MARIJUANA BANKING SUMMIT J UNE 6, 2019 R ivers Casino | Pittsburgh, Pennsylvania

It’s time we talk. It’s time we come together to tackle the issues head-on.

Hosted by Integrated Compliance Solutions, LLC and Sterling Compliance, LLC

SUMMIT AGENDA

Opening Remarks Ralf Kaiser

How Did We Get Here? Taylor Biehl The U.S. Cannabis Industry from Illegal to Legal

Marijuana 101: You Don't Know What You Don't Know Michael Patterson

Addressing the Cannabis Dichotomy for U.S. Financial Institutions Angela Lucas

MRB Banking Needs, Challenges & Opportunities Ralf Kaiser

Establishing the MRB Component of Your BSA | AML Program Angela Lucas

Joseph Kopko MRB Insurance Programs Designed Evan Muffly to Manage Risks for Financial Institutions

How to Automate and Scale Your Compliance Strategy Christopher Johnson

Marijuana Banking Panel Michael Patterson Angela Lucas Christopher Johnson Evan Muffly

Ken LaRoe Cannabis Banking: It CAN Be Done! Francis Grady

ABOUT THE SPEAKERS Ken LaRoe Ken LaRoe has been dedicated to the economic well-being of Central Florida for more than 30 years. Mr. LaRoe has lent his expertise to several area businesses, and has created numerous banking jobs, supported various non-profit organizations across the region, and helped to grow well-established Central Florida banks. In 2009, Mr.LaRoe opened First Green Bank after being granted the last bank charter in the state of Florida, and that is where his story becomes woven into today's Summit...

Michael Patterson, NHA, OTR/L | US Cannabis Michael is a subject matter expert in the global cannabis industry. With 25 years as a healthcare executive and his expertise in the hemp and cannabis industries, Mr. Patterson has been a sought-after authority, addressing audiences at numerous conferences, including the 2019 UBS Global Consumer and Retail Conference, FBI National Academy, CBD East Convention.

Taylor Biehl | Capital Alliance Group Taylor Patrick Biehl is the Legislative Programs Director for the Capitol Alliance Group and co-founder of the Medical Marijuana Business Association of Florida. With over a decade of direct legislative experience with major appropriations issues and a concentrated focus on local governance, property taxation, and agency regulation issues, he has proven himself to be a tireless advocate for clients’ interests.

Francis Grady | Grady & Associates Francis Grady combines government and private practice experience as an attorney with the Federal Deposit Insurance Corporation in Washington, D.C and as an attorney in private practice. Francis provides bank regulatory, corporate and securities law representation to more than 100 regulated financial institutions across the country in matters involving bank supervision and bank regulatory enforcement actions, BOLI, executive compensation, merger transactions, securities offerings and shareholder relations.

Christopher Johnson | Integrated Compliance Solutions, LLC Chris is the Co-Founder and Chief Executive Officer for Integrated Compliance Solutions, LLC. Prior to joining ICS, Chris was responsible for senior leadership functions across the processing and financial services industry. Chris bring 20 years of experience in the financial services and a wealth of knowledge and experience in banking, processing, system design and operations.

ABOUT THE SPEAKERS Angela Lucas | Sterling Compliance, LLC

As a former bank regulator and seasoned consultant, Angela's knowledge of regulatory compliance, risk management and investment advisory services has established her reputation as a leading resource with the financial institution consulting industry, spanning consumer protection and anti-money laundering statutes, fraud and marijuana banking issues.

Joseph Kopko, MS, CSP | HUB International

As EVP, Client Services & Business Development, Joe has nearly 20 years of experience proactively managing safety, risk, and employee health. Joe oversees the strategic servicing of clients to overlap their insurance program with the appropriate technology and service strategies that will create a proactive risk management experience. His primary specialty is in developing leadership and management teams to support a sustainable culture of prevention and resiliency.

Evan Muffly | HUB International Evan is EVP and Practice Leader for HUB International's Captive Practice. Mr. Muffly is responsible for providing strategic direction, growth and execution of the practice across he HUB organization globally. Evan has worked in multiple facets of the captive insurance industry, including business development, domicile regulation development, feasibility studies, captive formation, administration and ongoing management.

Ralf Kaiser | Integrated Compliance Solutions, LLC Ralf has been involved in the investment and financial industries for 30 years with a focus on capital raising, investment management, start-ups and the capital markets. Ralf joined ICS in 2018 and has been actively involved in the capital raising, market development and bank sales strategies for the firm. Mr. Kaiser brings a wealth of knowledge and experience to the firm in investment, financial services, sales & marketing and operations.

SUMMIT HOSTS Integrated Compliance Solutions, LLC Integrated Compliance Solutions, LLC (ICS) is one of the leading marijuana banking compliance firms. Providing complete compliance solutions for banks, credit unions, and other financial institutions, ICS is the true SEED TO BANK™ strategy for marijuana financial institutions. ICS has worked with numerous banks and credit unions in many of the legal states to establish MRB banking compliance programs and successfully accept MRB deposits. www.icslv.com | 702.844.8723 | [email protected]

Sterling Compliance, LLC

Sterling Compliance is a strategic risk management partner to our community bank and credit union clients. With over 80 years of combined experience as bank regulators, bankers and consultants, we bring a balanced perspective in our approach to compliance and credit risk management. Our clients rely on us to help them develop, assess and manage effective regulatory compliance programs, provide credit review services, and stay ahead of the regulatory examination cycles with forward-looking, timely information and guidance on pending or changing regulations, emerging risks and reviews of current practices. Through a combination of strategic planning, transactional reviews and audits, our Navigator newsletter and multiple delivery channels for training, we provide a full suite of services to maximize the efficiency and effectiveness of your compliance function. Sterling has been on the forefront of developing tools and education for banks and credit unions seeking to manage the risk associated with marijuana-related businesses in the current regulatory environment. www.sterlingcompliancellc.com | 412.356.3787 | [email protected]

CONTACT THE SPEAKERS

T A Y L O R K E N M I C H A E L B I E H L L A R O E P A T T E R S O N

Capitol Alliance Group, Inc First Green Bank US Cannabis Pharmaceutical Office: 850.224.1660 [email protected] Research and Development LLC Cell: 352.281.1773 Office: 321.960.9699 [email protected] [email protected]

A N G E L A C H R I S T O P H E R J O S E P H L U C A S J O H N S O N K O P K O

Sterling Compliance, LLC Integrated Compliance Solutions, LLC HUB International Limited Office: 412.356.3787 Office: 702.844.8723 Office: 412. 992.2838 Cell: 412.855.7740 Cell: 980.229.5978 Cell: 724-.422.0554 [email protected] [email protected] [email protected]

E V A N R A L F F R A N C I S M U F F L Y K A I S E R G R A D Y

HUB International Limited Integrated Compliance Solutions, LLC Grady & Associates Office: 412. 992.2838 Office: 702-844-8723 Office: 440.356.7255 [email protected] Cell: (780) 938-7722 Cell: 216.308.0095 [email protected] [email protected]

THANK YOU!

1 NOTE S The U.S. Cannabis Industry from Illegal to Legal How Did We Get Here? Florida as Our Case Study

2 NOTE S Florida’s Official Source for Responsible Use

3 NOTE S MMBAFL: Who We Are • The Medical Marijuana Business Association of Florida (MMBAFL) was founded in 2014 as a membership organization to: protect and promote a rational and compassionate approach to Florida’s emerging medical marijuana regulatory framework for patients; serve as a responsible business resource for policy makers; identify best practices from other states which have authorized medical cannabis; support and grow business opportunities for the emerging medical marijuana industry.

4

4 NOTE S U.S. Marijuana Law: A Short History  The effort to curtail Mexican immigrants prompted the Marijuana Tax Act of 1937 which effectively banned its use and sales. Later it was ruled unconstitutional.  It was replaced with the Controlled Substances Act in the 1970’s which established Schedules for ranking substances according to their dangerousness and potential for addiction. Cannabis was placed in the most restrictive category, Schedule I,  In 1972, the Schafer Commission declared that marijuana should not be in Schedule I and even doubted its designation as an illicit substance, however President Nixon rejected the findings.  Prior to 1937, cannabis had enjoyed a 5000 year history as a therapeutic agent across many cultures. In this context, its blip as an illicit and dangerous drug was dwarfed by its role as a medicine.

5

5 NOTE S State Ballot Initiatives

 In 1996, California became the first state to approve the use of marijuana for medical purposes, ending its 59 year reign as an illicit substance with no medical value.  Following CA, four states (Washington, Oregon, Alaska, Maine) and D.C. passed medical marijuana laws  In response to President Raegan’s “War on Drugs”, during which new federal mandatory minimum sentences were introduced, states began legalizing the use of medical marijuana leading to 8 more states passing medical marijuana laws from 2000-2010.  On November 6, 2012, Colorado and Washington became the first states to legalize recreational use of cannabis, regulating cannabis in a way similar to alcohol, allowing possession of up to an ounce for adults ages 21 and older.

6

6 NOTE S  Since 2010, 16 states have passed medical marijuana laws, and 9 states and D.C. have legalized recreational marijuana.  Incarcerations spiked under the Raegan-era policies, disproportionately affecting African- Americans, yet by the 2000s states began to reconsider the war on drugs. Some states chose to decriminalize verses legalizing, marijuana.  In August 2013, The Justice Department issued the Cole Memorandum seeking to clarify how federal law would be enforced. Additionally, the memo generally allowed for the commercial distribution of cannabis in states where such activity has been legalized.  In January 2018, the Cole memo was rescinded by Attorney General Jeff Sessions, introducing uncertainty into how federal law would be enforced.  Today, 33 states and D.C. have passed laws broadly legalizing marijuana in some form, 10 of which have legalized marijuana for recreational use. As marijuana became more ubiquitous and the negative stigma lessened, more states began to transition from medical to recreational use.

7

7 NOTE S Medical Marijuana In Florida

• 2014: Medical marijuana was first legalized in Florida under the Compassionate Medical Cannabis Act of 2014. The act authorized a low tetrahydrocannabinol (low-THC) and high cannabidiol (CBD) form of marijuana for medical use by patients suffering from cancer or seizures. (Authorized 5 vertically integrated dispensing licenses).

• November 2016:Amendment 2 passes, garnering over 71% of the vote - allowed patients with debilitating illnesses to access to “full potency” medical marijuana.

• January 3, 2017: Amendment 2, which created Article X, section 29 of the Florida Constitution, went into effect. Amendment 2 expanded access to both low-THC and full-potency medical marijuana for a larger list of medical conditions.

• June 23, 2017: Senate Bill 8-A, which implemented Article X, section 29 of the Florida Constitution by creating a unified regulatory structure, went into effect.

• 2018: HB 6049 Medical Marijuana Growers, which removed the Black Farmer and Agriculturalists Association Florida Chapter from the MMTC licensure requirements, went into effect March 30, 2018.

• 2019: Smokable Flower spearheaded by Governor DeSantis and defeat of House’s attempt to cap THC levels as well as granting the DOH emergency rulemaking authority extension via proviso language (alleviate litigation)

8

8 NOTE S Medical Use of Marijuana

Unauthorized Use Authorized Use

• Full potency medical marijuana, and low-THC cannabis • Marijuana that was not purchased or acquired under 381.986. F.S., for all qualifying conditions. from a MMTC. • Medical use is the acquisition, possession, use, delivery, • Marijuana in forms for smoking, and marijuana transfer, or administration of marijuana authorized by a seeds or flower, except for flower in a sealed, qualified ordering physician. tamper-proof receptacle for vaping. • Medical marijuana is only provided through an approved • Use in a manner inconsistent with the qualified MMTC. physician’s certification (no written prescriptions).

• Transfer of marijuana to a person other than and authorized qualified patient or the qualified patient’s caregiver on their behalf.

9

9 NOTE S • Cancer. Qualifying Conditions • Epilepsy

• Glaucoma • Medical conditions of the same kind or class as or comparable to those above • HIV / AIDS • A terminal condition diagnosed by a physician other than the • Post-traumatic stress disorder (PTSD) qualified physician issuing the physician certification

• Amyotrophic lateral sclerosis (ALS) • Chronic nonmalignant pain caused by a qualifying medical • Crohn’s disease condition or that originates from a qualifying medical condition and persists beyond the usual course of that • Parkinson’s disease qualifying medical condition • Multiple sclerosis (MS)

10

10 NOTE S Medical Use of Marijuana Medical use means the acquisition, possession, use, delivery, transfer, or administration of marijuana authorized by a physician certification. This does not include:

• On any form of public transportation, except for low-THC cannabis

• In any public place, except for low-THC cannabis

• In a qualified patient’s place of employment, except when permitted by his or her employer

• In a state correctional institution, as defined in s. 944.02, or a correctional institution, as defined in s. 944.241

• On the grounds of a preschool, primary school, or secondary school, except as provided in s. 1006.062

• In a school bus, a vehicle, an aircraft, or a motorboat, except for low-THC cannabis

11

11 NOTE S Qualified Physician and Patients There are currently 2,293 qualified physicians.

Qualifying physicians must:

• Have a clear/active license under Chapter 458, or 459, Florida Statutes • Complete the required course and examination provided by the Florida Medical Association, and Florida Osteopathic Medical Association • Conduct a physical examination while physically present in the same room as the patient, conduct an assessment of the patient’s medical history, and diagnose the patient with a qualifying medical condition • Determine that the medical use of marijuana would likely outweigh the potential health risks for the patient. If a patient is younger than 18 years of age, a second physician must agree with this determination • Determine if the patient is pregnant. A physician may not issue a physician certification, except for low- THC cannabis, to a patient who is pregnant

12

12 NOTE S Qualified Physician and Patients (Continued) There are currently 2,293 qualified physicians.

Qualifying physicians must:

• Review the patient’s controlled drug prescription history in the Prescription Drug Monitoring Program database • Review the Medical Marijuana Use Registry and confirmed that the patient does not have an active physician certification from another qualified physician • Registered as the issuer of the physician certification for the qualified patient in the Medical Marijuana Use Registry and entered the contents of the physician certification into the registry, including: the patient’s qualifying condition, dosage, the amount and forms of marijuana authorized for the patient, and any types of marijuana delivery devices needed by the patient for the medical use of marijuana • Conduct an evaluation once every 30 weeks

13

13 NOTE S Identification Cards Process Each Patient and Caregiver in the Medical Marijuana Use Registry must be issued a Medical Marijuana User Registry Identification Card prior to filling an order at an approved MMTC.

14

14 NOTE S Medical Marijuana Patients There are currently 298,337 active qualified patients (valid identification card) through May 30, 2019.

15

15 NOTE S Medical Marijuana Dispensed • A total of 212,714,975 mgs of Low-THC and • A total of 1,666,101,821 mgs of Low-THC medical marijuana was dispensed in 2017 and medical marijuana was dispensed in 2018 o o 22,064,839 mgs of Low-THC and 78,941,227 mgs of Low-THC and 190,650,136 mgs of medical marijuana 1,587,160,594 mgs of medical marijuana

Total Milligrams Dispensed during Total Milligrams Dispensed during 2017 2018 50,000,000 400,000,000 40,000,000 30,000,000 20,000,000 200,000,000 10,000,000 0 0 July July May Sept… Febr… Janu… June May April Sept… Febr… Octo… Janu… June April Dece… Octo… Augu… Nove… Dece… Augu… Nove… March March

Low-THC Marijuana Medical Marijuana Low-THC Marijuana Medical Marijuana Amount Dispensed (mg)Amount Amount Dispensed (mg)Amount

16

16 NOTE S Medical Marijuana and Low-THC Dispensed by MMTCs

17

17 NOTE S Florida’s Medical Marijuana Industry

• All MMTCs are vertically integrated, which means that each must to cultivate, process, and dispense medical marijuana and low-THC cannabis

• All MMTCs must receive authorization from the Department to begin cultivating, processing, and dispensing medical marijuana and low-THC cannabis

• Each MMTC may currently open up to 30 retail dispensing facilities

• MMTCs with dispensing authorization may deliver statewide

• In 2018 there were 14 MMTCS; The governor settled 8 more licencees in April.

• 7 additional licenses will be bid out this Fall.

• For every 100k additional patients in the registry, 4 more license slots become available.

18

18 NOTE S MMTC Acquisitions • The Florida market has become a highly coveted from a national perspective. With a population of 22 million with only 22 licenses, U.S. and Canadian investors are quickly acquiring Florida licenses.

• Approximately 15 of the 22 licenses to date have been acquired over the last 18 months with prices ranging from $40-$67 million in cash and stock.

• This capital acquisition follows national trends where companies are building national footprints.

• With the restriction on banking and listing on the U.S. Stock Exchanges, many are going to Canada to pursue a “Reverse Takeover” (RTO).

19

19 NOTE S Dispensary Statewide Distribution • Statewide Maximum – Each MMTC was originally authorized to open 25 dispensaries statewide. o This increased to 30 when the patient population reached 100,000 qualified, active patients. o This will continue to increase by 5 dispensaries statewide each additional 100,000 qualified, active patients thereafter.

• Regional Maximum - The statewide maximum is distributed in 5 regions (Northwest, Northeast, Central, Southwest and Southeast) based on regional population.

• MMTCs may purchase dispensary slots from other MMTCs.

• Limits on dispensaries sunset on April 1, 2020.

20

20 NOTE S Regional Allocation of Current Dispensing Locations

MMTC Regions Northwest Region Bay, Calhoun, Escambia, Franklin, Gadsden, Gulf, Holmes, Jackson, Jefferson, Leon, Liberty, Madison, Okaloosa, Santa Rosa, Taylor, Wakulla, Walton, and Washington Northeast Region Alachua, Baker, Bradford, Clay, Columbia, Dixie, Duval, Flagler, Gilchrist, Hamilton, Lafayette, Levy, Marion, Nassau, Putnam, St. Johns, Suwannee, and Union. Central Region Brevard, Citrus, Hardee, Hernando, Indian River, Lake, Orange, Osceola, Pasco, Pinellas, Polk, Seminole, St. Lucie, Sumter, and Volusia Southwest Region Charlotte, Collier, DeSoto, Glades, Hendry, Highlands, Hillsborough, Lee, Manatee, Okeechobee, and Sarasota Southeast Region Broward, Miami-Dade, Martin, Monroe, and Palm Beach Counties.

Dispensing Locations Allowable per MMTC Region Central Southeast Southwest Northeast Northwest Total Allowable per 10 9 5 4 2 30 MMTC Total Approved Dispensing Locations and Total Allowable Dispensing Locations Region Central Southeast Southwest Northeast Northwest Total Allowable Total* 140 126 70 56 28 420 Current Total 38 26 21 14 7 106 Available Total 102 100 49 42 21 314

• Allowable Total* = (14 MMTCs with Dispensing Authorization) x (30 Allowable Locations) • Available Total = (Allowable Total) – (Current Total) • 12 of 14 approved MMTCs have Dispensing Authorization

21 NOTE S MMTC Dispensing Locations

MMTC No. Trulieve 28 Curaleaf 23 Surterra 24 Liberty Health Science 14 Knox Medical 9 VidaCann 7 Altmed - MüV 5 GrowHealthy 4 San Felasco Nurseries 1 Green Thumb Industries 1 Cannabis Cures 0 Columbia Care Florida 0 MedMen 0

Acreage Florida 0 Total 110

22

22 NOTE S MMTC Dispensing Locations (Continued)

• Challenge with dispensing locations: The law preempted local governments on cultivation facilities, however allowed local government ordinances to dictate zoning and citing requirements for retail dispensaries. • The challenge for MMTCs has been to site retail dispensaries throughout the state based on the OMMUs regional distribution formula. • Trulieve, the largest MMTC, has expanded quickly to 28 stores. It could have up to 49 stores by 2020. • The other MMTCs are battling over retail sites. • This is the challenge to patient access and affordability.

23

23 NOTE S 2019 Legislative Session • There were several marijuana bills filed during the 2019 Legislative Session – ranging from the House seeking to cap the potency levels of medical marijuana sold to eligible patients; creating compliant state banking solutions; to reciprocity and so on. • The legislature acted swiftly out of the floodgates in the first 2 weeks of session to allow for eligible medical marijuana patients to "smoke" whole flower at the request of Governor DeSantis. • Though the evolution of medical cannabis has garnered the conservative legislatures' hearts over the past 5 years, recreational or "adult use" has been and will remain DOA even though democrats and libertarians have filed bills in the past seeking to decriminalize and provide standard provisions for marijuana possession. • Rep. Grieco, a Miami Beach democrat, filed two separate bills that would legalize personal pot use and create an excise tax. The only imminent chance of recreational cannabis becoming a reality will be by way of ballot initiative – and - 2020 is not looking too favorably.

24

24 NOTE S 2019 Legislative Session

• HB 1117 sought to exempt personal possession and use of small amounts by people age 21 or older. The bill aimed to set up a system for Florida to license and regulate businesses to grow, produce, package and sell personal amounts of marijuana, overseen by the Florida Division of Alcoholic Beverages and Tobacco, which would be renamed the Division of Alcoholic Beverages, Marijuana and Tobacco. The bill also created a trust fund to receive revenue from taxes. • Grieco’s HB 1119, which would require a super majority approval because it is a tax bill, sought to create licensing fees for marijuana businesses and an excise tax equal to $50 per ounce.

25

25 NOTE S Banking In Florida • Like everywhere, banking cannabis in Florida has been restricted by federal laws and uncertainty of Treasury and Federal Reserve policy. Huge public safety issue with millions in cash flowing through MMTC’s. • First 5 dispensary licensees were searching for cash management and banking solutions • First Green Bank and MMBAFL worked together to seek out Integrated Compliance Solution in Nevada in 2015. Brought them to Florida to work with FGB. • FGB integrated the compliance platform and banked all the medical marijuana businesses in Florida until sale of bank. • Licensees were left without clear banking options. Looked for any solution that seemed to reduce banking risk. • The pressure for banks in Florida to shun medical marijuana business is high because Florida hosts more international customers and sees more potential instances of money laundering than the average state.

26

26 NOTE S • Reluctant because of reputation risk, compromising customer accounts and not understanding compliance requirements and the marijuana industry at-large in Florida is still maturing. • In 2019, legislation was filed the “Marijuana Limited Charter Banking and Credit Union Law” to create a state backed medical marijuana limited charter bank or credit union under the purview of the Commissioner of Agriculture and the Office of Financial Regulation. Legislation failed. • MMTC’s are using a variety of banking options, out of state credit unions, 1-2 Florida nationally chartered banks, and a variety of banks who are staying very low key with their activities. Lafayette State Bank; banks Trulieve ($44 million in Q1). • In February, Chief Financial Officer, Jimmy Patronis, asked President Trump to utilize his executive power to allow for banks to do business with state-authorized medical marijuana companies.

27

27 NOTE S • Agricultural Commissioner Nikki Fried's (then candidate) Wells Fargo and BB&T bank account closures. (August and September of 2018). • MMBAFL and SunTrust tweet on March 21, 2019. • Every year Congress authorizes key protections for state-legal medical marijuana programs in spending bill – barring DOJ from interfering (in place since 2014) • New provision in draft spending bill provides protections by financial regulators (i.e.. U.S. Dept. of Treasury) offers more narrow protection than SAFE Banking Act (i.e.. One big measure being in effect for ONLY next fiscal year) • SAFE Banking Act of 2019 legislation aimed at increasing marijuana businesses’ access to financial services (Likely to pass House by Floor vote this summer; Senate is a coin toss). Much broader and protective than aforementioned.

28

28 NOTE S • In 2019, legislation was filed the “Marijuana Limited Charter Banking and Credit Union Law” to create a state backed medical marijuana limited charter bank or credit union under the purview of the Commissioner of Agriculture and the Office of Financial Regulation. Legislation failed. • MMTC’s are using a variety of banking options, out of state credit unions, 1-2 Florida nationally chartered banks, and a variety of banks who are staying very low key with their activities. Lafayette State Bank; banks Trulieve ($44 million in Q1). • In February, Chief Financial Officer, Jimmy Patronis, asked President Trump to utilize his executive power to allow for banks to do business with state-authorized medical marijuana companies. • Agricultural Commissioner Nikki Fried's (then candidate) Wells Fargo and BB&T bank account closures. (August and September of 2018). • MMBAFL and SunTrust tweet on March 21, 2019.

29

29 NOTE S • Every year Congress authorizes key protections for state-legal medical marijuana programs in spending bill – barring DOJ from interfering (in place since 2014) • New provision in draft spending bill provides protections by financial regulators (i.e.. U.S. Dept. of Treasury) offers more narrow protection than SAFE Banking Act (i.e.. One big measure being in effect for ONLY next fiscal year) • SAFE Banking Act of 2019 legislation aimed at increasing marijuana businesses’ access to financial services (Likely to pass House by Floor vote this summer; Senate is a coin toss). Much broader and protective than aforementioned. • What is the future in Florida as industry grows? More banks are exploring getting in with an understanding of FINCEN compliance requirements. • Some are banking quietly (not overly willing to disclose their bank). • More banks need to do what First Green Bank did to bank cannabis in total compliance w FinCEN guidelines (Ken LaRoe will touch on this) • Hemp has become an issue of huge interest for banks now that it has been descheduled, which could lead banks to move toward banking medical cannabis.

30

30 NOTE S Questions?

31 NOTE S Marijuana 101 You Don’t Know What You Don’t Know

32 NOTE S Michael Patterson

• 25 plus years in healthcare NHA,management, OTR/L, merchant CEAS banking • Pharmacy, SNF, Lab, ALF, Home Health, Therapy, etc. • Licensed NHA and OTR/L in 4 states • Extensive experience working with Federal, State agencies re: Cannabis-Hemp and Healthcare • FBI, DEA, State Health Depts. and State Legislatures, FL State Troopers, Foreign Governments

33 NOTE S Michael Patterson

NHA, OTR/L, CEAS • Board Member and Column Writer- American Journal of Medical Cannabis, Medical Cannabis Society • Column Writer- Orlando Medical News • Global Cannabis Subject Matter Expert for GLG, Guidepoint • Board Member- Tourette Syndrome Awareness Foundation

34 NOTE S Strategic Advisor/ Consulting - Corporations, federal, state, and local governments, financial institutions, private companies in US and abroad re: Cannabis/Hemp Corporate Compliance Directors - Restore Integrative Care (PA-Philadelphia Metro -6 Dispensaries Medical Marijuana (MMJ) Dispensaries, Ohio) Writing Assistance for cannabis/hemp laws and regulation • Policies and procedures in compliance with Federal and/or State cannabis directives, local zoning Development of FL Hemp/Cannabis Research Zone (STAR Zone) Educational Seminars on Cannabis/ Hemp FBI National Academy, FL State Troopers, Sheriffs, and Chiefs of Police, NAMAS-National Medical Auditor Specialist, MOROF- Medical Office Resources of Florida, Public

35 NOTE S US Cannabis Clients

36 NOTE S Cannabis Global Industry statistics $11.5 Billion in 2018 (estimated) 95% of the Global market is in North America (90% USA 5% Canada) $129 Billion by 2029

37 NOTE S Legal Cannabis Countries 2018 (Green: MMJ Blue: Rec)

38 NOTE S 39 NOTE S U.S. Cannabis Marketplace

• 93% of Americans approve of Medical Marijuana (Quinnipiac University July 2018) http://www.wyattresearch.com/article/ca nnabis-stocks-93-of-americans-approve- of-marijuana/ • 65% of Americans favor legalization of Recreational/Adult Use Marijuana (CBS NEWS Poll April 2019) • Taxes: Vary from 30%-70%, depending on line of business (growing/production is on low end and dispensaries on high end secondary to IRS-280e)

40 NOTE S 41 NOTE S US Cannabis Marketplace – Consumer/Patient Prevalence

Medical Marijuana (MMJ) Patient Prevalence 2-4% of state population qualify (varies based on approved diagnoses and population age) (i.e. Pennsylvania- 260k-520k patients)

Maturation of Registered patients within state: 3-5 years (or longer from commencement of sales) Recreational State/Province Customer Usage 10%-12% of the population (USA), Canada- 19%-22% (Health Canada projections)

42 NOTE S 2018 Estimated Total Demand (Recreational Cannabis/Adult USE)

43 NOTE S 44 NOTE S 45 NOTE S States working to legalize Medical Marijuana (MMJ) in 2019 Kentucky, South Carolina, Tennessee, Georgia, Wisconsin, Nebraska, Texas (expand program)

46 NOTE S States Working to Legalize Recreational/Adult Use Marijuana in 2019 New York New Jersey Illinois Hawaii Connecticut Minnesota Rhode Island Pennsylvania Delaware (2020) Maryland (2020)

47 NOTE S Definitions (Dictionary.com)

• Cannabis: The Hemp plant, Cannabis Sativa. Any of the various parts of the plant from which hashish, marijuana bhang, and similar mildly euphorigenic and hallucinogenic drugs are prepared • Hemp: A tall, coarse plant, Cannabis Sativa, that is native to Asia but naturalized or cultivated in many parts of the world and is the source of valuable fiber as well as drugs such as marijuana or hashish • Hemp (US Govt Definition): Cannabis Sativa with less than 0.3 % THC • Medical Marijuana/Cannabis (MMJ): Marijuana “prescribed” by a Doctor • Recreational Marijuana/Cannabis: Legal for Adult Use over 21 years old (similar to Alcohol)

48 NOTE S Is Hemp Legal in the U.S.?

49 NOTE S History of Cannabis-Hemp

• 1000 BC – Chinese grow hemp and export to west • India makes hemp part of its culture • World wide use through World War I • 1889 – Cannabis used for opium withdrawal • 1906-1937 – beginning of persecution of cannabis • 1930- Harry Anslinger, Commissioner of Bureau of Narcotics, led fight for prohibition of cannabis • 1933- W.R. Hearst begins publishing false stories about cannabis using Xenophobia and stereotypes to scare whites • 1937- Marijuana Stamp Act • 1850-1942 – cannabis on US pharmacopoeia

50 NOTE S 51 NOTE S Cannabinoids A class of diverse chemical THC compounds that act on cannabinoid receptors on cells that repress CBD neurotransmitter release in the brain. CBN

CBC

CBG

100+ Additional Cannabinoids

52 NOTE S HUMAN ENDOCANNABINOID RECEPTOR SYSTEM

http://www.cannabisgreen.com/cannabis-would-improve-the-visual-sensitivity/

53 NOTE S Human Cannabinoid System

54 NOTE S • FBI • DEA • DOJ (Cole memo; Ogden memo), Rohrabacher-Blumenauer Federal Amendment Position on • IRS – 280e Cannabis- • Department of Treasury Marijuana • Federal housing (VA SNFs, hospitals) • Federal building or parks • Military complex

The Federal Government does not recognize cannabis as medicine.

55 NOTE S Three Pillars of Legal Cannabis

 Public Safety  Patient/Consumer Access  Commerce

56 NOTE S Orlando Medical News Magazine September 2018

57 NOTE S The Three Pillars of Legal Cannabis

Success of system is based on Balance of three pillars:

1) Public Safety – Enforcement of laws

2) Patient Access – Regulations, ease of purchasing

3) Commerce – companies that sell cannabis and cannabis related products

58 NOTE S California: Loose regulation increases public safety risk “Unbalanced” http://losangeles.cbslocal.com/2017/02/06/contaminated-medical- marijuana-believed-to-have-killed-california-cancer-patient/

System New York: Extreme regulation decreases patient access and limits commerce success

www.drugpolicy.org/sites/default/files/NY%20MMJ%20Implem entation%20Report%20Q1%20June%2013%202016.pdf

59 NOTE S West Coast vs. East Coast

• Less regulation : • More regulation • Less start-up cost • More start up costs • Typically smaller • Larger operations operations • Less competition • Adult Use Focus • Medical focus • Outdoor/Indoor Grow

East Coast East • Indoor Grow West Coast: West

60 NOTE S State Regulation of Cannabis

• Every state is a different “country” • Laws vary drastically from state to state (Vertical Integration, Horizontal Integration) • State and local zoning regulations play a role in investment decisions (i.e. California, Massachusetts) • Governing body determines direction and regulation (DOH, Dept. of Revenue, LCB, Dept. of Pharmacy, etc.) • The more licenses available, the cheaper the entry point (CO, OK compared to NY,FL)

61 NOTE S Average Implementation Timeline of New State Cannabis System

6-8 months Governing board writes policies and regulations

8-16 months Application and approval of licenses for growing, production, and dispensaries

16-24 months Build out, implementation and opening of cannabis businesses to public

62 NOTE S Choke Points in a State|National Regulated System

MD Recommendations: Typical MD practices that recommend Cannabis (non-corporate, individual practitioners, start-up companies focusing on MMJ referrals)

• Heavy penalties for not following recommendation guidelines.

• Risk the majority of current business revenue (Medicare $$, Insurance $$)

Patient ID Card and qualification requirements (required registry if patient (FL), steps/delays to acquire ID card, mandatory visits to MD (FL)

63 NOTE S Choke Points in a State|NationalRegulated System

Tax Structure: Taxes too high drives customers to the black market (i.e. California)

Banking: Banking or National Banking in newly legalized states or countries

Regulations: Too strict, too ambiguous, too loose, different in each state.

64 NOTE S Direct and Indirect Jobs in the Cannabis Industry

Direct Jobs Touching the plant (growing, producing/manufacturing, selling cannabis) Indirect Jobs Ancillary Products/Services (software, grow supplies, nutrients, packaging, security systems, cryptocurrency) Current US Jobs 100,000-150,000 (90,000 direct jobs)

65 NOTE S Types of Cannabis Consumers

66 NOTE S The Future

Consolidation (M&A) More Competition 80% Wellness, 20% “Stoner” Market Data Analytics/Blockchain Rapid Technological Advances (i.e. yeast) Home Delivery

67 NOTE S 68 NOTE S 69 NOTE S 70 NOTE S 71 NOTE S Questions ?

72 NOTE S Addressing the Cannabis Dichotomy for U.S. Banks

73 NOTE S Why the Dichotomy?

• Marijuana remains Federally illegal • The financial institutions we reference here are Federally regulated AND Federally insured • Rather than providing clarification and relief, the 2018 Farm Bill actually posed more confusion to our financial institutions • And then there’s CBD

74 NOTE S So, WHO is Banking MRBs?

75 NOTE S How Do We Know? As of December 31, 2018 • FinCEN received a total of 73,074 SARs using the key phrases associated with MRBs • 54,598 Marijuana-Limited SARs • 5,437 Marijuana-Priority SARs • 16,990 Marijuana-Termination SARs • Several of the SARs contained more than one key phrase, which accounts for the numbers for each key phrase being greater than the total

76 NOTE S HOW are these FIs banking MRBs if it is Federally illegal?

77 NOTE S • Proliferation of Industry “Best Practices” • Cole Memo (2/14/14) Here’s How… • DOJ enforcement priorities of federal laws related to cannabis banking • Rescinded 1/4/2018, causing considerable uncertainty about the future of state- legalized cannabis, including banking these customers/businesses • Despite the rescission, there has been no federal crackdown against state-legalized marijuana and no change in related enforcement of Federal laws (individual U.S. Attorneys indicate the intention to follow the letter and spirit of the Cole Memo) • FinCEN “BSA Expectations Regarding Marijuana-Related Businesses” (2/14/14) • How financial institutions can permissibly service the cannabis market • Rohrbacher-Blumenauer Amendment • Prevents the Department of Justice from using funds to interfere with state-legal medical cannabis programs. This amendment does not extend to the recreational market! • 2014 Farm Bill…and eventually the 2018 Farm Bill

78 NOTE S Here’s How…

• Comprehensive Risk Assessments • Risk Assessment-Driven Policy • Robust Customer Due Diligence • Effective and Meaningful Ongoing Monitoring • Reporting Beyond the Board • Significant Regulator Discussion and Communication

79 NOTE S Before we go into the “Why,” let’s take a closer look at one aspect of administration

80 NOTE S Federal Reporting Requirements

• Marijuana-Limited SAR • Marijuana-Priority SAR • Marijuana-Termination SAR

81 NOTE S Marijuana- Limited SAR

• When you believe, based on CDD, and MRB does not implicate one of the Cole Memo priorities or violate state law • Content limited to: • Identifying information of the MRB and related parties • Addresses of the MRB and related parties • The fact that the FI is filing the SAR solely because the business is engaged in a marijuana-related business • The fact that no additional suspicious activity has been identified

82 NOTE S Marijuana-Limited SAR Common Misconceptions

• The SAR is NOT being filed for suspicious activity despite the name of the report • You do not need to file a Marijuana-Limited SAR for every transaction an MRB conducts • The first Marijuana-Limited SAR is limited in content; 90-day SARs then also include information about the transactions during the preceding months

83 NOTE S Marijuana- Priority SAR

• When you believe, based on CDD, an MRB implicates one of the Cole Memo priorities or violates state law • Content to include: • Identifying information of the MRB and related parties • Addresses of the MRB and related parties • Details regarding the enforcement priorities you believe have been implicated • Dates, amounts and other relevant details of the financial transactions involved in the activity

84 NOTE S Marijuana- Termination SAR

• When you determine it necessary to terminate a relationship with an MRB in order to maintain an effective AML compliance program • If you are aware that the MRB seeks to move to a different or second FI, you may consider sharing this information, to the extent permissible, under Section 314(b) information sharing provisions of the USA PATRIOT Act

85 NOTE S WHY Are They Banking MRBs?

• Revenue Opportunity • Different processes + More Risk = Increased revenue due to increased cost to the MRB • Volume-based pricing is common, though some charge fixed monthly fees • Considerable non-interest income can be generated to supplement traditional revenue

86 NOTE S WHY Are They Banking MRBs?

• Market Conditions • Early adopters, who develop a reputation and an understanding of the market, can be market leaders • Little to no competition in serving MRBs • Growing business opportunities • MRBs are appreciative of banking opportunities and tend to provide more information during initial and ongoing monitoring than traditional accounts (Can be the most profitable and the most compliant accounts)

87 NOTE S Questions?

88 NOTE S MRB Banking Needs, Challenges and Opportunities

89 NOTE S PERSPECTIVES:

MRB BANKING • MRBs Needs, Challenges & Opportunities • Government

• Public

• Banks

9 MRB BANKING - Needs, Challenges & Opportunities 0

90 NOTE S THE MRB’s NEEDS = BANK’S OPPORTUNITIES

9 MRB BANKING - Needs, Challenges & Opportunities 1

91 NOTE S NEEDS OF THE MRB

9 MRB BANKING - Needs, Challenges & Opportunities 2

92 NOTE S Needs of the MRB

Costs of Running an All-Cash Business

1 Cashier Cost of Handling Live Customer/Clerk 1.00% $1,000 $2,000 $4,000 $5,000

2 Employee Cash Counting Time 40Hrs per $100K 0.60% $600 $1,200 $2,400 $3,000

3 Employee Cash Transport Time 30Hrs per $100K 0.45% $450 $450 $450 $450

4 Armored Courier Armored Courier 1.00% $450 $450 $450 $450

5 Cashier’s Checks or Money Orders $10 per Check 0.13% $130 $260 $520 $650

ALL CASH ALL 6 Employee Vendor Cash PMT 15Hrs per $100K 0.23% $225 $450 $900 $1,125 NOBANKING 7 Vaulting Variable 0.20% $200 $400 $800 $1,000

8 Cash Counting Machine (Amort) 0.15% $150 $150 $150 $150

9 Shrinkage* 1.44% $1,440 $2,880 $5,760 $7,200

TOTALS 5.20% $4,120 $8,090 $16,030 $20,000

* 2017 National Retail Security Survey

9 MRB BANKING - Needs, Challenges & Opportunities 3

93 NOTE S Needs of the MRB

Traditional Banking Services:

• Deposit & Checking

• Account

• ACH, Wire Transfer

• Debit Card

• Cash Logistics

• Payroll

Opportunities for the Bank

9 MRB BANKING - Needs, Challenges & Opportunities 4

94 NOTE S Needs of the MRB

Expanding Banking Services:

• Trust & Wealth Management

• Foreign Exchange (from Canadian public

companies)

• Commercial Loans & Lines of Credit

• Mortgages

• Equipment Financing

• Small Business Loans

Opportunities for the Bank

9 MRB BANKING - Needs, Challenges & Opportunities 5

95 NOTE S Needs of the MRB

Traditional Cannabis Businesses

• Dispensaries

• Growers

• Extractors

• Producer/Processor

• Lab Testing Facility

• Distributor

Opportunities for the Bank

9 MRB BANKING - Needs, Challenges & Opportunities 6

96 NOTE S Needs of the MRB

New “MRB” Account Relationships:

• Cannabis Related Employees

• Accountants, Attorneys, Consultants

• Landlords

• Packaging & Non-Cannabis Material

Suppliers

• Financial Firms: Investment Managers,

Private Equity & Hedge Funds

• Fertilizer

• Hydroponic

Opportunities for the Bank

9 MRB BANKING - Needs, Challenges & Opportunities 7

97 NOTE S NEEDS OF THE BANK

MRB BANKING - Needs, Challenges & Opportunities 98

98 NOTE S Needs of the BANK

Education, Knowledge & Counsel

• Unchartered Territory

• Training

• Discussions & Introductions to

Those Who Have Done It

MRB BANKING - Needs, Challenges & Opportunities 99

99 NOTE S Needs of the BANK

Regulatory

• Meet with the Regulators

• Risk Assessment

• Outside Legal Counsel Opinion

• Board Approval Assistance

MRB BANKING - Needs, Challenges & Opportunities 100

100 NOTE S Needs of the BANK

Strategy  Execution

• Policies, Procedures, Compliance Manual

• Intake & Boarding of MRBs

• Automation Tools

MRB BANKING - Needs, Challenges & Opportunities 101

101 NOTE S CHALLENGES

MRB BANKING - Needs, Challenges & Opportunities 102

102 NOTE S Challenges

Regulatory Challenges

Controlled Substances Act of 1970 • Marijuana remains a Schedule 1 Substance = highest potential for abuse • Numerous actions taken to provide banking services in the legal states

Bank Secrecy Act • Also passed in 1970 requiring FI’s to collaborate with government for AML • Treasury Department created FinCEN to write, interpret and enforce BSA and AML laws

MRB BANKING - Needs, Challenges & Opportunities 103

103 NOTE S Challenges

Regulatory Gift

FIN-2014-G001 BSA Expectations Regarding Marijuana-Related Businesses

MRB BANKING - Needs, Challenges & Opportunities 104

104 NOTE S Challenges

Regulatory Gift

FIN-2014-G001 BSA Expectations Regarding Marijuana-Related Businesses

This FinCEN guidance clarifies how financial institutions can provide services to marijuana-related businesses consistent with their BSA obligations, and aligns the information provided by financial institutions in BSA reports with federal and state law enforcement priorities. This FinCEN guidance should enhance the availability of financial services for, and the financial transparency of, marijuana-related businesses.

MRB BANKING - Needs, Challenges & Opportunities 105

105 NOTE S Challenges

Regulatory Gift

FIN-2014-G001

• Provides for a framework of new SARs

• Sets forth requirements for enhanced &

ongoing due diligence

• Testing for specified “red” flags

MRB BANKING - Needs, Challenges & Opportunities 106

106 NOTE S Challenges

Banks Responsibilities

• Must make a determination of the compliance of state law and regulations with the FinCEN guidance in terms of regulatory adequacy and enforcement. • Must conduct appropriate initial and ongoing due diligence of all MRBs so as to assure the MRB is operating in accordance with state law and the FinCEN guidance

MRB BANKING - Needs, Challenges & Opportunities 107

107 NOTE S Challenges

Banks Responsibilities

• Must develop an expected activity for

the MRB, including the type of

products, the expected volumes of

sales of the products and the type of

customers to which products are sold.

• The financial institution must file

SAR’s as appropriate.

MRB BANKING - Needs, Challenges & Opportunities 108

108 NOTE S Challenges

Banks Responsibilities

• The financial institution’s compliance assessments must include consideration of eleven (11) stated “red flags”. The financial institution must file SAR’s as appropriate. • The financial institution must collect and perform analysis of all financial transactions so as to assure that revenues are legally obtained and legally expended.

MRB BANKING - Needs, Challenges & Opportunities 109

109 NOTE S Challenges

Banks Responsibilities

• Complying with the FinCEN

Guidance has been difficult

• Not only KYC…But Know Your

Clients’ Clients!

• Manual System  Not Scalable 

Not Profitable

MRB BANKING - Needs, Challenges & Opportunities 110

110 NOTE S Challenges

Regulatory Challenges: CBD & Hemp

Who is Responsible for Regulations?

MRB BANKING - Needs, Challenges & Opportunities 111

111 NOTE S Challenges

Who is Responsible for CBD & Hemp Regulations?

Regulates CBD & Hemp In Commercial Products

MRB BANKING - Needs, Challenges & Opportunities 112

112 NOTE S Challenges

Who is Responsible for CBD & Hemp Regulations?

National Institute of Food & Agriculture • Responsible for research aspect of industrial hemp

Agricultural Marketing Services • Administers the new USDA Hemp Production Program

MRB BANKING - Needs, Challenges & Opportunities 113

113 NOTE S Challenges

Who is Responsible for CBD & Hemp Regulations?

STATE LEVEL REGULATORS

Varies Depending on the State

• Some states have own hemp & CBD regulations

Check all Local & State Regulations

• Agricultural and Public Health Agencies

MRB BANKING - Needs, Challenges & Opportunities 114

114 NOTE S Challenges

Regulatory Challenges: 2014 Farm Bill

• Hemp Research Pilot Program Agricultural Pilot

Program

• Only institutions of higher education and State

agriculture departments are able to grow or

cultivate industrial hemp

• Requires that sites used for growing or cultivating

industrial hemp in a State are certified by, and

registered with, the State agriculture department

MRB BANKING - Needs, Challenges & Opportunities 115

115 NOTE S Challenges

Regulatory Challenges: 2014 Farm Bill

• Section 7606 did not remove industrial hemp

from Schedule I of the Controlled Substances Act

• Industrial hemp is to be used exclusively for

industrial purposes (e.g. fiber and seed)

• Marketing is to be for research only; not for

general commercial purposes

MRB BANKING - Needs, Challenges & Opportunities 116

116 NOTE S HO W DO ES 2018 FARM BILL DIFFER?

MRB BANKING - Needs, Challenges & Opportunities 117

117 NOTE S Challenges

Regulatory Challenges: 2018 Farm Bill

• Remove COMPLIANT hemp from Schedule I of the Controlled Substances Act

• Less than 0.3% THC (<1.0% in West Virginia)

• Require States and Tribes that want to operate a legal hemp program to submit their plans to the USDA for approval

• Require businesses within states that do not have an approved program to submit their own plans to the USDA for approval

• Require licensing for the cultivation of hemp under the State and/or Federal program

MRB BANKING - Needs, Challenges & Opportunities 118

118 NOTE S Challenges

Regulatory Opportunity

SAFE Bank Act • Secure and Fair Enforcement Banking • Banks will not be liable or subject to forfeiture for providing financial services to legitimate cannabis businesses

STATES Act • Strengthening the Tenth Amendment Through Entrusting States Act • Protect States from federal interference with state cannabis laws • Would give states the necessary power to legislate & enforce their own cannabis laws

MRB BANKING - Needs, Challenges & Opportunities 119

119 NOTE S OPPORTUNITIES

MRB BANKING - Needs, Challenges & Opportunities 120

120 NOTE S Opportunities

Deposit Accounts Merchant Processing

Lending Wealth Management

MRB BANKING - Needs, Challenges & Opportunities 121

121 NOTE S Opportunities

Deposit Accounts

Set by Company Type

Tier 1: Tier 2: Tier 3: Touch marijuana at some point in Do not directly manufacture, Not an MRB in the strictest sense; the supply chain distribute or dispense marijuana do not sell to Tier 1’s

MRB BANKING - Needs, Challenges & Opportunities 122

122 NOTE S Opportunities

Deposit Accounts

Account Opening Fees: Why? Due Diligence! Pre-Qualification Source of Funds

Initial Phone Interview Site Visit Checklist

MRB BANKING - Needs, Challenges & Opportunities 123

123 NOTE S Opportunities

Deposit Accounts

Account Opening Fees:

Tier 1: Tier 2: Tier 3:

$2,000 - $3,500 $1,500 - $2,500 Traditional Fees? (includes CBD/Hemp Entities) $1,000 - $2,000

MRB BANKING - Needs, Challenges & Opportunities 124

124 NOTE S Opportunities

Deposit Accounts

Monthly Account Fees

Tier 1: Tier 2: Tier 3:

1.5% of Deposit (with cap) $1,500 - $2,500 Traditional Fees? $1,000 - $1,500

MRB BANKING - Needs, Challenges & Opportunities 125

125 NOTE S Opportunities

Merchant Processing

• Big Win for the MRBs -> Manages Cash Problem!!

• Upsell Possibility:

• Cash Transaction = $60

• Debit Transaction = $97Upsell Possibility:

• Market Challenge: International/Offshore Payment Solutions

MRB BANKING - Needs, Challenges & Opportunities 126

126 NOTE S Opportunities

Merchant Processing

• Domestic Solutions with US Bank Sponsors

• Greenlight Payments

• NO Credit Cards

MRB BANKING - Needs, Challenges & Opportunities 127

127 NOTE S Opportunities

Merchant Processing

• Current ATM Charges: $3.00 - $5.00  Limited Upsell

• Current Merchant Processing Charges: 6%-8%

• Opportunity: Domestic  ~3.00%

MRB BANKING - Needs, Challenges & Opportunities 128

128 NOTE S Opportunities

Merchant Processing: Banks Economics

• Average Dispensary Sales: $250,000 per month

• Average e-sale: $97

• Number of Transactions: ~2,000 per month

MRB BANKING - Needs, Challenges & Opportunities 129

129 NOTE S Opportunities

Merchant Processing: Banks Economics

• Fully board 100 merchant processing clients

• Based on Acquiring Bank Transaction Fees

Every 100 Clients = ~$1.1M in Bank Revenue

MRB BANKING - Needs, Challenges & Opportunities 130

130 NOTE S Opportunities

Merchant Processing: Banks Economics

Deposit Accounts Merchant Processing

• Lending • Wealth Management

MRB BANKING - Needs, Challenges & Opportunities 131

131 NOTE S Q&A

MRB BANKING - Needs, Challenges & Opportunities 132

132 NOTE S Establishing the MRB Component of Your BSA | AML Program

133 NOTE S Why is there a Need? Marijuana-Banking Risk Assessment

134 NOTE S Who Should Be Involved?

• BSA Officer should spearhead the effort • Departments and Functions • Compliance • Finance • Lending • Customer-Facing Staff (i.e. Representative) • HR / Training

135 NOTE S Before You Start

• Poll the room…where do you stand before the risk assessment? What’s your posture? • Poll the Board…what’s their stance? • Consider setting up site visits to facilities that grow, process and/or distribute marijuana • Research legality within your State • Determine whether your State participates in the Hemp Pilot Program, and/or whether your State has submitted a proposal legal hemp program to the USDA

136 NOTE S RA Component: LEGALIZATION

• Federal Perspective • Marijuana remains a Schedule I substance and therefore Federally illegal as of February 2019. As such, providing banking services to MRBs would be direct violation of Federal law, which could result in enforcement action, revocation of our banking charter, or other penalty • State Perspective • 2014 Farm Bill (Current) • 2018 Farm Bill (Hopefully by YE2019) • The 2018 Farm Bill legalized industrial hemp, assuming compliance with shared state-federal requirements and THC restrictions. As a result, banks wishing to offer depository or lending services to such customers would not be violating Federal law (assuming the customer is in compliance with applicable rules).

137 NOTE S There has not been observed enforcement of Federal law for states in which marijuana has been legalized and those institutions placed under enforcement action for banking MRBs have been criticized not for banking MRBs, but for failure to establish a sound infrastructure for managing associated risk, or banking MRBs without knowledge they are doing so (i.e. insufficient or inadequate due diligence)

138 NOTE S RA Component: Opportunities

• Financial Institutions Banking MRBs Nationwide • Refer to statistics on FIs banking MRBs across the country and how they have been able to do so • A good source is FinCEN’s Marijuana Banking Update • Consider FinCEN guidelines and Cole Memo priorities • Financial Institutions Banking MRBs in Your Market • Do you know who is banking MRBs in your market? • Competition • The preceding point may help you in ascertaining the level of competition you may face • Would you have a competitive edge or is your market saturated?

139 NOTE S RA Component: Opportunities

• Revenue potential • Given the dichotomy between state and Federal law, MRBs find it difficult to find a long-term banking solution, and as such, they are willing to pay for such services • What is the revenue potential you could realize by banking MRBs? • What is the risk to other sources of revenue (i.e. your core customer base)? • What is the potential to gross revenue given expenses that must be incurred to effectively manage the risk?

140 NOTE S RA Component: Opportunities

• Market Potential • What is the potential to gain market share by banking MRBs? • Would it make you a market leader? Is this something you want to be known for? • What is your risk appetite for being the leader of the pack in a high-risk sector? • Liquidity Potential • Banking MRBs could bring in significant deposits overnight, creating sizable non-interest income. • It’s important to determine any potential risk that such significant deposits may have on your loan-to-deposit ratio and funding strategies. • Conversely, if you decide to exit any or all MRB relationships, what does the exodus of deposits do to your LTD ratio and funding strategies?

141 NOTE S RA Components: Defining MRBs • Tier I MRBs • Tiers not defined in regulatory guidance; tiers are a result of and industry white paper and resulting industry “best practice” • Tier I would be defined as those directly related to seed-to-sale activities (e.g. growers, processors, distributors/dispensaries) and as such, must apply, and be approved, to hold such a license/registration within the state. The Tier I MRB is then required to follow stringent rules to maintain that license/registration. For that reason, they may be your most compliant customers. • While Tier I customers may be those awarded state licenses or registrations, they could also be unlicensed or unregistered entities that are not approved to do business legally, which would present higher risk. • Are you currently banking any Tier I MRBs? What is the inherent risk of banking your existing Tier I MRBs? • Volume and types of Tier I MRBs currently banking with you • What is the inherent risk of banking Tier I MRBs as new customers who do not have a pre-existing relationship with you? • Be sure to consider farms or businesses engaged in “illegal hemp” as an MRB (i.e. hemp that contains more than 0.3% THC or that does not otherwise comply with state-federal guidelines for legal hemp) • Address the risk of banking the employees of Tier I MRBs

142 NOTE S RA Components: Defining MRBs

• Tier II MRBs • Tier II MRBs would be defined as those that do not generally “touch” marijuana, but focus on providing products and services to Tier I MRBs and the marijuana industry as a whole (e.g. suppliers, security firms, licensing consultants, etc.).

• Are you currently banking any Tier II MRBs? What is the inherent risk of banking your existing Tier II MRBs?

• Volume and types of Tier II MRBs currently banking with you

• What is the inherent risk of banking Tier II MRBs as new customers who do not have a pre-existing relationship with you?

• Address the risk of banking the employees of Tier II MRBs

143 NOTE S RA Components: Defining MRBs

• Tier III MRBs • Tier III MRBs may provide products or services to Tier I MRBs incidentally, but Tier I MRBs are not the focus (e.g. professional services, landlords, financial services, etc.).

• Are you currently banking any Tier III MRBs? What is the inherent risk of banking your existing Tier III MRBs?

• Volume and types of Tier III MRBs currently banking with you • What is the inherent risk of banking Tier III MRBs as new customers who do not have a pre-existing relationship with you?

• Address the risk of banking the employees of Tier III MRBs

144 NOTE S RA Components: Defining MRBs

• Legal Hemp • A business or farm investing in, cultivating, processing or distributing hemp products that contain less than 0.3% THC would be considered engaging in legal hemp activities, assuming that all other criteria established by the state’s legal hemp program are met. These customers would not be considered MRBs. Discuss the inherent risk of doing business with legal hemp customers given your state’s program (or lack of a program)

• Are you currently banking legal hemp customers? What is the inherent risk associated with your existing customers?

• Volume and type of legal hemp customers currently banking with you

• What is your appetite for banking new legal hemp customers?

• Address the risk of banking the employees of legal hemp customers

145 NOTE S RA Component: Suitability

• Regulatory Health • How well-positioned are you for taking on additional risk, operational activities, or expense? Consider your most recent examination ratings, focusing on both component and composite ratings. Ideally, you should be rated no less than a “2” in any component or composite rating

• Discuss most recent BSA/AML examination and compliance examination results

• What has been your institution’s historical response to exam findings and recommendations (e.g. timely, realistic, addressing root cause)? • Enforcement Action Activity • Are you currently under enforcement action, or do you have any possible pending enforcement actions? Undertaking a high-risk function or high risk sector while an enforcement action is pending or in place would inherently pose additional risk to your institution. You may also be unlikely to be approved for such activity depending on the scope of your enforcement action.

146 NOTE S RA Component: Suitability

• BSA |AML Audit Results • How well did you fare on your last BSA/AML audit? Did the audit uncover potentially higher risk areas or functions that need to be addressed? • Capital Levels • How healthy are your capital levels? Speak to your capital levels in terms of regulatory definitions (e.g. well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, critically undercapitalized) • Other Strategic Initiatives • Do you have any other strategic initiatives underway or planned (e.g. acquisitions, mergers, branching, staffing, products, services)? What is the risk of undertaking MRB banking given these initiatives? Would it strain your resources or capital? What about technology impact?

147 NOTE S • Board Buy-In • What is your Board’s perspective on MRB banking? Has your Board been educated on the tiers and impact? The level of risk here is going to be dependent on whether the Board has appetite for banking MRBs or whether they would like to avoid the sector. • Expertise and Staffing • Board designation of BSA/AML and Compliance Officers • Discuss current staffing within the BSA and Compliance functions. Are staffing resources strained currently? Is there room for the existing staff to take on and effectively administer MRBs, or would you need additional staff? Does your current staff have the expertise to effectively oversee and administer a marijuana banking program? If you’ll need to expand staff, how will it strain your financial resources? Where will be seek such staff/expertise? What educational resources, training or other support will you need to provide to current and/or RA Component: Suitability expanded staff?

148 NOTE S RA Component: Suitability

• Technology

• Will your current technology be sufficient to effectively monitor and manage MRBs? If you currently have a manual monitoring system, the risk of adding MRBs to the function may pose higher risk than if you have a surveillance monitoring system in place.

• Will you be willing to invest in newer, more specialized technology to administer MRBs?

• Program Components

• Have you established a sound BSA/AML Program, risk assessment and processes?

• Have you considered how the program may need to be expanded in order to provide a sound foundation for banking MRBs?

• Consider Board reporting. How would the content, scope and frequency of reporting change?

149 NOTE S RA Component: Suitability

• Suspicious Activity Reporting • What is your current level of suspicious activity reporting? (volume)

• Banking MRBs would increase your SAR volume. Are you prepared to handle increased volume? If not, your risk here may be higher than if you have staffing, resources and technology to manage higher SAR volume. • Currency Transaction Reporting • What is your current level of currency transaction reporting? (volume)

• Banking MRBs may increase CTR volume and likely will increase that volume until there are more electronic payment options available to MRBs. Are you prepared to handle increased volume? If not, your risk here may be higher than if you have staffing, resources and technology to manage higher CTR volume.

150 NOTE S RA Component: Suitability

• MRB Non-Compliance • MRB compliance – initially and ongoing – is critical to your compliance. As such, the inherent risk of non-compliance your MRBs would be considered high. Consider how you will monitor for non-compliance. If you identify non-compliance, what is your course of action? Board reporting? SAR implications? • Reputation • What is the risk to your reputation in banking MRBs? This may be dependent on how your state has addressed legalization. For example, in a state where it has been legalized medicinally or recreationally, there may be a general public acceptance of financial institutions banking MRBs, while in other states where legalization is not as prominent (e.g. pending, new, not fully legal), the public perspective may not be as accepting • What is the risk to your current loan and deposit base if you undertake these relationships? • What is the perspective from the shareholders?

151 NOTE S RA Component: Training

• Board Level • Discuss whether the Board has received sufficient training related to marijuana banking to make an informed decision about how the bank should proceed in offering, or not offering, the bank’s services to MRBs; if little or no training has been conducted, the risk of entering into MRB banking would be higher than if there was a solid understanding of the industry and banking responsibilities • BSA/AML & Compliance Officers • Discuss the amount of training the BSA/AML and Compliance Officers have received with respect to the risk of banking MRBs. If these officers have attended little to no training, the risk would be considered higher than if the officers are well versed in the requirements, risks and responsibilities of their positions in administering MRB banking services • Customer-Facing Staff • Have your customer-facing staff (e.g. tellers, CSRs, lenders) received sufficient training in conducting customer due diligence to determine whether a customer is engaged in MRB activity? • What would be a triggering event for refresher training?

152 NOTE S RA Component: Audit

• BSA/AML Expertise • Does you current BSA/AML audit function maintain sufficient expertise to be able to audit your program (e.g. policy, risk assessment, processes) with respect to marijuana banking? Would you need to seek additional/other expertise to obtain an effective audit for the MRB function? • BSA/AML Audit Scope • Does your current BSA/AML audit scope include an assessment of your MRB activities? Would an expansion of scope be warranted and therefore more costly? • Frequency • Discuss how frequently the BSA/AML Audit is performed in which MRBs are included within the scope. Will this frequency need to be adjusted? • Response to Audit Findings • What is the bank’s historical performance in addressing audit findings and recommendations (e.g. timely, realistic, did actions address root cause)?

153 NOTE S MRB Due Diligence

Initial CDD Questions

Does the business engage in hemp-related, marijuana-related or CBD-related business? Does the business derive revenue directly or indirectly from hemp-related, marijuana-related or CBD-related business? Does the business invest in hemp-related business, marijuana-related or CBD-related business? Is the customer employed by a hemp-related, marijuana-related or CBD-related business?

154 NOTE S MRB Due Diligence

Type of Business CBD | Hemp | Cannabis

• Cultivation • Dispensary • Production • Testing Lab • Ancillary • All the Physical Locations

155 NOTE S MRB Due Diligence

• Licensing and registration type • Grower, processor, distributor, other

• Critical contacts • Individuals who have primary ownership and/or oversight of the business’s operations • Are any of the critical contacts associated with another MRB?

156 NOTE S MRB Due Diligence Beneficial Ownership

• Corporate and/or Personal • Investors • Background Checks  Ownership in other entities?

157 NOTE S MRB Due Diligence

Basic Information • Website • Current Banking Status & Information • All Related MRB License #s • Articles of Incorporation • Business License

158 NOTE S MRB Due Diligence

• Operational Details • State(s) of registration/licensing • Who are you going to be working with? (LCB or other state regulatory body) • State(s) of operation • International business • Products manufactured, processed or distributed

159 NOTE S MRB Due Diligence

• Operational Details • Types of customers served • Contracts with armored car services • Cash delivery (FRB or bank/CU) • Accounting systems used • Accounting expertise (in-house or external) • Types of payments received (cash, electronic) • Cash storage (current and legacy) • Electronic payment platform used • Number of employees • Method of paying employees

160 NOTE S Document Management

• Registration/licensing information • Articles of Incorporation • Secretary of State registration • AML Program • Results of state inspections • Financial statements and FTRs for the last year and projections for the next 1-3 years • Business attestation • Agreement with the terms and conditions of the account and fee schedule • Statement that the business is not in violation of the Cole Memo priorities or FinCEN guidelines • Notification of changes to operations, ownership, etc.

161 NOTE S Activity Monitoring

• Get familiar with state-specific transaction limitations to set up your monitoring processes • Is a medical card required? • Are there limits on the amount purchased at one time or in a rolling period? • Where did the sale occur? • Get familiar with state-specific sales data for your state and similarly situated states • Can you establish a baseline for your MRB? Or for your portfolio of MRBs? • Get familiar with industry data • Sales (dollar and volume) by product

162 NOTE S Activity Monitoring

• Sources of deposits (cash and otherwise) • Watch transactions for patterns, trends and anomalies • Look at where funds have come from and where they are going • Estimated – Anticipated – Actual • What do vendor/supplier transactions look like? • What does state sales data tell you? • What can you glean from other states that have similar marijuana practices?

163 NOTE S How Do You React?

• Written, transparent procedures are recommended • What actions will you take when a threshold is exceeded? • How will you research the activity? • How will you manage the cases? • How will you track alerts and their resolution? • Can you provide documentation that shows a trail of monitoring, alerts, resolution and account notes? • When will action be escalated? • When will account activity be suspended? • When will an account be closed?

164 NOTE S Letting Risk Assessment Drive Policy

165 NOTE S Policy Components

• Make Your Statement • Defining Your Touch Tiers • Customer Due Diligence • FinCEN Guidance & Red Flags • Cole Memo Priorities • Marijuana-Related SARs • Currency Transaction Reports • Staff Awareness & Training • Board Reporting • Risk Assessment • Audit

166 NOTE S Questions?

167 NOTE S MRB Insurance ______Programs Designed to Manage Risk for Insured Financial Institutions

168 NOTE S Advocacy. Tailored Insurance Solutions. Peace of Mind

Marijuana Banking Summit

June 2019

169 © 2018 HUB International Limited.

169 NOTE S Agenda

1 Introduction to HUB

2 State of the insurance marketplace for MRBs

3 Captive Insurance Programs

4 Risk Management for the cannabis industry

5 Questions

170 © 2018 HUB International Limited.

170 NOTE S HUB Cannabis Practice

The HUB Cannabis practice specializes in providing insurance and risk management solutions for cannabis related Cultivators, Processors & Harvesters, Manufacturers, Wholesalers & Distributors, Transport, Retailers & Dispensaries, Laboratories, Landlords & Property Managers, Investors & Consultants, Medical & Legal Professionals, Hydroponics & Garden Stores, and Smoke Shops.

HUB has built an Insurance Buyer’s Guide for the Cannabis Industry

Purpose • To educate cannabis business operators on their unique risks and position HUB as an expert who understands their industry

Key Features • Highlights some key areas of risk and reinforces the availability of a wide range of insurance coverages • Checklist for evaluating and selecting a qualified insurance broker

171 © 2018 HUB International Limited.

171 NOTE S HUB Cannabis - Carriers

HUB has access to virtually all major insurance carriers and has effective working relationships with 27 insurers. The volume of business we represent for these insurers further enhances the knowledge and experience we bring to the marketing effort. Where needed, we have access to their top management and home-office decision makers. As a result, we have effectively negotiated programs of coverage for even the most difficult risks.

172 © 2018 HUB International Limited.

172 NOTE S Markets and Coverages

Our Specialties Optional Coverages

• Cultivators But not limited to:

• Manufacturers • General Liability

• Investors • Property (Including Cannabis

• Building owners Inventory)

• Retailers/Dispensaries • Crop

• Processors/Harvesters • Product liability

• Laboratories • Product withdrawal

• Transportation Services • Equipment breakdown

• Wholesale/Distributors • Auto/Cargo

• Franchisors • Workers Compensation • D&O

• Excess/Umbrella

• Employee Benefits

173 © 2018 HUB International Limited.

173 NOTE S HUB Exclusive - Workers’ Comp Cannabis Program

This cannabis-specific, HUB-exclusive workers compensation product is available in 7 states and designed for well-organized cannabis ventures. All classes of business related to cannabis, including Retail, Cultivation, Transportation, and Security are accepted.

Program Highlights Claims Handling • Benchmark Insurance Company (Compstar) • Benchmark Administers A-VIII • 85 claims max per adjuster • Designed for well organized Cannabis • Unique claims model Ventures • $39,000 average indemnity case vs. Industry • All classes of business related to Cannabis average of $80,000 • New ventures accepted, when the insured • Claims data easily accessible via portal demonstrates previous translatable business experience. • Retail • Cultivation • Transportation

• AdvocacySecurity| Tailored Insurance Solutions | Peace of Mind

© 2018 HUB International Limited. All rightsreserved.

174 © 2018 HUB International Limited.

174 NOTE S Cannabis Solutions

Manufacturing Construction Management We’re committed to putting our We know that one size does NOT fit We have a dedicated specialty practice global resources and local all, and that MRB’s have unique advising, educating, and advocating to relationships to work for our clients, needs, risk appetites, and budgets. protect our clients from a myriad of providing them with seamless With access to dedicated underwriters, management and professional liability coverage. We work with construction and surety experts, risk exposures. Directors and officers serve manufacturers across borders, in control professionals, and claims their corporations in a dynamic areas that include metals, plastics, specialists, we will work with you to environment influenced by legislative textiles, food, marine cargo, and ensure you have the coverage you developments and jurisprudence. Pairing more to provide best practices to the need, when you need it to grow your our expertise with an in-depth cannabis industry. business. understanding of our clients’ operations, we customize management liability programs to optimally address each • Products Liability • Property Coverage specific risk profile. • Equipment Breakdown • Equipment Breakdown • Manufacturers’ Errors & • Business Interruption • Director’s & Officers’ Liability Omissions • Course of Construction • Employment Practices Liability • Crop Failure • Wrap-Up Liability • Fiduciary Liability • Product Recall • Earthquake and Flood Coverage • Transactional Liability • Stock Contamination • Crime • Trade Credit Insurance • Privacy / Cyber Security Liability • Business Interruption

175 © 2018 HUB International Limited.

175 NOTE S HUB Captive Services

We provide your organization with innovative risk financing strategies designed for clients seeking to control their insurance costs and profit from their risk management practices.

Captive Advantages . Increase risk management by obtaining specialized coverages. . Control over claims management. . Stabilize and reduce commercial insurance costs. . Recognize financial benefits by capturing underwriting profits and investment income. . Less dependency on the traditional insurance market. . Direct access to reinsurance. . Additional profit center.

176 © 2018 HUB International Limited.

176 NOTE S What is a Captive Insurance Company?

A captive is an insurance company that is established to insure the risks of its parent company and affiliates.

The captive can:

• write policies, collect premiums and administers/pays claims as any insurance company would do;

• better manage risks unique to their overall business and create and/or enhance a sustainable risk management program;

• provide the business with the ability to assume risk and manage exposures and costs without being dependent on the commercial insurance market

177 © 2018 HUB International Limited.

177 NOTE S HUB’s Captive Capabilities

HUB’s Services Types of Programs Captive Management Single Parent Captives

• General Management Services • Large and Small • Financial Reporting Group Captives • Regulatory Compliance • Heterogeneous and Captive Consulting homogeneous • Feasibility Studies Risk Retention Groups • Strategic reviews • Medical Malpractice Program Program Management

• Underwriting and technical insurance consulting

• Loss analysis

• Fronting, reinsurance and collateral negotiation

178 © 2018 HUB International Limited.

178 NOTE S Captive Insurance Program

Reinsurance Company Sample Captive Structure • Can be used to cover current Insured risks

• Workers Compensation, General Liability, Auto Liability

• Potentially Products Liability, Cyber Liability, E&O, etc.

• Utilizes Fronting Carrier

• Obtains admitted insurance policies and benefit from the carrier’s multinational licenses and network

• The captive will assume the exposures (either in part or in full) from the fronting insurer via a contract of reinsurance between the two parties

• Target Premium: $1M or more

179 © 2018 HUB International Limited.

179 NOTE S Captive Insurance Program

Example of Captive as a Reinsurer

Manufacturing company pays $2 million for their Workers Compensation insurance. The company enters into a captive, whereby the Fronting carrier executes a reinsurance agreement to transfer the first $250,000 per claim to the captive. The premium remains $2M, of which $1.5M is transferred to the captive via a reinsurance agreement to pay for claims under $250,000 per claim. The manufacturing company recognizes the following advantages:

• Potential underwriting profit up to $1.5M

• Control over the claims process

• Long term insurance stabilization

• Capture investment income on the $1.5M

• Captive can be taxed as a CFC or a C-corp for federal income tax purposes, and pays a nominal premium tax to its domicile.

180 © 2018 HUB International Limited.

180 NOTE S Captive Insurance Program

Direct Writer Can be used to cover current Uninsured risks • Deductible Buy-Downs ex.) WC, Auto, GL, Property, Wind & Hail, Cyber, D&O/EPLI

• Gaps & Exclusions in Coverage ex.) Products, Pollution

• Emerging Risks ex.) Reputation Risk, Product Recall, supply chain interruption

• Typically includes coverages that are hard to place, and unique to your business.

• Effective strategy to insure against risks that are either unavailable or too expensive in traditional insurance.

181 © 2018 HUB International Limited.

181 NOTE S Captive Insurance Program

Example of Captive as a Direct Writer

Manufacturing company is unable to insure for Products Liability and Products Recall for a reasonable cost in the commercial market. The company establishes a captive with an objective to protect their cash flows from unexpected losses. The captive issues a policy to reimburse the company for any Product Liability or Product Recall claims up to a $1M per occurrence. The cost for this coverage is $450,000 per year, which has been established by an independent actuary. The Manufacturing company recognizes the following advantages:

• Transfer the risk of Product Liability and Product Recall claims from their company, to a wholly owned insurance company with its own independent bank account, FEIN #, etc.

• Pre-fund for potential catastrophic loss.

• Retain surplus in the captive that is not used to pay claims.

• Captive can be taxed as a CFC or a C-corp for federal income tax purposes, and pays a nominal premium tax to its domicile.

182 © 2018 HUB International Limited.

182 NOTE S HUB Cannabis Risk Management

From seed to sale the risks along the lifecycle of cannabis production present pitfalls and hazards that must be addressed to ensure sustainable operations, preservation of human capital, and mitigation of losses. As the cannabis industry grows, the risks evolve as the scope and scale of these operations develop. Despite the unique nature of MRB’s, much of the exposure is similar to other industries and with a well executed plan, the risks can be well controlled.

5 key risks facing cannabis businesses.

183 © 2018 HUB International Limited.

183 NOTE S HUB Cannabis Risk Management

Due to the lack of fully developed loss exposures and claims costs, the landscape surrounding claims outcomes and business impact are still very fluid. Taking a pro-active approach to documentation, crisis management, and business continuity will yield dividends in minimizing disruptions and a swift return to operations.

Business Continuity and Interruption best practices

Document your inventory, average cash on-site, sales history and average wholesale value

Growers need to document a timeline for response to critical events in the growth cycle

Develop a disaster recovery plan for loss of power, water and other vital business operations

• Consider a computer managed lighting and cooling system for growing operations

• Require fire response systems such as sprinklers and fire/smoke detectors in all buildings housing cash and inventory

Develop a plan for interruption of supplier networks

Conduct a threat assessment with multiple stakeholders to craft comprehensive crisis scenarios

184 © 2018 HUB International Limited.

184 NOTE S HUB Risk Services

Our Risk Services team is composed of 75+, highly experienced and credentialed safety, security, fleet, business continuity, emergency response, enterprise risk management, and environmental professionals with extensive experience working with the agriculture, manufacturing, and construction industries.

Some of the areas we can help you address include:

• Regulatory Compliance Consulting • Emergency Response & Business Continuity • Safety & Training Program Development Planning • Operational Hazard & Site Security • Security & Workplace Violence Assessment • Cyber Risk Management & Information • Behavior-Based Safety Security Services • Fleet & Equipment Safety Program • Risk Management Information Systems (RMIS) Development • Claim Reporting & Advocacy • Driver Accountability Program • Loss Analysis & Trending • Safety Committee Guidance • Workforce Management

185 © 2018 HUB International Limited.

185 NOTE S HUB Claims Management & Advocacy

Claims Specialty Areas • