This transcript has been auto-generated and may contain technological errors.
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welcome I'm your host Hillary Bricken and
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this is the Cannabis law Now podcast
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where we regularly discuss issues
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related to the Cannabis industry
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including investment day-to-day
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operational issues and potential reform
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on the horizon that will impact all
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cannabis businesses and investors in the
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United
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States well today on the podcast we have
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a very special treat um we have Brett
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Balman and Karen petrick from salal
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credit union and the reason why this is
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special is because it is few and far
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between to see financial institutions
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participating in the Cannabis industry
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despite the fact that the overwhelming
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majority of states have some form of
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legal reform and Licensing and the extra
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trick here is that financial
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institutions get to participate because
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of an enforcement memo that was issued
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by the financial crimes enforcement
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Network back in 2014 and I wanted to
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bring Brett and Karen onto the podcast
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to talk about the ins and outs of
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cannabis banking because we so rarely
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get to hear about the logistics of how
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this is done in such a way to avoid
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Federal scrutiny but also run a business
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at the end of the day and I think
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there's a big misconception out there
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with cannabis companies regarding the
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level of diligence that must be done so
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that the financial institution can even
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undertake things like depository
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accounts so Brett Karen welcome to the
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show Hello thank you Hillary hi okay so
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let's just get into these questions this
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is a conversational podcast I'm just
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here to facilitate where this goes why
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in the heck did salal pursue this in the
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first place because it's not like this
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is easy to do in fact it's wildly
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complicated so why why do this at all I
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can take that one so the conversations
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really started uh for us back in 2012
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when Washington voters passed initiative
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502 which legalized Rec recreational
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Cannabis here in Washington we knew that
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this was going to be an underserved
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market so we be began conversations
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internally working with our board
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working with our Regulators to figure
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out if this was something that we wanted
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to pursue when the decision was made
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that we did want to move forward Public
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Safety was by far the number one
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priority for us um that was something
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that we wanted to make sure that we
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could mitigate the risk and offer the
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products and services to these
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businesses to help accommodate them
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knowing that this was potentially going
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to impact their local communities and
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everything like that because a lot of
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these businesses they were operating in
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all cash and so you know how do we
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figure that out how do we both protect
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the credit union the community and our
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members so public first uh Public Safety
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was by far the number one on our list
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and then secondarily it was just making
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sure that we were helping State
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regulated businesses get the banking
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products and services that they needed
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you know think about paying an employee
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via direct deposit a paying their vendor
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electronically paying their taxes
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electronically you know that was
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something that was very important to us
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so those were the two primary reasons we
