On February 10th, 2017, the Cannabis Banking Working Group met in Los Angeles, California. The room filled with industry cannabis advocates & leaders, banking professionals, and small business owners eager to hear from the state officials and presenters on the future of Cannabis and banking in the state of California.
California State Treasurer John Chiang greeted the audience and expressed the importance of the community staying involved as the agenda of these meetings is a challenging yet critical issue that needs to discussed. Chiang stated that with the input they receive from community members would allow for the CBWG to develop the recommendations required to find a solution on how to provide banking services to the newly legalized cannabis industry.
With California voting to legally sell recreational Cannabis starting on January 1st, 2018, it is between now and that date; the Cannabis Banking Working Group is taking the task of figuring out how to disconnect between federal policy and the will of California voters in regards to banking and cannabis. As we are all aware, the biggest hurdle is that the Federal Government has placed Cannabis as a Schedule 1 Controlled Substance while dozens of states have moved to decriminalized Cannabis, and assign it for medical use, recreational use or both.
As the meeting progressed, the group and audience heard from 3 different panels. In panel A, we heard from Donnie Anderson of the California Minority Alliance, Jarred Kiloh of the United Cannabis Business Alliance and Todd Bouey, the Director of Finance for the city of Los Angeles.
“Security issues, keeping high amounts of cash on hand, access to capital to grow their business. Legal representatives and contractors are all losing their bank accounts for working with cannabis companies.” Mr. Kiloh stated, “I had to open a total of eight new bank accounts, and with these changes, my employees and staff lost healthcare.”
On the second panel was Professor Julie Anderson Hill from the University of Alabama, School of Law. Through her research, she saw many dispensaries were adding ATMs outside of their location to help with the issue of only being able to take cash. However, this solution only helped for a short period, because once banking institutes found out the location of these ATMs, the companies providing the machines accounts were closed.
We are now starting to see many 3rd Party Payment companies launching into the cannabis industry. However these two are only band-aid solutions for the time being, once these businesses begin to process significant amounts of cash, they are at risk of getting shut down due to money laundering laws in effect.
Each solution that develops is yet again stopped due to the federal legislation. Hill firmly believes in the following options to building a path for cannabis banking.
- Congressional action to legalize Cannabis and/or prevent punishment of banks that serve the industry.
- Have reasonable federal risk regulation and transparent due diligence requirements.
The Example of Washington
Garza presented the model that Washington is using which seems to be working well. Washington created a 3 tier regulatory system for marijuana, with eight guidelines for the Cole memorandum. They developed a traceability system for seed-to-sale and currently have 1,273 licenses in Washington. Berke of PayQwick built out a sophisticated e-wallet that can go from processors to retailers and from consumers to retailers. They have developed a fully compliant program and are working closely with Washington Liquor and Marijuana Board.
They have found by incorporating an in person compliance check four times a year and sharing their due diligence with their banks they are building a better relationship in understanding the cannabis industry.
After hearing from each panel, the meeting was opened up to the audience. Guests who filled out the speaker form were called up to respond their concerns, comments and business solution or issues.
Tom Fleming, who works with a working group from the East Coast who is trying to do the same thing that the California Banking Working Group is seeking to do for California. Tom has worked as a banker for 22 years than for 24 years worked with the U.S. Government on anti-money laundering and compliance initiatives. For the last seven years, he was the Director of Compliance of FinCEN. He explained that over the past two years since his involvement with the cannabis industry, he still hears the same misinformation, miscommunication, being taught at cannabis conferences, information that yet again stated at this very meeting with regards to banking in the industry.
Both industries do not understand each other and people are trying to interpret the Cole memos and FinCEN guidelines and talking about the inadequacy and putting the banking institutions at fault for all of this. He then stated, “The reality is the cannabis is a schedule 1 drug, it is illegal period.” He wanted to make sure the group knew that part of the federal government is looking into this due to the accumulation of this industry being a cash intensive industry. Along with the fact that crime around these businesses is steadily rising and the fact that law enforcement is still missing the appropriate information they need to do their job which is to focus on illegal operations as opposed to the legal operations which are recognized.
Ali Fakhri, CEO of Eventhi , expressed his concern that this is not just a cash issue around the flower, this is affecting all companies and organizations in this industry. Eventhi is a software company that offers ticketing services and event hosting on its’ platform and has been unable to get an account with a credit card processing company legally. Mr. Fakhri expressed that his business does not touch the plant and his clients are not touching the plant as well, yet he is unable to gain access to a gateway that would allow for his services to be used by his client’s who are eagerly waiting for him to launch.
John Chiang ended the meeting letting us know he was going to be heading back to Washington DC and will be addressing this issue again with the White House administration.
Next meeting for the Cannabis Banking Working Group will be taking place on March 27th, 2017 in Northern California (Bay Area).
To watch the full recap of this meeting, see below. (Please note: this video was the live stream recording version provided by the Cannabis Banking Working Group and video is low resolution)