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Banking

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With an estimated projection of over $6 billion in revenue, there has been little to no access to marijuana banking. Currently, California’s marijuana industry stands as a cash-only market.

State officials are wrestling with how to move the industry’s money out of bags and into something more secure and stable as California leans toward a recreational marijuana marketplace next year when cannabis will be available for sale to adults without medical marijuana cards.

The obvious plan would be to have a bank account, yet that’s unlikely to be happening anytime in the near future, Deputy Treasurer Tim Schaefer stated in an interview this week. Shaefer and California State Treasurer John Chiang are talking about banking and its alternatives for the marijuana industry at a 9 a.m. public meeting that occurred this past Thursday at the Glaser Center in downtown Santa Rosa.

“If you have those kinds of bags of currency rolling around the state, you can see why it’s so important to solve the banking problem,” Schaefer said.

The event is part of Chiang’s statewide “Cannabis Banking Working Group” originally convened in December to get experts on banking and its options with professionals in the marijuana industry to discuss the issue in meetings throughout the state.

This past Thursday in Santa Rosa, representatives from Summit State Bank and Santa Rosa-based cannabis manufacturer CannaCraft will meet with experts on banking regulations, cash collection and payments systems.

A cash-only market comes with risks, from safety concerns for employees working with large quantities of cash to staff time required to handle all aspects of the business involving money.

There are other concerns, too. When CannaCraft was raided by Santa Rosa police back in July while the city’s rules on cannabis manufacturing were in flux, it was payday and the company had $500,000 in cash sorted into envelopes for staff. Police confiscated the money and still have it, even though the case has stalled and prosecutors have not charged any of the operators with a crime.

“It’s the most serious issue facing the industry,” stated Kirk Anderson, CannaCraft’s chief operations officer. Anderson’s brother is Darius Anderson, a principal in Sonoma Media Investments, which owns The Press Democrat.

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What will local dispensaries do with the cash once they can sell marijuana legally to any adult? Businesses are going to have to hide it because most of the major banks won’t accept it. In spite of the passing of Proposition 64 the sale of marijuana is still illegal under federal law, so it is mostly a cash-only business.

Concerned about the financial future of California’s growing marijuana industry, state treasurer John Chiang and the 16-member Cannabis Banking Working Group recently met at Oakland City Hall to hear testimony about the industry’s obstacles and find a solution to the state and federal conflict.

Chiang stated, “We hope to find some field within this deep forest where people can have a sense of what the rules and standards are, so they can decide how much risk they want to take on, what practices they choose to engage in.”

Joe DeVries, assistant to Oakland’s city administrator said an all-cash economy is not only dangerous, but stunts the growth of the cannabis industry and is inefficient, causing city governments to lose tax revenue. He said, “This is the only industry that is begging to pay taxes, the only industry that is begging to be regulated. The safer it becomes, the safer for consumers and the better for governments.”

To pay taxes, DeVries stated, “people are coming in with backpacks full of cash. This is not only unsafe but it takes time to count. We have to hire additional staff to sit and count the money. That is what cities will have to deal with” if the state doesn’t make the pot business as legitimate as other industries.

It’s not an entirely new challenge. For years, medical marijuana dispensaries and growers have been forced to use cash to pay their employees, rent, utility bills, taxes, and other expenses putting themselves at great danger. The concern will be magnified once licenses are issued for recreational sales in 2018. California’s marijuana industry is anticipated to bring in an estimated $1 billion in new tax revenue, according to the Legislative Analyst’s Office.

Larry Thacker, CEO of Caliva, San Jose’s largest dispensary said, “We can’t take credit cards. We can’t get access to capital. We can’t get credit lines. We can’t normalize our banking relationships. Every bank we talk to doesn’t want to talk to us. I implore you to help us come up with a solution that dramatically lowers the risk to our business.”

Debby Goldsberry of Magnolia Wellness, an Oakland-based medical marijuana dispensary recently said, “I have been kicked out of our finest banks, such as Bank of America and Wells Fargo. Our local credit union kicked us out.”

Growers face similar problems. Grower Kaiya Bercow, CEO of a Santa Cruz-based farm, which is paid for its product by dispensaries entirely in cash, said, “Banking is a nightmare. We do currently have bank accounts, but the vast majority of our finances are handled in cash. Numerous local and national banks have closed our accounts once they discover we are a cannabis company and are ‘high risk.’ “

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In a once-empty office in Oregon’s Department of Revenue headquarters, officials have created a mini-fortress. Recently hired workers to sit behind bulletproof glass at a window inaccessible to the public. Police officers brought out of retirement roam the building with handguns on their hips. Security cameras monitor the hallways.

The changes, paid for with a $3.5 million budget and prompted by the state’s newly legal marijuana industry, are similar to those that Colorado and Washington made for accepting huge cash payments of pot taxes from businesses historically blocked from banking. Federal data show that the number of banks and credit unions across the country willing to handle pot money under Treasury Department guidelines issued two years ago has jumped from 51 in March 2014 to 301 last month. More than three years into Washington’s legal pot experiment, a large majority of businesses are paying taxes electronically, a sign of better access to bank accounts. The state is even poised to require electronic payments unless the shops can show a good reason to pay in cash.

“People don’t call me anymore and say, ‘I’m opening a new business and I can’t find a bank account,’,” said Robert McVay, a Seattle marijuana business attorney.

Marijuana’s prohibition under federal law still presents a serious hurdle for pot-related businesses, which generally can’t accept credit or debit cards due to card companies’ fears about liability for money laundering or other offenses. Many legal pot shops in Washington, Colorado, and Oregon – the only states with legal recreational sales so far – and dispensaries in medical marijuana states keep ATMs on site to facilitate cash transactions. Most banking access has been through local credit unions, which limits options for the businesses.

Two years ago, the Treasury Department gave banks permission to do business with legal marijuana entities with conditions, including trying to make sure the customers are complying with regulations.
Under the guidance, banks must review state license applications for marijuana customers, request information about the business, develop an understanding of the types of products to be sold and monitor publicly available sources for any negative information about the business. With that in mind, Washington officials began posting the sales activity of licensed marijuana growers, sellers and processers online – along with any warnings or fines issued to businesses caught out of compliance.

The idea was to make it easier for banks or credit unions to discover red flags that might indicate illegal activity; such information is not posted online in Oregon or Colorado, where state officials refused to provide a breakdown of how many pot businesses pay their taxes in cash. Only two credit unions serviced Washington’s legal marijuana industry early on – Seattle-based Salal and Spokane-based Numerica – but now several others have followed suit, and even big banks seem more tolerant of pot-related accounts, McVay said.

Last December, only 10 percent of sales and business tax payments from pot firms were in cash. Three-quarters of businesses paying special pot taxes to Washington’s Liquor and Cannabis Board in the first two months of 2016 did so electronically or by check, according to the state. Oregon has collected $6.84 million from the pot tax’s first two months this year – exceeding expectations for the entire year – and more than half of the state’s pot dealers paid that in cash.

Of the $15 million-plus Washington collected from marijuana sales in February, roughly a quarter, or nearly $4 million, was cash carried through the lobby of the liquor board’s headquarters in Olympia.
Oregon isn’t set up yet to accept electronic payments, and the Department of Revenue is even planning to build out a bigger, permanent site on its main floor to accept larger volumes of pot cash.
The marijuana industry remains eager for a federal solution to their banking problem, and many hope that if California legalizes the recreational use of marijuana this November it might put enough pressure on Congress to change laws.

“Some sanity has to be brought into this banking issue,” said Beau Whitney, an industry economist in Portland who handles government affairs for a local dispensary.

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An employee at a cannabis retail outlet works with bags of cannabis delivered by the courier service CannaRabbit LLC in Louisville, Colorado. When Lamine Zarrad was not at his occupation as a federal banking regulator in the last few weeks, he was working with Denver’s cannabis dispensaries for a majority of his time.

Since he works for the federal government, Zarrad is not allowed to associate himself with cannabis. Instead, he was there to persuade the dispensaries on a new entrepreneurial idea he had been developing in his free time and actually implementing this week once he quits his job as a banking regulator “at the Office of the Comptroller of the Currency, a division of the Treasury Department.”

Zarrad’s idea, Tokken, is one of the many companies trying to innovate in the cannabis industry to solve issues that annoy both consumers and providers. This does not just include Colorado, but other states as well. That issue is the hard to follow and dirty money coming in.

Colorado legalized cannabis for recreational use in 2014, joining various other states that had already decided to decriminalize the drug in some way. However, Visa and MasterCard will not accept transactions at cannabis dispensaries, and a majority of banks are not accepting money from these businesses. As a result, retail outlets are forced to deal with a large bunch of money with nowhere to store it.

Tokken as well as other companies, including Hypur and Kind Financial, have begun to put together software that allows both banks and dispensaries to record transactions. The goal would be to allow for transactions to occur without cash in the end. According to Stephanie Hopper, the owner of Ballpark Holistic Dispensary in Denver, the solutions need to come sooner.

“We are all kind of chomping at the bit, trying to figure out what to do,” Ms. Hopper stated. “We’re fighting so hard on so many fronts that taking one thing off of us would be such a relief.”

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A cannabis banking case set for debate on Monday is experimenting at the central government’s expressed goal of tending to the cash-only nature of the semi-legal pot industry. But, should pot dealers have the capacity to utilize the country’s banking system despite the fact that weed is an unlawful medication? It’s an inquiry that a judge of the federal government is trying to decide. As a result, many are hoping that Colorado’s success to drive the U.S. Federal Reserve to let those pot shops use the country’s banking system.

The case includes Fourth Corner Credit Union, which Colorado set up a year ago to serve the pot business. Federal banking regulators have issued rules for how banks can acknowledge cash from pot deals. However, banks regularly say those rules are inconvenient. That leaves numerous pot shops stuck attempting to pay charges and assesses in real money. No real cannabis related money heists have been accounted for in Colorado, yet the money nature of the cannabis businesses feeling anxious about working with real money. Numerous Colorado pot organizations already use hired security.
“The public is at risk in having hundreds of millions of dollars of cash flowing about the streets of Colorado,” the credit union argued.

The fourth Corner intended to solve the issue by taking into account pot-related organizations, documenting every one of the reports government regulators say ought to be required of the marijuana sector. Since pot stays illicit under government law, the individuals who handle cannabis deals could be ensnared in an elected racketeering case on the off chance that they don’t follow the rules. In any case, the U.S Central Bank, a private entity that regardless goes about as the administration’s commercial operators, is remaining in Fourth Corner’s way. The Federal Reserve states that in spite of direction in regards to pot banking account from the Department of Treasury, cannabis cash basically can’t be permitted into the country’s banking system as long as the medication stays illegal under federal law.

 

More and more states have been legalizing marijuana someway, somehow, and as a result, the cannabis industry continues to grow. The industry as a whole already generates billion of dollars annually, but cannabis entrepreneurs are still having a hard time when it comes to finding a store and managing their incoming cash flows.

Because pot is still illegal on a federal level, banks regulated by the federal government are not very willing to cooperate with owners of any businesses that personally handle cannabis. Bloomberg has reported that the answer to this dilemma lies within the form of a banking system run by the 560 American Indian nations residing in the United States. The Bloomberg article focuses on Anthony Rivera, a Harvard grad currently leading California’s Acjachemen Nation – a tribe who would like other tribes to legalize marijuana and use their experience from years of running casinos so that they may start their own banking system that could help the growing marijuana industry.

Here’s what Anthony Rivera had to say: “The Indian casinos are basically small little banks. They receive deposits in the form of gaming, and they manage that cash in a way which is highly regulated with commissioners and regulators.”
Rivera is the leader of CannaNative, an organization whose main goal is to link all leaders of the tribal nations with marijuana entrepreneurs because of their ability to establish their own regulated markets. In addition to just marijuana entrepreneurs, he would like to bring in financial professionals in order to find a banking system that would benefit the members of the cannabis industry.

The lack of banking options for marijuana businesses makes it extremely difficult for owners to find a way to manage their cash flow, which has generated issues in security and payment processes. The industry is projected to reach $10 billion by 2018, according to ArcView Group, a research firm. In addition, more states are expected to legalize marijuana, so banking issues are only going to need to be resolved sooner.

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The legalization of marijuana has been pushed back by financial establishment in Ohio. The Ohio Bankers League (OBL) has voted against the legalization of both recreational and medical marijuana. OBL has 210 members and does not want to spark a war between federal laws and state laws when it comes to cannabis.

“Marijuana is illegal at the federal level, and handling proceeds connected to marijuana-related businesses also remains illegal – regardless of state law,” said CEO of the Ohio Bankers League, Mike Adelman. “[Issue 3] would put the Ohio banking industry in an untenable position and would render the marijuana industry an all-cash business, creating public safety issues and money laundering concerns,” he concluded.

OBL says that they would reconsider the vote if the federal government were to reform their strict laws. The initiative for the ballot will be decided on November third and would allow residents in Ohio to grow small amounts of pot in their own home. Commercial growing would also be allowed, but limited to only 10 sites. Ohio banks may be a victim of the federal government’s laws if they were to serve businesses that sold marijuana “including the Bank Secrecy Act, U.S. Controlled Substances Act, the Racketeer Influenced and Corrupt Organizations Act and the Patriot Act.” Groups advocating legalization have tried to convince the group that they wouldn’t need to fear over this if the Issue 3 were to pass.

“The Yes on 3 Amendment does not require Ohio banks to take the billions of dollars generated from Ohio’s regulated marijuana industry. Therefore, the Ohio Bankers League has no legitimate concerns to deposit,” stated executive director of ResponsibleOhio, Ian James.

At the moment, ResponsibleOhio looks to be winning when it comes to the opinion of the public with their own Quinnipiac University Poll. According to results, 52% of residents in Ohio would like to legalize pot for recreational use while 84% would like to legalize marijuana for medicinal purposes. Despite these numbers, the Ohio banks are just another on the list of some of the bigger financial institutions (Wells Fargo, PNC Bank, JP Morgan Chase, etc.) that have made it known that they will not be supporting the cannabis firm with their services.

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The cannabis industry received support from one of Congress’s strongest supporters on the “war on drugs.”

On Monday, Democratic Senator Chuck Schumer signed on as a co-sponsor of the Compassionate Access, Research Expansion and Respect States Act of 2015. The legislation (known as the CARERS Act) would effectively end the federal ban on medical marijuana and implement a series of reforms. Some of the provisions in the bill include:

  • Reschedule marijuana from Schedule 1 substance to Schedule 2 substance.
  • Allowing doctors to recommend marijuana to veterans who qualify for it.
  • Expanding access to researchers so they can study the medical benefits associated with cannabis, and
  • Making it easier for banks to provide services to cannabis businesses

Tides are changing

Senator Schumer’s support for medical marijuana comes after years of work focused on ramping up drug penalties and opposing reforms. Although his support is surprising, he recently said his position on marijuana is evolving.

In an interview with MSNBC last January, Schumer said it is a “good idea” to let states move ahead with implementing legalization without federal interference.

Senator Schumer said, “We now have the states as laboratories, different states at different levels. Colorado and Washington sort of opened the door. I’d be a little cautious here at the federal level and see the laboratories of the states, see their outcomes before we make a decision.”

Increasing support for the bill

The bill now 15 has senators on board, including two Republicans. Marijuana reform advocates believe that the bill can pass if it is brought to the Senate floor, but the legislation is currently stuck in the Judiciary Committee.