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really got into this and we should take
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it I think a step back back and remind
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the audience in case you're a first-time
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listener cannabis businesses generally
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cannot access financial institutions
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because cannabis is a schedule one
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controlled substance which means it is
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illegal as far as the federal government
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is concerned and that obviously may
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change we may talk about that a little
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bit today but maybe not but that is why
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they tend to operate in an allash basis
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because it is a violation of the bank
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secrecy act and a slew of other
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regulations and laws on the banking side
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ferally that prevent these Banks of all
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sizes and credit unions of all sizes
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from directly participating in the
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industry until we get the finsen
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guidelines and finsen again is an
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acronym for the financial crimes
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enforcement Network it basically
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oversees enforcement of the BSA and
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other banking laws and regulations and
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it came out with a memo and it's part of
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the Department of Treasury in 2014 so
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Brett and Karen what are the finsen
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guidelines from the perspective of the
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financial institution yeah yeah I mean
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you covered a lot of it uh kind of in
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your intro there but yeah at a very high
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level the finsight Goins like you said
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were issued on February 14th 2014 almost
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a decade ago kind of crazy to think
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about really it was to also help address
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the increasing number of states that
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were legalizing both recreational
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medical cannabis across the country you
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know those guidelines kind of set the
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framework for our financial institution
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if they were to get into banking
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cannabis related businesses hey here's
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how you basically need to do this how do
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you comply with bank secrecy act as you
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had mentioned earlier and basically kind
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of sets the stage for you know what
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suspicious activity reporting do we need
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to do currency transaction reporting and
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then it lays out a bunch of red flags
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for a financial institution to look at
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to address any you know monitoring
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issues or anything like that so you know
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at a very high level that's what the
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finsen guidelines are to us but that you
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know kind of getting back to the first
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question that was really the driver
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behind you know when I said when we
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decided to move forward that was the
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number one driver behind that which was
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this guidance issued by finen and we
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should mention that that guy idence was
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was issued on the back of a Department
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of Justice enforcement memo called the
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coal memo which we all know about at
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this point it's been rescinded but it
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was kind of a Guiding Light I think for
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States when they were making their
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regulations and when they were
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determining how aggressive to be namely
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Colorado and Washington when they were
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setting up their cannabis program so
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Brett and Karen those guidelines rely
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heavily on the COO don't they correct
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and even though the COO was vaporized by
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Jeff
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when Trump was president has that
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changed how you do business under the
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guidelines at all no I I mean in a lot
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of our documentation and Karen you can
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jump here and here too a lot of our
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documentation basically just changed
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from Co memo to rescinded Co memo but at
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the end of the day that was still a
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guiding principle for our framework for
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banking uh cannabis related businesses I
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mean they didn't resend the guidance or
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amend the guidance at all so as long as
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that guidance remains in place that's
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how we're going to you know operate a
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program right and for listeners what
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Karen means is treasury did not resend
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the finsen guidelines but all of the doj
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memos on cannabis they got vaporized by
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Jeff sessions which I think is an
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important point in that treasury is
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behind this right they want to track
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these dollars they want accountability
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they want Public Safety and that's
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probably a good thing for all of us and
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Karen maybe I'll direct this question to
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you unless Brett wants it how hard is it
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to comply with the finsen guidelines
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it's really Common Sense guidelines
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there's really not a lot in there that's
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really specific to cannabis I mean
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they're just common sense guidelines so
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it's not really that hard to comply the
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problem is the Staffing and the extra
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due diligence that we have to do that's
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where the burden is you know we need a
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lot more people and a lot more time to
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look at these accounts and really dig
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into the activity and the ownership and
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understand the the complexities of some
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of the crazy ownership schemes that we
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see and that's where the that's where
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the complexity is it's just you know the
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time that it takes to do that you can't
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apply that the same necessary
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necessarily just the same automated
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monitoring that you do for every other
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account to the to the Cannabis industry
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and that automated monitoring that you
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mention common term of Art and banking
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right know your customer and this is
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this initial diligence that we all go
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through whether we know it or not when
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we open accounts make deposits withdraw
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money and to me the finson guidelines
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are know your customer due diligence
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kind of on steroids if I could put it
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like that because of the federally
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illegal nature of the businesses it's a
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little more invasive did salal have to
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revise and reform its kyc policies with
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these customers I don't know that we had
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to revise the kyc policy per se I mean
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we didn't have we had some business
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accounts we had a business account
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portfolio before we started banking
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cannabis but we really built our
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department around the Cannabis industry
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so all of that was sort of baked in
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right from the start I think the biggest
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change that it might have brought Upon
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Us was maybe Expediting a move away from
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manually monitoring or onboarding these
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accounts to more automated approach
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bringing in new systems that way to help
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satisfy The Regulators that we were
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doing everything that we could to
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monitor for those red flags if we're
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going to diversify out of the Cannabis
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industry then we would have to actually
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make some more changes you know we can't
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apply the same standard to your everyday
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Mom and Pop Shop so right and you
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referenced the red flags in the finsen
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guidelines off the top of your head do
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you know the big ticket red flags that
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treasury is looking for that salal must
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look for under the guy lines just to
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remind our listeners well that's a quiz
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right
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there if you don't it's a it's okay I
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remember a couple of them things like if
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you see a management company think twice
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check on the social media of the actual
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cannabis company to make sure that
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they're not breaking the rules and I
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think a lot of people when these
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guidelines came out everybody was quite
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thankful because it meant access to
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banking for obvious reasons but it also
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kind of flagged that Financial
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institutions were going to be droned
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into doing the work of the feds
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regarding kind of peing into these
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businesses and to that end how does the
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typical cannabis comp company react to
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the diligence when you send it to them
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this answer I'm dying to know because I
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get clients that come to me and they say
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I cannot believe the bank is asking for
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these things and I'm thinking well it's
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not because they want to they have to to
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comply with these finson guidelines but
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what's the typical reaction that you
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guys see I mean it's a mix obviously I
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think some folks are just happy to have
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an account they want to give us whatever
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we need because they desperately want to
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be able to bank and that's great others
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are Savvy they understand they're in a
277
00:09:37,920 --> 00:09:41,160
atypical industry and that there's
278
00:09:39,360 --> 00:09:42,680
atypical requirements to open an account
279
00:09:41,160 --> 00:09:44,440
so they're you know prepared and ready
280
00:09:42,680 --> 00:09:46,600
to do that you know others are a little
281
00:09:44,440 --> 00:09:48,600
less patient we get some push back I
282
00:09:46,600 --> 00:09:51,279
don't personally find our requirements
283
00:09:48,600 --> 00:09:52,920
very onerous but it's all in how we
284
00:09:51,279 --> 00:09:55,200
prepare that message how we prepare that
285
00:09:52,920 --> 00:09:57,000
customer at the start of the application
286
00:09:55,200 --> 00:09:59,120
process if they know what we need ahead
287
00:09:57,000 --> 00:10:00,160
of time they're comfortable with that
288
00:09:59,120 --> 00:10:01,560
they can make the decision to move
289
00:10:00,160 --> 00:10:03,120
forward with the application and that
290
00:10:01,560 --> 00:10:04,399
can actually go very smoothly if they
291
00:10:03,120 --> 00:10:06,160
have all their eyes dotted and their
292
00:10:04,399 --> 00:10:08,480
te's crossed and their documentation and
293
00:10:06,160 --> 00:10:10,399
we can really understand their business
294
00:10:08,480 --> 00:10:12,040
it's it's a real mix you know there's
295
00:10:10,399 --> 00:10:13,519
folks that we've banged for a long time
296
00:10:12,040 --> 00:10:15,680
who we're more comfortable with maybe we
297
00:10:13,519 --> 00:10:17,880
can accommodate a little bit better or
298
00:10:15,680 --> 00:10:19,519
others that we brand new to and they're
299
00:10:17,880 --> 00:10:21,399
very complex and we need a lot more
300
00:10:19,519 --> 00:10:24,000
information than maybe their neighbor
301
00:10:21,399 --> 00:10:26,360
it's really Case by case too so you know
302
00:10:24,000 --> 00:10:27,880
it's a it's a big mix and just to kind
303
00:10:26,360 --> 00:10:29,240
of Take Along to that I think Karen hit
304
00:10:27,880 --> 00:10:31,320
the biggest part there setting
305
00:10:29,240 --> 00:10:33,040
expectation up front you know we really
306
00:10:31,320 --> 00:10:34,839
try to Train everybody especially on the
307
00:10:33,040 --> 00:10:36,800
front line that when you're onboarding a
308
00:10:34,839 --> 00:10:39,040
new account you have to set that
309
00:10:36,800 --> 00:10:40,360
expectation you have to set the
310
00:10:39,040 --> 00:10:42,040
understanding that hey we're going to be
311
00:10:40,360 --> 00:10:43,680
asking questions that if you've owned
312
00:10:42,040 --> 00:10:45,360
another business outside of cannabis
313
00:10:43,680 --> 00:10:47,760
it's not going to be that typical
314
00:10:45,360 --> 00:10:50,120
question and that's just part of our due
315
00:10:47,760 --> 00:10:52,279
diligence to again you know kind of the
316
00:10:50,120 --> 00:10:54,680
overarching theme Here is to comply with
317
00:10:52,279 --> 00:10:56,440
bank secrecy act Fin and guidelines you
318
00:10:54,680 --> 00:10:58,480
know everything like that because if we
319
00:10:56,440 --> 00:11:00,399
don't protect our program then we can't
320
00:10:58,480 --> 00:11:02,200
offer it you know globally to our
321
00:11:00,399 --> 00:11:03,519
members and then any referrals that come
322
00:11:02,200 --> 00:11:05,320
or anything like that so we're just
323
00:11:03,519 --> 00:11:07,240
trying to protect everybody here in the
324
00:11:05,320 --> 00:11:09,519
ecosystem but setting that expectation
325
00:11:07,240 --> 00:11:11,440
UPF front 100% is the biggest thing for
326
00:11:09,519 --> 00:11:12,920
us and I I think people need to
327
00:11:11,440 --> 00:11:14,880
understand that it goes beyond just that
328
00:11:12,920 --> 00:11:16,519
initial due diligence right you know you
329
00:11:14,880 --> 00:11:17,920
got your account approved it's open
330
00:11:16,519 --> 00:11:19,720
you're doing your payroll you're sending
331
00:11:17,920 --> 00:11:21,160
your checks out in the mail whatever do
332
00:11:19,720 --> 00:11:23,000
people still do that I don't know the
333
00:11:21,160 --> 00:11:25,360
main point is you know down the line
334
00:11:23,000 --> 00:11:26,839
we're going to have continued questions
335
00:11:25,360 --> 00:11:28,519
about what's happening in your account
336
00:11:26,839 --> 00:11:30,639
we may ask for documentation or the
337
00:11:28,519 --> 00:11:32,720
purpose of transaction that we might not
338
00:11:30,639 --> 00:11:34,120
do on another account or a more typical
339
00:11:32,720 --> 00:11:36,120
business account and if you're not
340
00:11:34,120 --> 00:11:38,040
upfront if you're trying to you know
341
00:11:36,120 --> 00:11:39,720
avoid answering questions you're just
342
00:11:38,040 --> 00:11:41,760
going to make it more difficult for us
343
00:11:39,720 --> 00:11:44,040
to continue banking you so people need
344
00:11:41,760 --> 00:11:46,360
to understand that it's an ongoing
345
00:11:44,040 --> 00:11:49,360
process through the life of the account
346
00:11:46,360 --> 00:11:52,120
until maybe something changes ferally
347
00:11:49,360 --> 00:11:54,639
and what still surprises me is that I
348
00:11:52,120 --> 00:11:56,440
mean we got 38 states with some kind of
349
00:11:54,639 --> 00:11:58,600
Reform some kind of Licensing and
350
00:11:56,440 --> 00:11:59,639
oversight system yet I still when I'm in
351
00:11:58,600 --> 00:12:01,120
deal
352
00:11:59,639 --> 00:12:02,839
and we start to delve into Financial
353
00:12:01,120 --> 00:12:04,920
diligence I see cannabis companies that
354
00:12:02,839 --> 00:12:07,839
are banking with Bank of America or
355
00:12:04,920 --> 00:12:10,240
Wells Fargo or financial institutions
356
00:12:07,839 --> 00:12:11,519
that I know are not subscribing to the
357
00:12:10,240 --> 00:12:13,199
guidelines because the guidelines are
358
00:12:11,519 --> 00:12:14,920
not mandatory they're elective if you
359
00:12:13,199 --> 00:12:16,760
want to serve the industry you should
360
00:12:14,920 --> 00:12:19,920
follow this I don't know why those
361
00:12:16,760 --> 00:12:21,760
cannabis companies choose to go that
362
00:12:19,920 --> 00:12:24,360
route when they've got Outlets like
363
00:12:21,760 --> 00:12:26,440
solal and others now that are providing
364
00:12:24,360 --> 00:12:28,120
these particular services and to me as
365
00:12:26,440 --> 00:12:30,519
the lawyer I'm thinking you're actually
366
00:12:28,120 --> 00:12:32,600
creating more Problems by not going to a
367
00:12:30,519 --> 00:12:34,120
financial institution that's following
368
00:12:32,600 --> 00:12:37,279
these guidelines do you guys agree with
369
00:12:34,120 --> 00:12:40,079
that yeah yeah 100% I I think a lot of
370
00:12:37,279 --> 00:12:42,240
it might just be an educational piece uh
371
00:12:40,079 --> 00:12:43,839
I've banked with Bank of America for 30
372
00:12:42,240 --> 00:12:46,639
years so I'm just going to roll the dice
373
00:12:43,839 --> 00:12:48,519
I don't know who else to go to uh you
374
00:12:46,639 --> 00:12:50,680
know I mean oftentimes I mean it's
375
00:12:48,519 --> 00:12:52,680
pretty close-knit community so people
376
00:12:50,680 --> 00:12:54,920
talk and hopefully word is now getting
377
00:12:52,680 --> 00:12:57,040
out that there are options banking
378
00:12:54,920 --> 00:12:59,680
options that is out there but yeah we
379
00:12:57,040 --> 00:13:01,959
see all the time people moving from well
380
00:12:59,680 --> 00:13:03,760
Fargo Bank of America JP Morgan Chase
381
00:13:01,959 --> 00:13:05,519
you know the larger institutions that
382
00:13:03,760 --> 00:13:06,959
have made it very clear you know we
383
00:13:05,519 --> 00:13:09,199
don't want to be in this business right
384
00:13:06,959 --> 00:13:11,160
now so I think it's more or less an
385
00:13:09,199 --> 00:13:12,839
educational piece and just a you know a
386
00:13:11,160 --> 00:13:15,000
comfort level with those business owners
387
00:13:12,839 --> 00:13:16,680
like I've just always banked here so you
388
00:13:15,000 --> 00:13:19,120
know this is what I'm going to do yeah
389
00:13:16,680 --> 00:13:21,240
it could also be an issue of the path of
390
00:13:19,120 --> 00:13:23,000
least resistance where these companies
391
00:13:21,240 --> 00:13:24,920
do continue to set up management
392
00:13:23,000 --> 00:13:26,360
companies or they use personal banking
393
00:13:24,920 --> 00:13:29,160
because they don't want the headache and
394
00:13:26,360 --> 00:13:30,959
the expense of dealing with the finsa
395
00:13:29,160 --> 00:13:33,279
guidelines I've just always found that
396
00:13:30,959 --> 00:13:35,519
incredibly unwise and also in the
397
00:13:33,279 --> 00:13:37,240
diligence process if you see a cannabis
398
00:13:35,519 --> 00:13:38,440
business with an account at a financial
399
00:13:37,240 --> 00:13:40,040
institution that's following the
400
00:13:38,440 --> 00:13:42,000
guidelines as legal you think this is
401
00:13:40,040 --> 00:13:43,560
great this is a super compliant business
402
00:13:42,000 --> 00:13:45,199
they definitely know what they're doing
403
00:13:43,560 --> 00:13:47,160
the buyer is going to be very pleased
404
00:13:45,199 --> 00:13:49,160
right that this is on the up and up very
405
00:13:47,160 --> 00:13:52,279
transparent and there's almost this kind
406
00:13:49,160 --> 00:13:54,600
of Lucy but actual layer of protection
407
00:13:52,279 --> 00:13:56,440
um in banking with the finsen guidelines
408
00:13:54,600 --> 00:13:57,639
because all hands are on the table right
409
00:13:56,440 --> 00:13:59,320
nothing's being hidden and that's
410
00:13:57,639 --> 00:14:01,040
incredibly important transparency is
411
00:13:59,320 --> 00:14:03,279
hugely important everywhere but in this
412
00:14:01,040 --> 00:14:04,839
industry in particular so let's pivot a
413
00:14:03,279 --> 00:14:06,399
little bit because I think people get
414
00:14:04,839 --> 00:14:09,440
confused about what the finsen
415
00:14:06,399 --> 00:14:13,079
guidelines really speak to on the back
416
00:14:09,440 --> 00:14:15,800
of those guidelines is solal or are
417
00:14:13,079 --> 00:14:18,720
financial institutions able to lend and
418
00:14:15,800 --> 00:14:20,759
extend credit um because obviously that
419
00:14:18,720 --> 00:14:23,680
is a huge issue in the industry because
420
00:14:20,759 --> 00:14:25,800
of the federal illegality yeah and it's
421
00:14:23,680 --> 00:14:28,480
really on a caseby casee basis depending
422
00:14:25,800 --> 00:14:31,600
on the financial institution um so here
423
00:14:28,480 --> 00:14:34,120
at so we do uh lend but on a very
424
00:14:31,600 --> 00:14:36,079
limited basis typically it's reserved
425
00:14:34,120 --> 00:14:38,240
for our existing members where we have
426
00:14:36,079 --> 00:14:40,959
the the whole relationship including the
427
00:14:38,240 --> 00:14:42,040
deposit relationship um so we understand
428
00:14:40,959 --> 00:14:43,639
uh you know both the loan and the
429
00:14:42,040 --> 00:14:45,480
deposit side of things we're
430
00:14:43,639 --> 00:14:47,000
traditionally just uh commercial real
431
00:14:45,480 --> 00:14:49,079
estate and we do a little bit of
432
00:14:47,000 --> 00:14:50,639
equipment financing outside of that
433
00:14:49,079 --> 00:14:52,199
we've not been able to get comfortable
434
00:14:50,639 --> 00:14:54,040
it's not that it can't happen but for
435
00:14:52,199 --> 00:14:55,880
sloud it's kind of a risk appetite level
436
00:14:54,040 --> 00:14:58,160
at this point so like I said yes there
437
00:14:55,880 --> 00:15:00,079
is lending there are options but at
438
00:14:58,160 --> 00:15:02,199
least on a limited basis and we're
439
00:15:00,079 --> 00:15:04,320
traditional cash flow lenders and so for
440
00:15:02,199 --> 00:15:06,240
an industry that's just getting started
441
00:15:04,320 --> 00:15:08,279
often times it's hard to qualify these
442
00:15:06,240 --> 00:15:09,839
borrowers so you know over time as
443
00:15:08,279 --> 00:15:11,279
people get more profitable and more
444
00:15:09,839 --> 00:15:12,959
experienced you know that's where we're
445
00:15:11,279 --> 00:15:14,920
going to be able to come in but at least
446
00:15:12,959 --> 00:15:17,040
at this point it's been a little bit of
447
00:15:14,920 --> 00:15:18,880
a challenge in order to get that lending
448
00:15:17,040 --> 00:15:22,759
piece up and running but we will do it
449
00:15:18,880 --> 00:15:25,880
on a case-by Case basis okay and moving
450
00:15:22,759 --> 00:15:27,519
to kind of how life is under the finsen
451
00:15:25,880 --> 00:15:29,440
guidelines and I'm curious about this
452
00:15:27,519 --> 00:15:31,720
question because people ask me all the
453
00:15:29,440 --> 00:15:34,519
time what's the best state in which to
454
00:15:31,720 --> 00:15:37,000
operate where should I go get a license
455
00:15:34,519 --> 00:15:38,680
and my responses might surprise some
456
00:15:37,000 --> 00:15:40,079
people but I tend to swing with the co
457
00:15:38,680 --> 00:15:41,800
memo where I think you have the most
458
00:15:40,079 --> 00:15:43,680
protection in states that are the most
459
00:15:41,800 --> 00:15:45,680
regulated because again everything's
460
00:15:43,680 --> 00:15:46,920
kept honest it's super transparent your
461
00:15:45,680 --> 00:15:48,399
Feds are not going to show up in your
462
00:15:46,920 --> 00:15:50,240
backyard they're not doing that anyway
463
00:15:48,399 --> 00:15:51,959
but the chances of it plummet if you're
464
00:15:50,240 --> 00:15:55,120
in a highly regulated State quite
465
00:15:51,959 --> 00:15:58,040
obviously what is the most complicated
466
00:15:55,120 --> 00:16:00,880
state in which salal provides services
467
00:15:58,040 --> 00:16:03,680
and why is it complicated I mean I think
468
00:16:00,880 --> 00:16:06,240
California is tricky one they have
469
00:16:03,680 --> 00:16:08,800
approximately 4,228 different license
470
00:16:06,240 --> 00:16:11,680
types I exaggerate but not by much I
471
00:16:08,800 --> 00:16:13,959
mean there's just a lot going on
472
00:16:11,680 --> 00:16:15,759
regulatory wise that way that's
473
00:16:13,959 --> 00:16:17,319
difficult to maintain or understand
474
00:16:15,759 --> 00:16:19,680
really what the differences are between
475
00:16:17,319 --> 00:16:21,920
the two or between different licenses
476
00:16:19,680 --> 00:16:24,199
you know that market in particular is
477
00:16:21,920 --> 00:16:26,279
very you know you've got a lot of black
478
00:16:24,199 --> 00:16:28,040
market cannabis flowing through that
479
00:16:26,279 --> 00:16:30,759
market that makes it very difficult and
480
00:16:28,040 --> 00:16:33,199
challenging for well-intentioned and and
481
00:16:30,759 --> 00:16:35,120
law-abiding business owners to do a
482
00:16:33,199 --> 00:16:38,519
profitable business so there's a lot of
483
00:16:35,120 --> 00:16:41,040
skirting around rules or making very
484
00:16:38,519 --> 00:16:43,279
complex ownership changes or management
485
00:16:41,040 --> 00:16:45,319
structure changes to kind of get around
486
00:16:43,279 --> 00:16:47,000
some of the regulatory requirements or
487
00:16:45,319 --> 00:16:49,519
get around some of that black market
488
00:16:47,000 --> 00:16:51,759
infusion so it just there's a lot going
489
00:16:49,519 --> 00:16:54,120
on in California uh aside from it just
490
00:16:51,759 --> 00:16:56,240
being a very big Market it it can be a
491
00:16:54,120 --> 00:16:57,480
challenge for a number of ways but I
492
00:16:56,240 --> 00:17:00,839
mean that's probably the state where we
493
00:16:57,480 --> 00:17:05,199
found the most most confusing ownership
494
00:17:00,839 --> 00:17:09,199
and management Arrangements around ever
495
00:17:05,199 --> 00:17:11,039
I am I am not surprised um California is
496
00:17:09,199 --> 00:17:13,120
actually number one on my list for worst
497
00:17:11,039 --> 00:17:15,000
state in which to set up your cannabis
498
00:17:13,120 --> 00:17:16,959
business Oregon as a close second and
499
00:17:15,000 --> 00:17:18,919
that's because we have rules on the
500
00:17:16,959 --> 00:17:21,079
books there's seemingly little to no
501
00:17:18,919 --> 00:17:24,559
enforcement anyway and much of the
502
00:17:21,079 --> 00:17:26,559
ownership and beneficial owner Financial
503
00:17:24,559 --> 00:17:28,679
financial interest holder regulations
504
00:17:26,559 --> 00:17:30,000
are very amorphous compared to other
505
00:17:28,679 --> 00:17:32,160
states and I could see why that would
506
00:17:30,000 --> 00:17:34,360
make it difficult to run sufficient
507
00:17:32,160 --> 00:17:36,160
diligence under the guidelines yes I
508
00:17:34,360 --> 00:17:38,160
mean we're responsible to know our
509
00:17:36,160 --> 00:17:40,320
customer like you said I mean it's the
510
00:17:38,160 --> 00:17:42,080
prominent it's The Guiding Light of
511
00:17:40,320 --> 00:17:44,679
banking know your customer and that's
512
00:17:42,080 --> 00:17:46,960
really hard to do one when you can't be
513
00:17:44,679 --> 00:17:48,600
sure who all of those true parties of
514
00:17:46,960 --> 00:17:51,120
Interest are or when you can't
515
00:17:48,600 --> 00:17:52,880
necessarily rely on the regulatory body
516
00:17:51,120 --> 00:17:54,960
in the state to have done that due
517
00:17:52,880 --> 00:17:56,760
diligence as efficiently as we would
518
00:17:54,960 --> 00:17:58,000
like or that we see in other states you
519
00:17:56,760 --> 00:17:59,440
know other states are a little bit more
520
00:17:58,000 --> 00:18:00,640
transparent parent or we know that
521
00:17:59,440 --> 00:18:02,159
they're really digging into the
522
00:18:00,640 --> 00:18:03,960
backgrounds of these people we don't
523
00:18:02,159 --> 00:18:06,480
have that necessarily that same faith in
524
00:18:03,960 --> 00:18:08,400
California unfortunately that tension is
525
00:18:06,480 --> 00:18:09,880
very interesting to me because the
526
00:18:08,400 --> 00:18:11,559
access to financial institutions is a
527
00:18:09,880 --> 00:18:13,240
Lifeline for multiple reasons right it's
528
00:18:11,559 --> 00:18:15,360
not just Public Safety nobody can do
529
00:18:13,240 --> 00:18:16,880
payroll in cash it's nearly impossible
530
00:18:15,360 --> 00:18:19,039
and then of course personal liability
531
00:18:16,880 --> 00:18:21,320
for whatever you might take on yourself
532
00:18:19,039 --> 00:18:23,240
I know that states are incentivized to
533
00:18:21,320 --> 00:18:25,280
get licenses in because they promised
534
00:18:23,240 --> 00:18:26,640
voters there'd be lots of tax revenue
535
00:18:25,280 --> 00:18:28,440
you can't do that right without the
536
00:18:26,640 --> 00:18:30,600
bodies but certainly states are not
537
00:18:28,440 --> 00:18:32,440
created equal when it comes to barriers
538
00:18:30,600 --> 00:18:34,600
to entry and it's unfortunate because it
539
00:18:32,440 --> 00:18:36,960
impacts them these lenes on the
540
00:18:34,600 --> 00:18:39,559
day-to-day business operations but aside
541
00:18:36,960 --> 00:18:42,360
from California um let's talk about
542
00:18:39,559 --> 00:18:44,400
Federal moves right there's a lot going
543
00:18:42,360 --> 00:18:46,280
on right now and there are wild amounts
544
00:18:44,400 --> 00:18:48,559
of speculation seemingly from all parts
545
00:18:46,280 --> 00:18:50,200
of the industry about multiple things I
546
00:18:48,559 --> 00:18:52,200
typically ignore these things with good
547
00:18:50,200 --> 00:18:55,520
reason over 14 years of experience very
548
00:18:52,200 --> 00:18:57,480
little is legitimate safer Banking Act
549
00:18:55,520 --> 00:18:59,320
and I'm not going to go through what the
550
00:18:57,480 --> 00:19:00,919
acronym means but have you both seen The
551
00:18:59,320 --> 00:19:03,880
Walking Dead you ever seen episodes of
552
00:19:00,919 --> 00:19:06,000
The Walking Dead yes safer banking to me
553
00:19:03,880 --> 00:19:08,240
is like an extra in The Walking Dead it
554
00:19:06,000 --> 00:19:10,200
dies it comes back it dies it comes back
555
00:19:08,240 --> 00:19:11,960
and it's kind of like this political
556
00:19:10,200 --> 00:19:14,039
joke now it's an olive branch to the
557
00:19:11,960 --> 00:19:16,320
industry that never goes anywhere what's
558
00:19:14,039 --> 00:19:18,320
your take on it with that very kind of
559
00:19:16,320 --> 00:19:20,840
cavalier oversight being a little
560
00:19:18,320 --> 00:19:22,520
sardonic and what do you think its
561
00:19:20,840 --> 00:19:24,960
chances of passing are now that it's
562
00:19:22,520 --> 00:19:27,240
like on its seventh or eighth life cycle
563
00:19:24,960 --> 00:19:29,480
yeah I mean first and foremost salow
564
00:19:27,240 --> 00:19:31,440
Credit Union will support any
565
00:19:29,480 --> 00:19:33,400
legislation at the federal level that
566
00:19:31,440 --> 00:19:35,400
will help support the Cannabis industry
567
00:19:33,400 --> 00:19:38,520
I mean hands down whether it's safe
568
00:19:35,400 --> 00:19:41,640
Banking Act safer safest maybe is next I
569
00:19:38,520 --> 00:19:43,400
mean who who knows I think it would be
570
00:19:41,640 --> 00:19:44,760
great if safer Banking Act were to pass
571
00:19:43,400 --> 00:19:47,039
but it'll be interesting to see what
572
00:19:44,760 --> 00:19:48,880
other financial institutions do trying
573
00:19:47,039 --> 00:19:50,720
to get into this because as far as we're
574
00:19:48,880 --> 00:19:52,559
aware it doesn't alleviate a lot of the
575
00:19:50,720 --> 00:19:55,360
reporting requirements that we still
576
00:19:52,559 --> 00:19:57,720
have to do so I mean we suspect some
577
00:19:55,360 --> 00:19:59,840
people some financial institutions will
578
00:19:57,720 --> 00:20:01,760
start to get into this but how many you
579
00:19:59,840 --> 00:20:03,440
know it's really tough to say so in
580
00:20:01,760 --> 00:20:05,240
terms of you know I think you kind of
581
00:20:03,440 --> 00:20:07,039
hit on it earlier in terms of percentage
582
00:20:05,240 --> 00:20:08,440
of passing of the likelihood I I don't
583
00:20:07,039 --> 00:20:10,360
think there's much of a chance we've got
584
00:20:08,440 --> 00:20:11,919
an election year coming up which you
585
00:20:10,360 --> 00:20:13,520
know who knows how that's going to go we
586
00:20:11,919 --> 00:20:15,840
have a lot of geopolitical stuff going
587
00:20:13,520 --> 00:20:17,360
on outside of you know the United States
588
00:20:15,840 --> 00:20:19,159
so how is that going to factor in is
589
00:20:17,360 --> 00:20:21,080
Congress going to have time so I mean
590
00:20:19,159 --> 00:20:22,720
it's really anybody's guess but I think
591
00:20:21,080 --> 00:20:24,559
you know being in this for so long like
592
00:20:22,720 --> 00:20:26,039
you have me you start to get a somewhat
593
00:20:24,559 --> 00:20:28,200
of a negative attitude towards it
594
00:20:26,039 --> 00:20:29,880
unfortunately so you know we're not
595
00:20:28,200 --> 00:20:31,760
super optimistic at this point that
596
00:20:29,880 --> 00:20:33,919
anything is going to get pushed through
597
00:20:31,760 --> 00:20:36,880
this year and the other gorilla in the
598
00:20:33,919 --> 00:20:39,559
room that could swallow all of it anyway
599
00:20:36,880 --> 00:20:42,159
is the scuttlebutt around the DEA
600
00:20:39,559 --> 00:20:45,559
rescheduling cannabis into schedule 3
601
00:20:42,159 --> 00:20:47,440
which we know we've got a Department of
602
00:20:45,559 --> 00:20:50,080
Health and Human Services recommendation
603
00:20:47,440 --> 00:20:52,240
now all 250 pages of it with scientific
604
00:20:50,080 --> 00:20:54,760
and medical evidence supporting the move
605
00:20:52,240 --> 00:20:56,320
DEA has never gone against an HHS
606
00:20:54,760 --> 00:20:57,600
recommendation doesn't mean they
607
00:20:56,320 --> 00:20:59,600
couldn't or that they won't they have
608
00:20:57,600 --> 00:21:01,720
ultimate Authority but if cannabis moves
609
00:20:59,600 --> 00:21:03,400
to a schedule 3 it's off schedule one
610
00:21:01,720 --> 00:21:05,240
it's no longer federally legal
611
00:21:03,400 --> 00:21:08,799
technically it would be available on a
612
00:21:05,240 --> 00:21:11,679
prescription basis for cannaboid derived
613
00:21:08,799 --> 00:21:12,880
drugs and what that means is that nobody
614
00:21:11,679 --> 00:21:15,120
knows what's going to happen to the
615
00:21:12,880 --> 00:21:17,000
state licensed markets that are adult
616
00:21:15,120 --> 00:21:18,520
use and Medical in the wake of schedule
617
00:21:17,000 --> 00:21:20,720
3 we have a lot of people claiming to
618
00:21:18,520 --> 00:21:23,120
know um making lots of predictions but
619
00:21:20,720 --> 00:21:25,000
for salal and the other financial
620
00:21:23,120 --> 00:21:27,720
institutions have you considered what it
621
00:21:25,000 --> 00:21:30,240
would mean for you and banking the state
622
00:21:27,720 --> 00:21:32,400
license entities not much at least At
623
00:21:30,240 --> 00:21:33,919
first I think without some sort of
624
00:21:32,400 --> 00:21:35,840
change in the regulations or the
625
00:21:33,919 --> 00:21:37,520
guidance if that's changed then then
626
00:21:35,840 --> 00:21:39,159
we'll have to change our practices and
627
00:21:37,520 --> 00:21:41,799
of course you know it will have some
628
00:21:39,159 --> 00:21:43,880
crazy effect on the industry as a whole
629
00:21:41,799 --> 00:21:46,080
that will impact probably the types of
630
00:21:43,880 --> 00:21:48,200
businesses we see or or maybe what kind
631
00:21:46,080 --> 00:21:49,760
of activity those businesses can do but
632
00:21:48,200 --> 00:21:51,720
in terms of like our due diligence or
633
00:21:49,760 --> 00:21:52,960
what we're required to do that isn't
634
00:21:51,720 --> 00:21:55,200
going to change because they've
635
00:21:52,960 --> 00:21:56,600
descheduled it not until finsen tells us
636
00:21:55,200 --> 00:21:58,159
differently you know we're still going
637
00:21:56,600 --> 00:22:00,400
to follow those guidelines look for for
638
00:21:58,159 --> 00:22:03,200
those red flags that's going to be what
639
00:22:00,400 --> 00:22:04,400
guides our program until that changes so
640
00:22:03,200 --> 00:22:06,880
I think it's just going to cause a lot
641
00:22:04,400 --> 00:22:09,039
more chaos more than anything else don't
642
00:22:06,880 --> 00:22:10,600
could potentially anyway um if it's not
643
00:22:09,039 --> 00:22:13,039
done the right way and I don't know what
644
00:22:10,600 --> 00:22:14,600
the right way is yeah I mean for us it
645
00:22:13,039 --> 00:22:17,360
really doesn't change a lot unless like
646
00:22:14,600 --> 00:22:19,159
Karen said a regulatory body comes out
647
00:22:17,360 --> 00:22:20,919
and changes their guidance for banking
648
00:22:19,159 --> 00:22:23,520
specifically obviously there could be a
649
00:22:20,919 --> 00:22:26,600
financial positive Financial impact uh
650
00:22:23,520 --> 00:22:29,799
to these businesses um with IRS code and
651
00:22:26,600 --> 00:22:31,159
280e uh and so that could be a positive
652
00:22:29,799 --> 00:22:33,159
but what are some of the unintended
653
00:22:31,159 --> 00:22:35,200
consequences of that it's really hard to
654
00:22:33,159 --> 00:22:37,240
tell at this point yeah I think I'm in
655
00:22:35,200 --> 00:22:39,520
the boat with you guys which is waiting
656
00:22:37,240 --> 00:22:41,200
and watching is what we're all doing
657
00:22:39,520 --> 00:22:43,039
