The fourth meeting of the Cannabis Banking Working Group met today (July 7th, 2017) in San Diego, California.
What is the Cannabis Banking Working Group?
On November 8, 2016, California voters passed Proposition 64, legalizing the use of recreational cannabis. However, the use, possession, and sale of cannabis remain a federal crime. The federal government still considers marijuana a Schedule I drug under the Controlled Substances Act. As a result, banks and other financial institutions refuse to provide services to cannabis businesses.
To solve this problem, State Treasurer John Chiang has convened the Cannabis Banking Working Group (CBWG). The working group, made up of representatives from law enforcement, regulators, banks, tax authorities, local government and the cannabis industry, is charged with finding practical and timely ways to address the state-federal conflict.
This meeting’s panelists included:
Panel A: Community Panel
a. Chuck Lowery, Deputy Mayor, City of Oceanside
b. David Chelette, Development Board Vice Chairman, Iipay Nation of Santa Ysabel
Panel B: Federal Legislation
a. Dana Rohrabacher, U.S. Representative, California’s 48th Congressional District, House of Representatives
b. John Hudak, Deputy Director, Center for Effective Public Management, Brookings Institution (Author of Marijuana: A Short History)
c. Aaron Smith, Executive Director, National Cannabis Industry Association
Panel C: Financial Institutions Regulatory Compliance
a. Julie Robinson, Senior Vice President & Compliance Risk Manager, River City Bank
b. Sundie Seefried, CEO, Partner Colorado Credit Union
c. Ali Fakhri, CEO, eventhi.io
Panel D: Regulatory Compliance Systems
a. Adam Crabtree, CEO, Nationwide Compliance Specialists
b. Derek Davis, Founder, California Cannabis CPA
c. John Vardaman, Executive Vice President & General Counsel, Hypur
Our team was at this event and highlighted a few key points from this discussion.
Chuck Lowery, the Deputy Mayor of the City of Oceanside, stated that the City of Oceanside needs state guidance on what they can and can’t do. They are willing to work with cannabis businesses however they will not work with anyone who has been illegally running a marijuana business. One key statement was that he announced that Oceanside does see the medicinal benefits of cannabis.
David Chelette, the development Board Vice Chairman of Iipay Nation of Santa Ysabel that they are in the process of setting up laws for the structure of their land. They regularly have been meeting with banks, having them review their structure and process, and although the banks recognized how well structure their operation is, they are still unable to work with them, as of now.
The Iipay Nation have been utilizing other states models to help develop their processes. A key highlight was that Iipay Nation requires the full seed to sale tracking, independent audits, insurance, and 24/7 surveillance to name a few.
The Federal legislation panel included Dana Rohrabacher, U.S. Representative of California’s 48th Congressional District, John Hudak, Deputy Director of the Center for Effective Public Management and Aaron Smith, Co-Founder and Executive Director, National Cannabis Industry’ Association.
Dana Rohrabacher began the panel by stating that he believes this is a freedom issue. An individual adult has every right to consume whatever they want at their own private home.
Did you know? In April 2016, Rohrabacher announced his endorsement of California’s Proposition 64, the Adult Use of Marijuana Act.
Rohrabacher is a strong proponent of states’ rights when it comes to cannabis policy. He has introduced the Rohrabacher–Farr amendment for many years starting in 2003, to prohibit the Justice Department from spending funds to interfere with the implementation of state medical cannabis laws. The amendment passed the House for the first time in May 2014, becoming law in December 2014 as part of an omnibus spending bill. Additional legislation that Rohrabacher has introduced includes the Respect State Marijuana Laws Act and the Veterans Equal Access Act. Rohrabacher has called on the DEA / DOJ to remove cannabis from the list of Schedule I drugs. In February 2017, Rohrabacher co-founded the Congressional Cannabis Caucus – along with Reps. Don Young (R–AK), Jared Polis (D–CO), and Earl Blumenauer (D–OR) – to help advance policy change regarding cannabis at the federal level.
John Hudak made an important statement,” the banking solution should be achieved for the 40 million California’s who for them this is a public health and public safety issue.” Hudak reminded the room that this isn’t just about business. It is important to make sure this industry can be tracked, traced, kept honest and regulated efficiently so that the individual knows exactly what product they are getting, where it came from, and that the tax money ends up in the treasurer where it belongs.
Aaron Smith also spoke about public safety and wanted those who care about this issue and who have influence with the state of California to lean on the congressional delegation.
The Financial Institution Regulatory Compliance included Julie Robinson, Senior Vice President & Compliance Risk Manager, River City Bank, Sundie Seefried, CEO, Partner of the Colorado Credit Union and Ali Fakhri, CEO, EventHi.
Ali Fakhri, chief executive officer of EventHi, the first online event management platform specific to the cannabis industry gave insight into the issues his company faced trying to find a bank that would work with them, even though they are an ancillary tech company, that does not touch the plant or handles cash transactions. Ali then went on to publicly announce that EventHi and Safe Harbor Private Bank, a compliance-based cannabis banking program, which is a division of Partner Colorado Credit Union will officially be working together, making EventHi the first California Bank to work with Safe Harbor. Safe Harbor currently works with two cannabis businesses in California.
Julie spoke about the top 5 hurdles to banking MRB’s in California.
Reasons why it will take some time to work with a cannabis business.
1) It is STILL a Schedule 1 drug at the federal level. Regulators know they are mandated to follow Federal law.
2) Cole Memo. The Cole memo cannot be considered a safe harbor for them and provides the Marijuana industry with false hope. It only addresses medical marijuana and not recreational.
3) Complying with the FinCEN guidance. FinCEN gave guidance to follow but the bar was set extremely high, and the State is not helping currently with the due diligence items listed.
4) Federal Regulator. Banks in California have both a State and Federal Regulator. Federal Regulator is the FDIC.
5) The uncertain Political climate at the Federal level.
Julie and Sundie ended the conversation with suggestions to the Cannabis Banking Working Group to consider.
Six ideas to consider for CBWG toward helping the banks to meet the FinCEN guidance.
1) Direct more funds in law enforcement to help ensure that no California marijuana products cross state borders or in the hands of children and funds don’t end up in drug cartels and gangs.
2) The State maintain a registry of licensee’s that can be accessed and regularly verified by the financial institutions.
3) The State provides a confidential alert registry to financial institutions that they can access when licenses are in jeopardy of being suspended, revoked or investigated so we can deny financial services and can remain compliant with state licensee action.
4) Consider MRB’s to consider registering their financial institution as part of their licensee application.
5) Provide underacted copies of licensee applications and documents to banks upon request.
6) Publish the gross sales and a list of products sold by ALL dispensaries across the State.
Interesting Fact: Sundie stated that Safe Harbor has been banking to the cannabis industry for nearly three years and that they have developed a compliant banking solution. They have undergone four state and federal exams during that time successfully. Just last month they have banked over $85 million monthly in cannabis funds, annualizing to over $1 billion a year.
The final panel was the Regulatory Compliance Systems panel with Adam Crabtree, CEO, NationWide Compliance Specialists, Derek Davis, Founder, California Cannabis CPA and John Vardaman, Executive Vice President & General Counsel, Hypur.
Adam believes the banks and the regulators can collaborate and work together collectively. For FinCEN to remain viable and valuable at the federal level it must do more than just provide accounts to the right actors, it must also highlight the bad actors and help to get them out.
Derek wanted to address his concerns over tax evasion, specifically of the operators in this space who have been operating for the past 8-10 years and have been completely “off the grid.” These operators receive all their payments in cash so they pay for all their expenses in cash. And when trying to convince them to file their taxes to be compliant the whole process of having legal entities and reporting their income scares them, so he believes providing them with access to a bank account will be able to increase efficiencies.
John spoke about compliance challenges unique to marijuana banking which continues to deter so many financial institutions from servicing the marijuana industry. He then talked about how Hypur has been addressing those issues.
Did you know? John Vardaman is an attorney with extensive experience in the enforcement and application of federal laws and policies concerning the Bank Secrecy Act, money laundering, and other financial crimes. Prior to joining Hypur, John served with the U.S. Department of Justice for 10 years identifying and addressing threats related to the financial system and national security and worked for the Department of the Treasury on a range of terrorist financing issues in the wake of 9/11.
To watch the full recap video, stay tuned as the Cannabis Banking Working Group will be sending us the full recorded event on Monday.