have with us today Rick Garza, director of the Washington State Liquor and Cannabis Board. Coral Parker, deputy treasurer for the state of Oregon, and Kenneth Burr, co-founder and CEO of PayQuick.
[2:00:34] And we will begin with Rick Garza. Rick, welcome. Good morning. I guess I should turn that on. Good morning. Good to be with you today. I see some familiar faces that have come to visit us in Washington the last couple of years.
[2:00:50] I have to shorten my presentation I was told so I'm going to really try to go this through this very quickly.
[2:00:57] I guess I'd begin with this is very risky business and I'm going to share the experience in Washington with respect to banking.
[2:01:07] One thing I start with is Oregon, Washington, Alaska and Colorado have very different systems that were put in place,
[2:01:15] either by referendum or initiative or in the case of Colorado through a constitutional amendment.
[2:01:22] So our systems are very different, but I think some of the things that we're doing in Washington,
[2:01:26] the success that we've had in getting regional credit union and state charter banks is what I want
[2:01:32] to share with you today. So let's begin with our system. So interesting that Alison Hokem who
[2:01:40] So the author of the initiative in Washington wrote the initiative to replicate our alcohol beverage law coming out of prohibition in 1934.
[2:01:50] So let me hear how that, what I just said, because there was an old Tide House law from 1934 that said a manufactured distributor of alcohol can have no interest in a retailer.
[2:02:02] This initiative does not allow for vertical integration as you see in many, not all of the other states.
[2:02:08] If I'm a manufacturer, distributor of cannabis, I can't have financial interest, director, indirect, in a retailer.
[2:02:16] That's exactly what the old Tite House law was for alcohol in Washington here even in California.
[2:02:23] And so I begin by saying we created a three tier regular system for marijuana,
[2:02:28] producer, processor, retailer licenses, enforcement to carry out those rules,
[2:02:33] and then collection and distribution of taxes and fees.
[2:02:38] You've seen this and you've heard it talked about today, the cold memorandum.
[2:02:41] It really is the basis by which we created our regulations.
[2:02:45] There's three areas, one, and you've heard it.
[2:02:47] I'll do it very quickly.
[2:02:48] Diversion, how you're going to convince us that you're not going to divert product out of the state or invert illegal product into the legal system in Washington.
[2:02:57] Secondly, how you're going to keep it out of the hands of kids.
[2:03:00] I have to be 21 like alcohol to possess or consume marijuana.
[2:03:04] I want to, what did you do in your state to address that issue?
[2:03:08] Number three, how are you going to keep it out of the hands of cartels, criminals?
[2:03:11] We've talked a little bit about that.
[2:03:13] I'll share how we've done that.
[2:03:16] So first, the licensing requirements.
[2:03:19] These were the licensing requirements for alcohol after prohibition in 1934.
[2:03:23] We don't do fingerprints anymore for alcohol licenses, but we do a criminal history investigation of the applicant.
[2:03:32] There are spouses, it includes a fingerprint, both with the Washington State Patrol in Washington and then through the FBI we do a criminal history of the nation.
[2:03:42] You have to attest when you apply with the liquor and cannabis board for all arrests and all convictions.
[2:03:48] There's a point system that we have just like we have for alcohol, but that's really unique to anything else that we do in Washington.
[2:03:58] and we also do a financial background investigation,
[2:04:01] whether it's you get the source of funds
[2:04:02] to acquire the business, it's probably very similar
[2:04:05] what you have for alcohol in this state.
[2:04:07] We have it for alcohol in our state.
[2:04:09] It goes even further if I'm a financier
[2:04:11] and investigator or investor.
[2:04:13] I have to go through a criminal background check
[2:04:15] and a financial background check.
[2:04:18] And then there's a six month residency requirement
[2:04:21] Colorado I think at two years.
[2:04:24] And then there's a buffer zone for a thousand feet
[2:04:26] where these licenses, a producer process or a real tailor, can not be located.
[2:04:31] It's 1,000 feet from where children are typically located, schools,
[2:04:35] childhood centers, transit centers, game archive libraries, playgrounds, and public parks.
[2:04:40] And then with respect to the version issue, a pretty robust and
[2:04:44] comprehensive seed to sell system that we have like Colorado and like many of the states that have legalized.
[2:04:53] Just very quickly, the number of licenses in Washington about 1273 total licenses produced
[2:05:00] a processor, almost 500 licenses, retail licenses statewide, I'll just take you back when the
[2:05:07] fiscal impact statement was done the initiative four years ago, do you know how many they
[2:05:11] estimated we would have with respect to growers and processors 100 each?
[2:05:16] They assume there would be 2,000 people that applied over 7,000 applied to get into the
[2:05:21] business.
[2:05:22] And so we won't have time to talk about that, but some other day, I'm thinking of a
[2:05:28] lawyer right now, the need that you'll have to regulate, I can't even imagine California
[2:05:32] Washington, it's typical enough with a number of licensees that we have.
[2:05:38] There's so much information that's been asked over the years.
[2:05:41] We actually have a dashboard at our website where you can go and look at where all the
[2:05:45] retail locations, all the producer processor locations are, and as you can see it's pretty
[2:05:51] spread out around the state.
[2:05:54] We have enforcement trends that we look at as an agency, the growth of the industry,
[2:06:00] marijuana complaints, like the alcohol industry, the industry likes to call us up and let
[2:06:06] us know what the competitor is doing or not doing.
[2:06:09] And then you see the top three marijuana violations.
[2:06:12] Failure utilize or maintain the traceability system,
[2:06:16] seller service to minor.
[2:06:18] We do compliance checks for our retailers,
[2:06:21] just like we do for alcohol three or four a year
[2:06:25] for each of them.
[2:06:26] Pretty aggressive, even more aggressive than we have
[2:06:28] for alcohol.
[2:06:29] You can see the compliance rate adiped in May of 2016,
[2:06:33] but typically right now our compliance rate
[2:06:35] you'd compliance rate for marijuana is about 93%.
[2:06:41] And then our sales activity, you can see 260 million
[2:06:45] first fiscal year 2015, almost $1 billion last year.
[2:06:49] Here we're only a little over halfway.
[2:06:52] We assume we'll have sales of about $1.5, $1.6 billion.
[2:06:57] For the current fiscal year, we're averaging 4.3 million
[2:07:00] in daily sales.
[2:07:01] You can see the excise taxes that are being collected below that.
[2:07:05] Again, take a look at what the initial forecast was for projections, for excise taxes that would be collected.
[2:07:11] We've doubled in almost triple those.
[2:07:14] The original fiscal estimate of how much money would be collected was somewhere between,
[2:07:20] and literally it said this, between zero and $2 billion over five years.
[2:07:24] Because nobody knew how much business it would come in the first two years.
[2:07:29] If you look at the first five years, it looks like it will be somewhere around $1.2, $1.3
[2:07:35] billion in excise taxes that are collected.
[2:07:39] So doing business with the marijuana industry.
[2:07:42] I gave you a couple of documents and I wanted you to see those.
[2:07:46] The first one was something that came out after the Finsam guidance was provided in February
[2:07:54] of 2014.
[2:07:55] And it was really the first memorandum that we sent to financial institutions in our state sharing with them the kind of information that we have available at the liquor and cannabis board for those banks.
[2:08:08] I also provided you a copy of a release of personal records.
[2:08:13] So typically in our state what happens is the applicant goes or the licensee goes to the bank.
[2:08:19] The bank then has them sign a waiver from the board that allows us to basically hand over the licensing file.
[2:08:25] So all the work that we did with respect to their criminal history, all the work that we did with respect to their financing is handed over to the bank.
[2:08:34] And another thing that happens is typically they'll ask through public records to get any information
[2:08:39] into their monthly or quarterly of any activity, any enforcement violations that have been issued against the
[2:08:46] licensee, in some instances of these loss those accounts because of that.
[2:08:50] But what we were trying to do is create a transparent system between the board.
[2:08:56] A lot of this information is provided on our website and our banks.
[2:09:00] You can go into our website on a monthly basis and our banks and credit unions do this.
[2:09:06] You can see what the sales are of that particular account.
[2:09:10] And then they can balance that against the activity at the bank.
[2:09:13] And so, again, this is an opportunity to try to create transparency, so that we're working pretty closely with the banks.
[2:09:21] I don't know how you're going to adhere to the coal memorandum of fact people are allowed to transact with cash.
[2:09:28] So, I mean, I felt like it was a little bit depressing to hear what Julie had to say, but it's true.
[2:09:34] But I have to tell you, I think the strategy we took was you're going to have to be proactive.
[2:09:40] I mean, the coal memorandum, I don't think, I don't think you can wait for the government, the federal government to move, I don't think it's going to, I think you have to be proactive in the state as we have to do everything you possibly can to allow for the businesses to use, whether it's state-charted banks or credit your local, and for most of the state, it's regional credit unions who have stepped forward.
[2:10:07] And that continues to increase every three or four months,
[2:10:12] another credit union or say charter bank moves forward.
[2:10:17] But you just have to be proactive in doing everything that you can.
[2:10:21] And I don't think we can really deal with the issues.
[2:10:25] But you have guidance.
[2:10:26] You have the call memorandum.
[2:10:27] You have the Finson guidance that you were given.
[2:10:30] And it's really true.
[2:10:31] It's not the force of law.
[2:10:33] It's not even a rule.
[2:10:34] It's just simply a memorandum.
[2:10:35] But it gives us enough guidance, and I think we've had success in Washington because we work with the Department of Financial Institutions because I'm sure you have here in California.
[2:10:46] We've been active with our conventional delegation to get them to pressure the federal government to give guidance in the first hand, which they did took a little bit of time, but they did.
[2:10:57] So I guess my recommendation to you all would be do everything you can in trying to be transparent.
[2:11:05] And I think we're successful because of the scrutiny that we go through with our licensees in order to hold a license.
[2:11:11] And in some of the states where they've had problems, it's because they're not scrutinizing that license.
[2:11:16] They're not doing enough due diligence to make sure that you go through a criminal background check and
[2:11:22] a financial investigation so that you know where the money is flowing and where it came from for the business.
[2:11:28] So I know I may have gone a little bit over the biggest issue that we have that you can see on the slide is
[2:11:33] The biggest concern is the excise taxes collected at a retail level in Washington is 37%.
[2:11:41] That's a lot of cash that was coming to the liquor and cannabis board.
[2:11:45] And so by being able to get these credit unions and state charter banks to provide that banking service and financial services,
[2:11:52] we were concerned because people were literally coming to our office to pay their excise taxes as you heard with cash.
[2:11:58] We were able to move that to about 90% of it now was coming in a form other than cash.
[2:12:05] And for that, for that, it was really important.
[2:12:08] We had employees, we had a window, we had a lot of people paying early on in cash, and
[2:12:13] that was problematic.
[2:12:15] So with that, I'll hand it over to the next presenter.
[2:12:19] Thank you.
[2:12:27] Is this on?
[2:12:28] All right.
[2:12:29] So hi, I'm Kora Parker, I'm the director of finance with the Oregon State Treasury.
[2:12:33] And my relationship to the industry, as you might imagine, is very similar to the gentleman
[2:12:39] who is here from the LA City Office of Finance.
[2:12:43] Primarily, I work with financial institutions and state agencies, Department of Revenue
[2:12:50] and others to bank the funds that we're collecting from the industry.
[2:12:55] And while I know that's not the focus of today's conversation, I do just want to say that I
[2:13:00] I think it's important for you all to make sure
[2:13:01] that you're running those efforts concurrently.
[2:13:03] I know the state treasurer's office
[2:13:04] is working with their vendor partners as well
[2:13:08] to make sure that all the doors and options
[2:13:11] are open with regard to those opportunities.
[2:13:15] I will tell you though, we have had some of the same issues
[2:13:19] that the industry has had with regard
[2:13:21] to banking those taxes.
[2:13:24] And primarily right now,
[2:13:26] we are still in a place very different from Washington.
[2:13:29] and we are still in a place where from the retail sales tax collection perspective,
[2:13:34] every one in the state has to come to Salem and pay in either cash or check to a central location.
[2:13:43] We then deposit those funds by cash vaults.
[2:13:49] So an armored car is coming to that physical location and taking those funds to our location in Portland.
[2:13:55] That creates all of the same security and other issues that you heard some of the industry
[2:14:00] I've just talked to you about early this morning.
[2:14:05] Right now because the industry is largely unbanked, there's a, you know, there's, that sort
[2:14:10] of meshes well, maybe not the single location piece of it, but it meshes well with their inability
[2:14:16] to pay us by electronic means anyway.
[2:14:19] But at some point the industry is going to find a solution and so you as a state need to make
[2:14:23] sure that you are ready on the state side when the industry does find a solution.
[2:14:29] So I just, I offer that because I know at the national banking level there are a variety
[2:14:37] of opinions from, you know, the major banks with regard to their willingness to bank these
[2:14:43] response, and the nuances that they apply to those get really, really tight.
[2:14:53] And I just, it's something that you are going to need to work with from your perspective.
[2:14:58] with regards to baking the industry.
[2:15:00] You know, you've heard a lot of things today. You know, we, we were not nearly as coordinated as you are or as Washington was as we started in Oregon. Initially, there were a number of tech startup firms and others who were coming and visiting us, and I think the challenge that they had, and, you know, you can probably speak to this, there was no single place to come and have that conversation. No single place at the state level, either from a, from a banking regulatory
[2:15:29] regulatory or licensing regulatory perspective, but I also think no single place from an industry
[2:15:35] perspective with regard to the coalitions, that you know, a number of different cannabis-related
[2:15:40] coalitions, but they weren't necessarily working together to have those conversations.
[2:15:44] And so I think it made it very difficult for those who might have a solution even if it
[2:15:49] is a short-term solution, very difficult for them to have an entry.
[2:15:53] They're sort of, where do we start, how do we, how do we, you know, enter into that conversation.
[2:15:58] So I applaud you for the work that you're doing here because I think that will make some
[2:16:02] of that conversation easier for you.
[2:16:06] We had attempts by a couple of different state chartered banks to really take on this business
[2:16:11] and say, you know, we'll raise our hands, we'll be the ones who will tackle these issues.
[2:16:17] They experienced the very issues that Professor talked to you about some of the others today.
[2:16:22] when they got through really the regulatory constructs
[2:16:27] that they had to set up to be able to do that,
[2:16:29] it just was too costly.
[2:16:31] There just was no way for them to really do that
[2:16:34] in a manner that allowed them to continue to make money,
[2:16:37] which is their goal.
[2:16:40] We have experienced with a number of calls
[2:16:44] to create a state bank, Oregon happens
[2:16:47] to have a constitutional prohibition on such a thing.
[2:16:50] So unless there were an initiative or a legislator somehow sought to it to make a change there,
[2:16:59] we don't have the ability to do that. But as the professor mentioned,
[2:17:03] I think even if we were to move to that level, we would still that just hit all of those same
[2:17:07] regulatory and legal constructs and issues that the financial institutions are today as well.
[2:17:15] One of the things that Mr. Garza talked about was really the regulatory construct.
[2:17:19] And I think what Washington did that we are just beginning to do is provide access to the licensing and
[2:17:27] fraction and compliance information to all of the financial institutions in a way that was simple and
[2:17:34] easy and clear. So that while they may not be able to go that next step and determine that they haven't
[2:17:42] and provided access to minors, three layers down the transaction, they were able to very
[2:17:49] clearly get to that level that the state was able to certify to.
[2:17:54] And I think that is what has made it a much simpler process within the state.
[2:17:59] We're going to starting to do that, but it is much more of an ad hoc process.
[2:18:04] Our licensing board is really starting to follow in more of an ad hoc and one-off way
[2:18:11] access and relationship with individual financial institutions but have nowhere near the sort of depth and breadth of information available on websites and in other just very clear and distinct ways.
[2:18:24] So I applaud again Washington for the efforts they've done there and we are several of us in the state who are trying to get those who have authority for those efforts to really follow that model.
[2:18:38] Beyond that, I will say, even with that sort of dire description of what's been happening
[2:18:45] in Oregon, we find that there still are about 50% cash to check ratio coming in for retail
[2:18:53] sales tax payments, and that's maintained about that same level for the entire first year
[2:19:02] that we've been online.
[2:19:03] Now, the 50% that are baked, we have seen churn,
[2:19:09] we have seen, they started here, now they're here,
[2:19:13] a couple of months later, there's somewhere else,
[2:19:15] but there still seems to be this sort of maintenance
[2:19:17] of about 50% of those payments coming in
[2:19:21] are baked in some manner.
[2:19:24] That officially, we have one bank and two credit unions
[2:19:28] who are officially taking money.
[2:19:31] They are not the only ones that those transactions are coming in from, however.
[2:19:38] So we believe there's just more of a quiet, don't ask, don't tell long-term relationships.
[2:19:47] You know, used to be Mike's bike shop, now it's Mike's pot shop, but I know Mike.
[2:19:52] And I'm willing to bank Mike because he's been my long-term customer.
[2:19:57] And I think we have a lot of that going on in Oregon right now.
[2:20:01] I don't know how sustainable that is as the conversation continues just from a more global scale.
[2:20:12] So, you know, in general, I think we have come to this end conclusion in Oregon that changes need to occur at the federal level, both on the criminal side and on the regulatory side.
[2:20:25] and that beyond that, there is no good solid clear answer.
[2:20:30] But you can take efforts similar to what Washington has done
[2:20:33] on a regulatory scheme.
[2:20:35] I think there are some technology solutions
[2:20:40] that could be good answers.
[2:20:42] Again, I think, that's it.
[2:20:46] I think as the professor mentions that there's
[2:20:51] questions by those of us who are considering, partnering and those relationships, really how long-term and sustainable they are, but they may be long-term enough that they get you through the level of conversation that, frankly, you're going to be able to bring you there at the federal level.
[2:21:10] So, you know, I appreciate the opportunity to speak with you, and I hope that we can partner with you as you take the conversation further
[2:21:20] because we just look forward to you helping solve some of the challenges that we're all experiencing.
[2:21:27] So, I'm sorry, Jennifer. I understand this because you have to leave pretty soon.
[2:21:31] Thank you very much, everybody. I really want to applaud Washington and what they've done.
[2:21:39] And there's a reason that we started our business in Washington and that's because of a number
[2:21:46] of factors that I'll go through in a minute, but let me explain for a second what pay-quick
[2:21:49] is and what we did.
[2:21:51] We're a compliance company.
[2:21:52] First and foremost, we are a compliance company that has a very sophisticated e-wallet that
[2:21:57] allows for electronic payment along the entire supply chain, both from producer processors
[2:22:03] to retailers and then from consumers to retailers as well.
[2:22:07] So a consumer can pay a retailer, and a retailer can pay a producer processor.
[2:22:11] And the way we do that and the way is through compliance.
[2:22:14] We have a full BSA AML compliance program.
[2:22:18] One thing that helps us incredibly is that we can fill in a form and send it to the
[2:22:24] liquor and cannabis ward in Washington and get the marijuana businesses license application.
[2:22:28] So we can do our own, know your customer due diligence before we onboard a marijuana business.
[2:22:34] That's critical, absolutely critical.
[2:22:37] We go out to our businesses four times a year and we do an onsite compliance assessment
[2:22:43] and we're looking basically for two things.
[2:22:45] We're making sure the business is complying with state law and we're making sure that
[2:22:48] they're not implicating any of the eight enforcement priorities in the coal memo.
[2:22:53] We file the marijuana-limited SARS, marijuana-priority SARS, and necessary marijuana termination
[2:22:59] SARS ourselves.
[2:23:00] We're a federally registered money service business and a state licensed money transmitter.
[2:23:05] We share all of our due diligence information with our partner banks who bank us so they
[2:23:12] have an added level of know your customer due diligence through our platform.
[2:23:17] And the other thing that really makes it work in Washington is their seed-to-sale traceability system.
[2:23:21] And what we've done is we've reverse engineered the seed-to-sale traceability system
[2:23:26] and we trace the money from sale all the way back to the seed using that barcode system.
[2:23:32] And when you do that, you can ensure that no money from illegal marijuana sales is getting
[2:23:38] into the banking system.
[2:23:39] And that's really, I think, one of the things that banks are most scared about and what
[2:23:43] needs to be solved is they need to be assured that no money from illegal sales is getting into
[2:23:48] their bank.
[2:23:49] And that's what we do by reverse engineering the seed to sale system and tracing every dollar
[2:23:54] from sale back to seed.
[2:23:56] There are two main components of our business.
[2:23:58] We have a business-to-business component, serving businesses, and we have a consumer component.
[2:24:03] On the business-to-business component, we've in doubt the paypal for pot.
[2:24:07] And the way that works like on paypal, if you buy something on eBay, the buyer logs into their paypal account
[2:24:14] and sends the money to the seller.
[2:24:16] With payquick, it works the exact same way.
[2:24:19] The marijuana retail store, when they receive the marijuana, they log into their payquick account
[2:24:23] and they send the money electronically within payquick to the grower.
[2:24:27] So that delivery person is not driving back with 5, 10, 15, $25,000 in cash in their car.
[2:24:33] That's one of the B2B components.
[2:24:35] The next B2B component is cash management, given armor car service that comes and picks
[2:24:40] up the cash from the producer processors and from the retailers.
[2:24:43] It's taken to a counting room.
[2:24:45] From the counting room, it's verified.
[2:24:47] It's deposited into the Federal Reserve Bank.
[2:24:50] It's credit to our bank account at our partner bank and then our software credits the money
[2:24:55] need to each marijuana businesses pay quick account.
[2:24:59] So if that's the way the process works, so it's picked up in cash,
[2:25:04] counted, deposited into the Fed, from the Fed it goes to our bank who banks us,
[2:25:09] and then our software platform allocates it to the individual marijuana business.
[2:25:15] The next component of our B2B platform is a bill pay service.
[2:25:21] So in Washington, a marijuana business can log into their pay quick account.
[2:25:24] They enter a creditor, their creditor's information, their insurance company, their gas company, their landlord, whatever it happens to be and we cut physical check and mail that check to that business so that they can still don't have to pay their landlord in cash.
[2:25:39] We provide with through a third party payroll services so they can use the funds in their pay quick account to pay payroll.
[2:25:47] And we also have a lot of ancillary businesses that have signed up for paid with accounts.
[2:25:53] So these are lawyers, accountants, insurance companies who, as we heard before, getting
[2:25:57] paid in cash.
[2:25:58] They can also have a paid with account.
[2:26:01] And so they can be paid electronically through our platform.
[2:26:05] That's the nuts and bolts of our B2B platform.
[2:26:09] We also have a consumer-based platform which is a physical pay-quick card and a consumer
[2:26:16] signs up for a pay-quick account.
[2:26:19] They receive a pay-quick card.
[2:26:21] They can also download a smartphone app and what they do is they link their pay-quick account
[2:26:26] to their bank account and they send via ACH transfer funds from their bank account to their
[2:26:32] pay-quick account.
[2:26:32] When they walk into the retail marijuana store, they just show their pay-quick card or their
[2:26:37] smartphone app to make the purchase, and it further reduces the amount of cash at the
[2:26:42] retail level. It works really much like a Starbucks card if you guys have Starbucks cards.
[2:26:48] So that's our platform, you know, from a 40,000 foot kind of view. Mainly, I reiterate, we
[2:26:54] are a compliance company with any wallet because that's what makes it work. Now, I think
[2:27:00] everyone here, we all have the same goal. And that is to get banks willing to bank this industry.
[2:27:05] In Washington, as you saw, you had three banks and three credit unions basically right now doing it.
[2:27:10] In California, we need a lot more than that.
[2:27:13] You need a lot more than that given the size of this state.
[2:27:16] So I view it kind of as a jigsaw puzzle.
[2:27:19] And we've got to put all the pieces of that puzzle together.
[2:27:22] And Washington, in fact, has put those pieces together.
[2:27:26] And let me go through what we see in Washington, and I think what will really, really help here.
[2:27:30] and that is one, a robust seed-to-sale traceability system that barcodes everything.
[2:27:37] It's mandated that all marijuana and marijuana-infused products in Washington are pre-weight and pre-packaged,
[2:27:44] so it's not a jar where they're taking, you know, flour out of a jar, weighing it on a scale and selling it.
[2:27:49] It's all pre-packaged and that package has the barcode on it that goes all the way back to the
[2:27:53] seed. That's done brilliantly in Washington and it's incredibly important to make sure that no
[2:27:59] of black market money gets into the system.
[2:28:03] The other thing that Washington did is that they did not allow the existing medical marijuana
[2:28:09] stores to just start selling retail marijuana on a date certain, which is what Colorado
[2:28:15] did that said July 1, 2014, anyone over 21 could come in and buy it.
[2:28:19] That was a huge problem.
[2:28:21] I think for banks willing to get involved, Washington didn't do it that way.
[2:28:25] They required that the growers start their grow.
[2:28:28] They tagged their plants.
[2:28:29] They harvest them, they ship them, they barcode them, they send them to the dispensaries,
[2:28:33] and now you could have a retail sale.
[2:28:35] At the beginning, of course, there were supply and demand issues, you know, when there
[2:28:38] was a little bit of friction there, because you had a limited supply.
[2:28:41] But now that you've been through several growing cycles, it's all smoothed out.
[2:28:46] But they never allowed medical marijuana stores to just start selling retail on a date certain.
[2:28:53] Now, we think that was incredibly important.
[2:28:56] The other two things that they've done, as Rick mentioned, is they've established a very
[2:29:00] good framework for the transfer of licensee, marijuana licensee information to financial
[2:29:05] institutions and institutions like ours.
[2:29:08] So we can get both their licensee data, all their background tracks, ownership information
[2:29:12] to do our own know-you customer good diligence, and they also make freely available the sales
[2:29:18] records, the sales information on their website.
[2:29:21] So, we have over 200 clients in Washington and every month we go and we check their sales
[2:29:26] data, we check their deposits, we see how much business they're doing, and we match
[2:29:29] it all up to make sure that they're all in line.
[2:29:33] And if they're depositing, believe more, than their sales, we find out why.
[2:29:37] If they're depositing less than their sales, we find out why because we want to know where
[2:29:42] that money is going.
[2:29:44] They also, in Oregon, there's legislation that protects financial institutions from criminal
[2:29:50] liability for serving the marijuana industry, and you're right, I think we're all right.
[2:29:54] We're not going to see much from the federal government for quite a while.
[2:29:57] We're just not.
[2:29:58] So it's incumbent upon us.
[2:30:00] In California, to get those regulations in place and protect financial institutions who are dealing with this business and establishing due diligence and compliance thresholds for financial institutions and companies like ours pay quick, money transmitters that we need to comply with in order to serve this industry. And I'm the setting of a safe harbor that if you do this, you're okay with the state. And my final point, and this is something that Washington has done among licensees
[2:30:29] and I think it should be extended further.
[2:30:32] Washington does not allow licensees
[2:30:35] to pay each other using cryptocurrency like Bitcoin.
[2:30:38] And we then think that that is incredibly important,
[2:30:41] given the nascent nature of this industry,
[2:30:44] that we keep cryptocurrency like Bitcoin
[2:30:46] out of the marijuana transaction
[2:30:48] through the entire supply chain.
[2:30:51] And I think when you do all of those things,
[2:30:54] you put all the pieces of the jigsaw puzzle together,
[2:30:57] and you will encourage and entice banks
[2:31:02] I think the only thing I'd add is that that was a decision made by the Department of Financial
[2:31:07] Institutions, not the liquor and cannabis for it.
[2:31:12] I
[2:31:15] just had a couple of questions and one was Mr. Garzo, I was looking at your compliance
[2:31:22] rates and somewhere in March of 16 you had a 10% drop off.
[2:31:28] Why would you have a sort of rationale for that?
[2:31:31] Yeah, I think part of it was that it wasn't the same number.
[2:31:35] It was a smaller number and it had eight heads.
[2:31:38] And so, remember initially, if you know anything about compliance,
[2:31:42] especially over on the alcohol, the more compliance you do,
[2:31:45] the more compliance you're going to get.
[2:31:47] Often times when our compliance tips,
[2:31:49] is because we're not doing enough of them statewide or in a region.
[2:31:54] And I think that's what happened in that case.
[2:31:56] But I can tell you, it's pretty static after that.
[2:31:59] We're trying to make three or four visits a year to each of them and and if you do get stung and we
[2:32:05] You're part of that 10% we're back in there are three three months later doing another
[2:32:10] But it's just one of the tools that we use that I think gives
[2:32:16] Assurance to the banks and those that want to provide financial services that we're watching very carefully the industry
[2:32:23] We do it when we license them in the very beginning and then we're there all the time the security
[2:32:29] the cameras surveillance, I mean I heard someone talk about security and no guns, it's the guns that
[2:32:36] you should not the security, you can have security inside those buildings as we do with our license
[2:32:42] premises, but I think it's just from the very beginning whether it's a seem to sell program,
[2:32:47] or a 21st apply for a license to the enforcement that occurs continually, we have 140 enforcement
[2:32:55] officers in our state, we do alcohol and cannabis together.
[2:32:59] We thought that was probably the best way to do it.
[2:33:02] From a retail point of view, our retail outlets are where our bars and
[2:33:06] lounges are in our restaurants.
[2:33:07] And so we've taken an approach, at least with respect to retail, if a separate
[2:33:11] unit for producers and processors for marijuana, because it's very different than a
[2:33:17] winery or a brewery.
[2:33:18] But the vast majority of our enforcement officers do compliance with for
[2:33:23] alcohol and cannabis in our state, and that has a lot to do to think about how much
[2:33:27] resources are being given to the regulatory agency to do that type of enforcement.
[2:33:32] In your state, I see there's seven or eight different agencies that have responsibilities
[2:33:37] and Washington is probably easier for us because we're the primary agency, and then we have
[2:33:42] an interagency group of 10 other agencies that we work with in addition to the Department
[2:33:47] of financial institutions, but I think we've had some success.
[2:33:52] And let me say I should say some success because there's still a lot of cash moving for
[2:33:57] a producer to a processor and processor to retail.
[2:34:00] It's the retailers that in our state that are having success with respect to banking and
[2:34:06] with the credit unions, but we still have a long ways to go to.
[2:34:10] The national banks do not want to touch this industry right now.
[2:34:13] And so we target our efforts toward state credit unions, state charter banks.
[2:34:18] I'm glad that you brought that up and my other question I had to do, strengthen this park.
[2:34:22] You mentioned that this industry is an unbanked, the reality at least what we heard earlier today
[2:34:27] from the city of LA is that only 20% is coming in a cash receipt.
[2:34:33] You experienced something different in Oregon?
[2:34:36] No, I mean, I think we have.
[2:34:38] As I said, we're about at 50, 50 actually.
[2:34:40] So we are still getting on our scale.
[2:34:44] That's a lot different.
[2:34:45] Yes, but I think the important piece there is that that 50%.
[2:34:50] We're seeing them cycle to bank to bank, but at some point,
[2:34:55] they're going to run out if they've got resolved the issue
[2:34:59] on a broader scale.
[2:35:01] They're going to run out of banks to jump to.
[2:35:03] So yes, I think there is in Oregon, again,
[2:35:08] And we have three who are willingly accepting funds
[2:35:13] and represent probably about that same 20%
[2:35:15] level, really, between the three of them.
[2:35:17] Maybe so we slightly more.
[2:35:19] I think the others, there are some
[2:35:20] that, again, those long-term relationships,
[2:35:23] I know my regardless of whether you've
[2:35:26] got a bike shop or a parking shop now.
[2:35:28] But I think there's a lot that do is they
[2:35:30] don't know what they're baking.
[2:35:32] And they are, they are firing their customers
[2:35:35] when they find out who they are.
[2:35:37] So, I think that number of pharmacists in ability perspective, at least in war, is a little
[2:35:45] misrepresentative of building the true nature of life.
[2:35:57] Real quick, Mr. Garza, you know, you alluded to this scope challenge that we're facing here
[2:36:02] given the number of businesses.
[2:36:04] One of the big concerns when we put these rags together was dealing with audits and the
[2:36:08] efficiency of audits.
[2:36:10] And I'm just curious, everything I'm hearing today is that the more transparency and the
[2:36:14] more daylight there is, the more comfortable this is going to be, can you have any insight
[2:36:18] about how to improve the efficiency of audits, flagging suspicious activity? Is there anything
[2:36:24] we can draw from you guys specifically to get that information efficiently?
[2:36:29] Well, with respect to the traceability system, we have a marijuana examiner's unit of eight
[2:36:34] people who literally are looking at that system every day and there's red flags that come
[2:36:38] up, I don't know if that's what you're talking about, but that's, it's all about staffing,
[2:36:43] So we have a large licensing staff, a larger enforcement staff,
[2:36:48] and the MG examiners, or MJ examiners, and
[2:36:51] auditors that go out to audit the businesses just like we do breweries, distilleries,
[2:36:56] and wineries.
[2:36:58] So the fact that the systems were created very similar with respect to cannabis and
[2:37:03] alcohol, those places where you have regulators that have alcohol experience that they've given it to,
[2:37:09] They just gave it to them, I think, in Maine from where it started through the initiative process.
[2:37:15] It makes it easier for us, because we understand that if you build a system's like alcohol, I know there's a lot of people in the cannabis industry that don't like that, but the reality is there's a lot of symmetry there and it makes a lot of sense we know how to regulate both drugs.
[2:37:32] Thanks.
[2:37:35] Thank you very much.
[2:37:36] Thank you.
[2:37:36] Thank you.
[2:37:44] We are now going to turn to public comment.
[2:37:46] But I want to do a couple of things.
[2:37:49] First, I want to thank these SCAG staff and their kindness and generosity for allowing us
[2:37:54] to hold this meeting here.
[2:37:55] So thank you to SCAG.
[2:37:57] And then I, yes, please recognize them.
[2:37:59] I want
[2:38:05] to recognize our former Lieutenant Governor, who's the Monday.
[2:38:08] Thank you for joining us today.
[2:38:13] Let me repeat the instructions I gave earlier.
[2:38:16] If you wish to make a comment, we ask that you fill out a request to make a public comment.
[2:38:20] which can be found with one of my staff members.
[2:38:23] Please be sure to include your name and organization.
[2:38:26] As the information will aid our working group
[2:38:27] as we revisit those comments.
[2:38:30] To keep us on schedule, I ask you to keep your comments
[2:38:33] to two minutes. We'll be watching the clock.
[2:38:37] Please do not take it as a review or a reproach of the chair.
[2:38:40] If I ask you to stop at the two-minute mark,
[2:38:42] we want to make sure that we create enough opportunity
[2:38:45] for as many people as speak as possible.
[2:38:47] And then let's begin with the public comments.
[2:38:52] So I will call as I stated earlier, three individuals at a time.
[2:38:55] So the first three are Adriana Sanchez,
[2:38:58] Haam Fleming, Lisa Sunberg,
[2:39:01] the B-Followed by Larry Lippman, Ken Hammock,
[2:39:05] and Sherry Franklin.
[2:39:06] So Adriana, Haam, Alisa, please proceed to the podium.
[2:39:13] So please introduce yourself for the record please.
[2:39:25] Adriana, Tom, and Lisa.
[2:39:29] Hello, I'm Adriana Sanchez.
[2:39:31] I represent a company called the E-Canopy.
[2:39:36] We actually have a lot of a service
[2:39:40] that can solve a lot of your problems.
[2:39:43] We work with 10 of the top tier one banking institutions
[2:39:47] And we offer banking for the cannabis industry, also merchant services, payroll services,
[2:39:54] employee benefits, and tax services as well.
[2:39:58] We do something similar to Quick Pay, excuse me.
[2:40:04] We send the armored cars to pick up the cash and deposit it directly into their banks.
[2:40:11] So we do open up FDIC bank or insured banks bank accounts for these businesses.
[2:40:18] They work just like a regular business account and we're able to help them and not have
[2:40:25] their business account shut down.
[2:40:28] So I just wanted to give you that information because we are nationwide.
[2:40:32] We do, we're operational in all the legal states as well as with CBD oils.
[2:40:41] Okay.
[2:40:41] Thank you.
[2:40:41] If you
[2:40:48] guys could, when I call your name up, you could buy it up, please.
[2:40:51] Tom, follow by Lisa.
[2:40:55] I'm Tom Fleming, I actually, I don't know if I can keep this to two minutes, but I'm
[2:41:00] going to hold you to it.
[2:41:01] Okay, maybe we have to start.
[2:41:03] I'm actually here at the invitation of this group because I work with a working group on
[2:41:08] the East Coast.
[2:41:09] It's trying to do exactly the same thing.
[2:41:10] It's put together white paper on it and I see a lot of many meetings.
[2:41:15] but my resume is that I was a banker for 22 years, and then for 24 years I was with the US government and only did bank secrecy act and anti-money laundering initiatives and compliance issues.
[2:41:28] I, the last seven years of my career, I was the director of compliance for Fenson, and listening to the comments here is exactly what I heard two years ago when I got into this,
[2:41:41] going to marijuana conferences and listening to people talk.
[2:41:46] And there is still a huge amount of misunderstanding
[2:41:49] and misinterpretation and misinformation
[2:41:53] with regard to banking this industry.
[2:41:57] Number one, the two industries do not understand one another
[2:42:00] and have heard lots of presentations
[2:42:05] at particularly the cannabis industry conferences
[2:42:08] is at which I have addressed seven of them
[2:42:11] with keynote speeches.
[2:42:13] And I've heard the same things here today
[2:42:16] where people are trying to interpret
[2:42:19] the coal memos and the fins and guidelines
[2:42:23] and talking about the inadequacies,
[2:42:25] poking fun at them, and talking about
[2:42:29] the problems are created by the banking industry.
[2:42:33] And I'm sorry, all of this is just not true.
[2:42:36] So I take a totally different approach than most of the people have been talking here and
[2:42:41] at these other conferences.
[2:42:42] The reality of the situation is that marijuana is a scheduled one drug.
[2:42:48] It is a legal period.
[2:42:50] That's what we're dealing with.
[2:42:52] Now there are parts of the type of government that have made exceptions to this simply because
[2:42:58] they're trying to address issues that on a larger scale can't be addressed.
[2:43:03] And that is the accumulation of cash in this cash-intensive industry, the fact that crime
[2:43:09] around this is rising and the fact that law enforcement needs the appropriate information
[2:43:14] to do their job on the illegal operations as opposed to those that are legitimately recognized.
[2:43:21] My take on the coal memos together, the two collectively, which were very similar but had some
[2:43:26] differences in them, is basically those memos were issued to the prosecutors and they didn't
[2:43:33] have to be made public, but DOJ made them public because they wanted the public and state
[2:43:39] governments to know they were taking a stance on marijuana. And that is, that is, that
[2:43:45] they're going to rely on the states to take care of enforcement and regulation of their
[2:43:50] state laws, and all of those kinds of responsibilities will make banks feel better about banking that
[2:43:57] unity. But when presentations are done or the attitude toward the Fins and Guides and
[2:44:05] the Colmemos is negative, this is exactly what what falseters the fears that the banks
[2:44:11] have and they walk away from the industry. The answer to all of this is educating both industries
[2:44:17] to understand one another and to work together because with that cooperation, banks cannot comply
[2:44:23] with their requirements and the industry doesn't understand what those requirements are.
[2:44:28] I know I'm over my limit but I could go on from mom time. I'm sure you could see if you want
[2:44:33] to submit a written submission you would greatly appreciate it and we'll have you added to that.
[2:44:39] Okay.
[2:44:50] Hi, I'm Lisa Sunberg. I am a member of the Trinidad Rancheria in Northern California and
[2:44:55] in Humboldt County, where one is seven drives in that area.
[2:44:59] And I'm an advocate.
[2:45:00] For legalizing cannabis in my community, as well as I'm involved in economic development
[2:45:05] and ending country across the country. And we've seen a lot of this. I was actively involved.
[2:45:12] I was VP for ending gaming of a financial company that helped put a whole financial
[2:45:19] infrastructure inside the gaming industry for our, you know, for our piece of it, which we
[2:45:24] became the largest gaming industry in the country.
[2:45:30] And as I came home, I started to look at what was going on
[2:45:33] in the cannabis industry.
[2:45:35] I mean, this is my backyard.
[2:45:37] Humboldt's my backyard.
[2:45:38] And I want my tribe to participate in this industry.
[2:45:42] But so we have to look at things like how are we
[2:45:45] going to leverage our sovereignty?
[2:45:47] Just as the well as we ask the same questions of what's
[2:45:51] going to happen to us whenever we get to the Supreme Court,
[2:45:53] just like you guys do.
[2:45:54] in your situations. We've had to deal with financial situations and accountability and regulatory
[2:45:59] processes, not only in ending gaming but also pay-day lending and online gaming. So those
[2:46:05] kind of things all come together as well, but what I do encourage you, you know, with
[2:46:10] any brand new piece of the industry, whenever you're on the innovation side, you step out
[2:46:16] with the first tribes in California that stepped out, you heard some of them got shut down
[2:46:20] and closed down and things like that. And you're going to see, you know, when you run out
[2:46:23] the field, you're going to see who's going to throw arrows at you, right? Who's going
[2:46:27] to be shooting at you and where they're coming from? So, and I'm I like to play in the
[2:46:32] innovation side. You know, I like to go out there and see and figure out how we can build
[2:46:38] regulation. And in California, I have I have studied tribes that started going around trying
[2:46:43] to find out what tribes have actually been able to create cornerstones. And it's been done
[2:46:48] in California and it's transparent models. And so I highly encourage you guys to look
[2:46:55] at the fact that this timeline is coming but we need to create safety for people to
[2:47:01] put their money in. You know, Yuri goes high crime rate and things like that. I worry
[2:47:06] about that with my own people. And so I just encourage you to get behind those companies.
[2:47:11] I'm working right now with Expo. You know, you won't know until you test to tell the
[2:47:18] Robert meets the road.
[2:47:19] Who's really going to be able to pan out in this industry?
[2:47:21] So anyway, thank you for your time.
[2:47:23] Thank you, Lisa.
[2:47:24] So we're going to have Larry, 10, and Sherry.
[2:47:38] My name is Larry.
[2:47:39] I live in on the CEO of Alliance Financial Network.
[2:47:42] And many of you I've been speaking to via email over the last
[2:47:48] month or two, and several of you I've spoken to.
[2:47:52] Next door at the Sheraton after this meeting at 230, gentlemen in the back, Mr.
[2:47:58] Schafer has allowed us to hand these out to people who are leaving.
[2:48:02] We're going to have a 230 and 330 meeting to explain our solution in complete detail.
[2:48:09] I'm a subject matter expert in FinTech, which is financial technology.
[2:48:14] We operate in bank choked industries.
[2:48:18] You heard a little bit about that today.
[2:48:19] federal firearms, payday lending, other industries that the government has made
[2:48:26] very difficult. We spent about three years on each piece that Todd Bowie was
[2:48:33] speaking about earlier, and I forgot your name, but this gentleman all of his
[2:48:38] problems and concerns. Financial institutions must file red flags, ours
[2:48:44] reports for inconsistent financial reporting in relation to the business.
[2:48:50] It's in the Finson guidelines.
[2:48:53] We are a Finson MSB, or regulated by five agencies, one of them being the IRS, and I would urge
[2:49:05] you to make sure that your seed sale is an end-to-end and it's coordinated with this subject
[2:49:16] matter.
[2:49:18] I work in seven states.
[2:49:19] I just came back from Canada yesterday and I'm working in the Caribbean, which is having
[2:49:24] the same issues for BSA and anti-money laundering.
[2:49:28] So, two days ago, we had a new attorney general approved, yesterday Colorado shut down bank,
[2:49:40] shut down 36 bank accounts and a payroll account.
[2:49:45] The reason for the lot of lying on the KYC, those were all squeezed out.
[2:49:51] We've opened now pre-registration in the Bay Area, Humboldt County and today we're going
[2:49:57] to open LA.
[2:49:57] So, I'm being waived, but I would urge you, if you're interested,
[2:50:02] come by the El Capitan Room in the Sheraton, 230 or 330.
[2:50:06] We are expecting a lot of people, and we'd love to meet everybody.
[2:50:11] Talk about our program.
[2:50:12] Thank you, Larry.
[2:50:12] Kent?
[2:50:18] I'll keep it short.
[2:50:19] Kent and the Cumble County.
[2:50:22] Thank you for addressing these issues to me.
[2:50:24] They're pure safety issues.
[2:50:27] But now to talk about the money side, I know banking and regulatory regimes
[2:50:32] or trying to be formed appropriately, track and trace programs, et cetera.
[2:50:37] But I also ask us to look at the bigger picture too.
[2:50:41] The seed to sale, we talk about a lot.
[2:50:44] If you did a diagram of seed to sale, those are all people.
[2:50:48] They start with the seed and it's planted.
[2:50:51] The farmer is going to get that crop to market.
[2:50:55] There's going to be a distributor. There's going to be lab testing.
[2:50:58] All the appropriate things that need to happen.
[2:51:00] And then it's going to get sold to a patient or a customer.
[2:51:04] Is that happens?
[2:51:05] I asked that we look at all of different compliance costs,
[2:51:12] fee schedules that are applied, taxations, tariffs,
[2:51:17] et cetera, excite taxes all the way down through the whole thing
[2:51:20] because it's great to see the gentleman from Washington
[2:51:24] putting up the numbers at 0 to 2 billion.
[2:51:26] and I think was the estimates of how much excise tax revenue
[2:51:30] that might get.
[2:51:31] I don't know what it would be for California,
[2:51:34] but it's going to be big.
[2:51:36] And this is an industry, as you know, from Humboldt County.
[2:51:40] We are recognizing it now.
[2:51:42] We've passed our land use ordinance.
[2:51:44] And I just say, just keep in mind those cumulative costs
[2:51:48] to all the people involved, because we want the small farmers
[2:51:51] that survive this.
[2:51:52] And that's really one of our priorities.
[2:51:54] Thank you very much.
[2:51:55] Thank you.
[2:51:56] Good
[2:52:00] afternoon.
[2:52:02] And thank you for this very informative hearing today.
[2:52:04] My name is Sheree Franklin with Urban Design Center.
[2:52:07] We're working to create an incubator facility in Los Angeles, focused on the cannabis industry,
[2:52:14] the cannabis of Los Angeles incubator, and then also to create a credit union, if possible,
[2:52:20] the People's Credit Union of California.
[2:52:23] Our main focus is to make sure that there's equitable distribution of opportunities for
[2:52:28] are enterprises in South Los Angeles.
[2:52:30] We want to make sure that they have access to information
[2:52:33] to form these entities, but more importantly,
[2:52:36] as we talked about today, banking.
[2:52:38] As you know, there's already a dearth of banking
[2:52:41] enterprises within South Los Angeles
[2:52:42] and other urban communities.
[2:52:44] So as you think about this,
[2:52:46] we want to make sure that they are located in areas
[2:52:49] where these enterprises within South Los Angeles
[2:52:52] will have access to them.
[2:52:54] And the other thing is to look at something similar to,
[2:52:57] But we have with CRA with the banking industry now, making sure that there's a reinvestment
[2:53:03] in communities that have been impacted by the cannabis industry and also to make sure
[2:53:07] that there's opportunities to train mentor and provide resources for entrepreneurs who are
[2:53:14] developing and who are not part of the int 135 that are currently allowed to operate in Los
[2:53:23] If you look at a map, South Los Angeles is not part of the business right now, we need
[2:53:28] to change that.
[2:53:29] Thank you.
[2:53:30] Thank you.
[2:53:36] We are Lisa Selin, Kathleen Van Oston, and Ali Bakery.
[2:53:43] Hi, I'm Lisa Selin, I'm General Counsel to the UCBA Trade Association and I want to thank
[2:53:50] all of you for everything you're trying to do to make this industry as legitimate as
[2:53:55] it can be.
[2:53:55] I'll keep it very short.
[2:53:58] First of all, I just want to clarify, most of the banking is not transparent banking.
[2:54:02] So if people are paying their taxes with bank accounts as stated earlier, they're not
[2:54:08] associated usually with the actual entity.
[2:54:11] It's a management company and that in itself is really not a suitable alternative and finding
[2:54:18] real banking solutions is what we're all looking for.
[2:54:20] Just one other thing with regard to the new administration.
[2:54:26] This week, Dean Aurora Barker of California, our 48th US Congressman, introduced the Respect
[2:54:33] State Marijuana Laws Act of 2017.
[2:54:37] It might fall to deaf ears, we don't know that, everyone has in the past.
[2:54:42] But with California having 53 congressmen and over half the states having marijuana laws,
[2:54:49] I think we need to start looking as states to how we can influence Congress to fix this
[2:54:55] problem.
[2:54:56] And I don't know what California is doing at the federal level, but I think we all need
[2:55:00] to as industry.
[2:55:02] Contact our congressman, talk to our fellow states that have marijuana laws and see it as a
[2:55:08] unit with 60% of the general population in favor of marijuana legalization, how we can create
[2:55:15] a movement to get this forward even in a hostile environment in the federal government right now.
[2:55:21] Thanks again. I appreciate it. Thank you, Kathleen.
[2:55:32] Good afternoon, Kathleen Ben Austin,
[2:55:35] representing Caliva, which is based in San Jose. It's a vertically integrated entity. They do cultivation
[2:55:44] and have a dispensary. So that encouraged slightly discouraged and encouraged by the comments
[2:55:51] that were made earlier today by your presenters.
[2:55:54] I'm particularly encouraged by Mr. Garza's comments
[2:55:57] and the progress that they've made in Washington,
[2:56:00] there's, I think, a good deal to look at
[2:56:04] with what they're doing.
[2:56:06] It's critical for Caliva and others in the business
[2:56:10] in the industry that we can have the relationships
[2:56:14] with our banks and credit unions that are above board
[2:56:17] and fully transparent, we're eager to do that.
[2:56:20] There's a strong desire to, in fact, Kaliva has always said, you know, we're ready to
[2:56:27] be a good partner.
[2:56:33] But with the banking and credit unions, what we don't want to see is have our honesty
[2:56:42] and integrity used somehow against us in the future.
[2:56:47] and that's a concern. One that is certainly surmountable but we definitely are encouraged by the
[2:56:56] comments that were made earlier and you know we're very eager to get there. So just encourage
[2:57:03] the working group here to continue your due diligence and hopefully we can come up with a solution.
[2:57:09] Thank you. Thank you.
[2:57:14] Hi my name is Ali. I am the CEO of Event High. We are a software company.
[2:57:20] We don't touch the plant at all.
[2:57:22] And we're having issues with banking, especially with
[2:57:26] gameways, no companies will work with us from PayPal
[2:57:30] to any gameways that's available out there because
[2:57:34] of Visa, MasterCard, Merry Express,
[2:57:38] are basically the back end of some of these software
[2:57:42] that's available for software companies like us.
[2:57:46] We don't touch the flower.
[2:57:47] or even our clients don't just have power.
[2:57:50] But fortunately, we can't get a bank account.
[2:57:52] We can't do a single transactional line.
[2:57:55] And if we want to kind of follow
[2:57:58] along with these guidelines and try
[2:58:00] to establish a bank account with our bank,
[2:58:05] we are a software that takes transactions
[2:58:08] to different states.
[2:58:09] So we kind of break some laws three-fifths in it.
[2:58:13] So we really want you guys also to notice
[2:58:15] that it's not just a flower, the cash issue. It's also gateway issue, credit card issues.
[2:58:22] There's a lot of tech companies that are coming into the space and a lot of services we offer
[2:58:27] through credit cards, through transactions online. And even if we don't touch the plant,
[2:58:34] it's going to be a huge issue for you just getting a big account as a software company.
[2:58:38] So, thank you very much.
[2:58:41] Excellent.
[2:58:42] Do
[2:58:46] you want to make any public comment, make sure to submit your request that we have
[2:58:50] Aaron, Justice, and Peter Holtzworth next.
[2:58:59] Hi.
[2:58:59] Good afternoon.
[2:59:00] My name is Aaron Justice.
[2:59:01] I'm the president of Buds and Roses, a property dispensary here in LA.
[2:59:06] I'm also a board member of the National Cannabis Industry Association.
[2:59:10] First I want to thank you for forming this committee and working hard on this issue.
[2:59:14] and I'd really like to know how we at NCIA can help you help us. I'm sure my
[2:59:22] fellow board member, Kershita, here has mentioned it, but I just wanted to
[2:59:25] reiterate the point. This issue can only truly be solved at the federal level. At
[2:59:30] NCIA we have political support and federal lobbyists on both sides of the
[2:59:34] aisle in Washington, DC. I'd like to make that connection with this group and with
[2:59:39] any of the lobbyists that represent California. This issue must be part of the California Federal
[2:59:45] Policy Agenda. We need that state muscle, especially from California, to be applied in the Federal
[2:59:52] Banking Conversation. Federal legislation for cannabis banking reform will be coming back this year,
[3:00:00] All the support we can get. We know we have bipartisan support for this reform, and we need your help to push this legislation over the edge and get it passed. State officials of Colorado, including Governor Hickelimper, have been very helpful in D.C., and later this year I would like to say the same about the state of California. So I'll stick around to make connections with any of you, and I look forward to working together here in California, and most importantly, at the federal level. Thank you. Thank you.
[3:00:38] First off, I would like to thank each one of you for the opportunity to speak to you today.
[3:00:43] My name is Peter Holesworth with the Cannabis Lab.
[3:00:45] I'm the former CIO of BioTrack THC, which built the state's systems for Washington and
[3:00:50] several other states that are operating successfully now.
[3:00:54] No longer with the company, I would just say that for the federal government to move forward
[3:00:59] and have security, a seed-disabled system, which encompasses complete transparency ensures
[3:01:05] to close-loop system with no money laundering or illegal or illicit inventory or exiting or entering
[3:01:12] the system is critical to the future of this industry. And I would just encourage everybody here
[3:01:17] in the decision-making process to take your time to value each one of those options on a statewide
[3:01:22] or municipal level prudently and understand its importance towards the successful making of this
[3:01:29] history. Thank you very much.
[3:01:38] Other public comments? Do any numbers of the committee want
[3:01:44] to make any concluding comments?
[3:01:49] I just want to encourage all of us to stay involved
[3:01:53] as I said at the outset. Our next meeting will take place March 27th. We're looking
[3:01:58] at somewhere in the Bay Area. I am going back to Washington, D.C. this evening of we have
[3:02:06] a scheduled meeting with the White House set with the National Association of State
[3:02:09] Treasures, and this will be one of the issues that I will bring to the White House as
[3:02:13] an engine for hopefully some type of action back in Washington, D.C. Thank you all for
[3:02:18] I'm going to practice here.
[3:02:35] This is my favorite.
[3:02:37] For a bank?
[3:02:38] Yeah.
[3:02:39] I'll be about that.
[3:02:42] Yeah.
[3:02:43] Thanks for having me.
[3:02:44] Yeah.
[3:02:47] Yeah.
[3:02:52] Yeah.
[3:02:53] Yeah.
[3:02:54] Yeah.
[3:02:54] Yeah.
[3:02:55] Yeah.
[3:02:56] Yeah.
[3:02:58] Yeah.
[3:02:58] Thank you very much.