right now nobody really knows what will
658
00:22:41,200 --> 00:22:45,720
happen and it will take some federal
659
00:22:43,039 --> 00:22:47,520
intervention to clarify what this means
660
00:22:45,720 --> 00:22:50,200
for State markets whether it's to Banks
661
00:22:47,520 --> 00:22:51,919
or lienes themselves to the doj to other
662
00:22:50,200 --> 00:22:54,039
us attorneys like we've seen in the past
663
00:22:51,919 --> 00:22:56,000
I don't think anybody really knows right
664
00:22:54,039 --> 00:22:57,679
whether it's overall in that positive or
665
00:22:56,000 --> 00:23:00,000
negative despite the removal of the
666
00:22:57,679 --> 00:23:01,679
impact Act of 28 on the income tax side
667
00:23:00,000 --> 00:23:03,840
which is positive the rest of it I don't
668
00:23:01,679 --> 00:23:05,360
think we know now last question before I
669
00:23:03,840 --> 00:23:08,120
let you guys go what are the biggest
670
00:23:05,360 --> 00:23:10,279
challenges salal faces if things remain
671
00:23:08,120 --> 00:23:12,960
status quo I mean if they're not going
672
00:23:10,279 --> 00:23:14,159
to update those guidelines or you know
673
00:23:12,960 --> 00:23:16,320
make some changes to have these
674
00:23:14,159 --> 00:23:17,919
businesses are taxed it's just as talked
675
00:23:16,320 --> 00:23:20,120
about earlier it's just going to
676
00:23:17,919 --> 00:23:22,120
encourage more and more complex
677
00:23:20,120 --> 00:23:24,159
ownership and management agreements that
678
00:23:22,120 --> 00:23:26,120
are difficult to understand and monitor
679
00:23:24,159 --> 00:23:28,480
you know it encourages creative
680
00:23:26,120 --> 00:23:30,640
approaches to structuring your business
681
00:23:28,480 --> 00:23:32,760
so you can just make a buck right so
682
00:23:30,640 --> 00:23:35,720
you're not bogged down by regulatory
683
00:23:32,760 --> 00:23:37,240
requirements or or or what have you so
684
00:23:35,720 --> 00:23:40,240
if things don't
685
00:23:37,240 --> 00:23:42,320
change we're going to just continue to
686
00:23:40,240 --> 00:23:44,120
see in a change industry anyway like
687
00:23:42,320 --> 00:23:45,679
there's just so much change change in
688
00:23:44,120 --> 00:23:47,039
this industry because it's new because
689
00:23:45,679 --> 00:23:48,440
there's a lot of cash there's a lot of
690
00:23:47,039 --> 00:23:50,840
potential all of that is going to
691
00:23:48,440 --> 00:23:52,960
increase continue over time it es and
692
00:23:50,840 --> 00:23:55,679
flows depending on the economy but you
693
00:23:52,960 --> 00:23:58,080
know most of my team's time is spent
694
00:23:55,679 --> 00:24:00,120
either in an application or managing
695
00:23:58,080 --> 00:24:01,279
that change for these businesses that's
696
00:24:00,120 --> 00:24:02,760
difficult to do you know you got
697
00:24:01,279 --> 00:24:04,520
businesses that have new owners they've
698
00:24:02,760 --> 00:24:06,039
got new licenses they have expiring
699
00:24:04,520 --> 00:24:08,039
licenses they're converting in and out
700
00:24:06,039 --> 00:24:10,039
of the industry or they're partnering
701
00:24:08,039 --> 00:24:12,240
with non-licensed companies to do
702
00:24:10,039 --> 00:24:14,360
licensed work because of whatever reason
703
00:24:12,240 --> 00:24:17,000
X Y and Z all of that makes it very
704
00:24:14,360 --> 00:24:18,679
difficult for us to do our due diligence
705
00:24:17,000 --> 00:24:20,159
and make sure that we know the customer
706
00:24:18,679 --> 00:24:21,600
that is in front of us and that we're
707
00:24:20,159 --> 00:24:23,559
comfortable with the arrangement and a
708
00:24:21,600 --> 00:24:25,399
lot of those changes have to require a
709
00:24:23,559 --> 00:24:26,640
relook by our approvers at the Credit
710
00:24:25,399 --> 00:24:28,559
Unit to make sure we're still
711
00:24:26,640 --> 00:24:30,279
comfortable with that arange we're still
712
00:24:28,559 --> 00:24:33,159
comfortable with this ownership so
713
00:24:30,279 --> 00:24:34,720
unless there's change both in the market
714
00:24:33,159 --> 00:24:36,360
just in general but also in the
715
00:24:34,720 --> 00:24:39,200
regulatory environment there's going to
716
00:24:36,360 --> 00:24:41,320
be just a continuation of this
717
00:24:39,200 --> 00:24:42,600
consolidation there's a lot of
718
00:24:41,320 --> 00:24:44,000
consolidation in the market so there's
719
00:24:42,600 --> 00:24:45,200
going to be tendency towards
720
00:24:44,000 --> 00:24:46,559
consolidation there's going to be
721
00:24:45,200 --> 00:24:48,240
tendency towards these complex
722
00:24:46,559 --> 00:24:49,840
ownerships and that makes it very
723
00:24:48,240 --> 00:24:52,240
difficult for us to do our job yeah I
724
00:24:49,840 --> 00:24:54,559
think one other thing is just scale you
725
00:24:52,240 --> 00:24:57,320
know as our members get larger or they
726
00:24:54,559 --> 00:24:59,000
expand or new members want to join the
727
00:24:57,320 --> 00:25:01,000
credit un Union you know because there's
728
00:24:59,000 --> 00:25:03,159
a patchwork of all these State
729
00:25:01,000 --> 00:25:04,600
independent laws and regulations that
730
00:25:03,159 --> 00:25:06,799
means that we have to keep up with all
731
00:25:04,600 --> 00:25:09,039
of those and so absent of any federal
732
00:25:06,799 --> 00:25:11,399
consistent guidance that we can really
733
00:25:09,039 --> 00:25:14,159
latch on to you know it just creates
734
00:25:11,399 --> 00:25:15,919
that scale issue of you know having to
735
00:25:14,159 --> 00:25:18,760
either become more efficient adding new
736
00:25:15,919 --> 00:25:19,960
systems adding FTE whatever it may be so
737
00:25:18,760 --> 00:25:21,960
I mean that's a constant thing that
738
00:25:19,960 --> 00:25:23,840
we're trying to balance is you know okay
739
00:25:21,960 --> 00:25:25,720
we want to get into a new state or
740
00:25:23,840 --> 00:25:27,559
whatever it may be you know how do we do
741
00:25:25,720 --> 00:25:29,120
that how do we do it profitably how do
742
00:25:27,559 --> 00:25:30,799
we protect the credit union how to
743
00:25:29,120 --> 00:25:32,840
protect the member so I mean that's been
744
00:25:30,799 --> 00:25:34,080
a challenge from day one and if things
745
00:25:32,840 --> 00:25:35,640
remain the same it's going to continue
746
00:25:34,080 --> 00:25:37,399
to be the challenge is just that
747
00:25:35,640 --> 00:25:41,440
Patchwork across the board at the state
748
00:25:37,399 --> 00:25:43,520
level I hear you okay well I guess we'll
749
00:25:41,440 --> 00:25:45,399
see what's going to happen maybe
750
00:25:43,520 --> 00:25:47,360
actually this year in 24 because it's a
751
00:25:45,399 --> 00:25:49,159
presidential election lots of things can
752
00:25:47,360 --> 00:25:51,080
shake and move so I want to thank both
753
00:25:49,159 --> 00:25:53,279
of you Karen and Brett for coming on
754
00:25:51,080 --> 00:25:54,600
today thanks law for the participation
755
00:25:53,279 --> 00:25:57,240
think it's very Illuminating for our
756
00:25:54,600 --> 00:25:58,679
listeners and we'll stay in touch over
757
00:25:57,240 --> 00:26:01,799
what happened in the coming months
758
00:25:58,679 --> 00:26:01,799
thanks Hillary thank you very much
759
00:26:03,520 --> 00:26:08,320
Hillary and that concludes today's
760
00:26:05,640 --> 00:26:12,440
episode of the Cannabis law Now podcast
761
00:26:08,320 --> 00:26:12,440
until next time stay alert stay
762
00:26:16,240 --> 00:26:19,240
alive