Iowa Republican Senator Chuck Grassley is the chairman of the committee and he has pushed for reduced barriers to medical research on marijuana, but opposes rescheduling it “based on the current science on the risks and benefits.” Senator Grassley has not committed to hold a hearing or a vote on the legislation.

Outlook

Earlier this year, President Barack Obama said the divide between Republicans and Democrats on marijuana politics is narrowing. He went on to say that he is encouraged by recent developments because liberal Democrats are no longer the only supporters of legal marijuana. Conservative Republicans have come on board too.

Authored by: Michael Berger

Michael Berger is the president and founder of Technical420, an independent research firm focused specifically on the cannabis sector. He was working for the equity research department at Raymond James Financial Inc., when he recognized a need for a service that provides up-to-date research and analysis on companies that operate in the cannabis industry. Mr. Berger studied finance and economics at Florida State University and is working toward achieving his CFA charter.

Sincerely,

Michael Berger

Founder/President 

Technical 420 LLC

C: 305-458-9982

E: michael.berger@technical420.com

W:  www.technical420.com

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As the state of California is preparing to hold what is debatably the most crucial vote that will be remembered in history throughout the marijuana industry in only 15 months, there seems to more questions than answers.

What will be the process of taxing recreational marijuana? Who is going to control what? Will there be a monolithic agency monitoring all points of the business or will various agencies take over the various points of interest. What will be government led? What, if anything, will be kept private.

And maybe the most crucial what about the cash that is generated. How are the revenues going to worked efficiently? What banks are willing to place their feet out of line from the financial mainstream and start worrying with marijuana shops and various industry accounts, especially with pot currently illegal at a federal standpoint.

The California Marijuana Control, Legalization, and Revenue Act, if it makes it onto the ballot and all signs point to that conclusion it would be put to a vote in November 2016. The Initiative is required to have 365,000 signatures to get on the ballot, and taken from one estimate from ReformCA, 70,000 have currently been obtained.

If the vote is given a green light and passes, California would become the fifth state to legalize the growing and the sale of recreational cannabis. As well as, it would also become the most intriguing marijuana state to do so. California currently has over 1,000 medical marijuana shops attending to more than a million medicine users.

A majority of the bureaucracy needs to be established to control the coming and going off what could be fastest expanding industry within California. To that conclusion, the state Board of Equalization, which deals with taxation and revenue, has made a proposition to provide a state-run bank to work with the fiduciary business.

At this current time, the marijuana industry is a cash only business. Even fees add taxes locally and to the state are financially taken care of with cash only. For standout resins that need to change.

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Besides hollow gestures by the federal government that said they are willing to let the banking industry to work with business in the marijuana industry, not long ago a denial of a Colorado credit union by the nation’s centralized banking operation implies a different behavior altogether.

The Fourth Corner Credit Union in Denver applied this past year for a “master account” with the Federal Reserve that would have developed a go to banking location exclusively for the state’s marijuana industry.
Yet, after months of consideration, the feds eventually denied the credit union the ability to start conducting business like the rest of civilized America.

Not only would this first of a kind banking selection have provided cannabis business with a place keep millions of dollars in cash revenue, yet it would have also allowed cultivation operations and marijuana shops to be on the look out for loans and various other important financial solutions to promote proper growth. However, after submitting to months of grueling inquiries from the Fed, the credit union was denied.

Yet the result is not etched in stone for the credit union. According to the New York Times, Fourth Corner Credit Union, which has the backing of Colorado Governor John Hickenlooper, filed a federal lawsuit against the banking operation this past Thursday, insisting that the marijuana trade be given “equal access” to the centralized bank of the United States.

Attorney, Mark Mason states that throughout the whole application process, the Fed was looking for a smart way to deny their application. Currently, the organization is preparing to let a federal judge, well versed in “applying the law” make the choice.

“The Fourth Corner Credit Union (“TFCCU”) sued the Federal Reserve Bank of Kansas City and the National Credit Union Administration in federal court in Denver to get a fair and impartial hearing on its request for a master account,” Mason said in a statement.

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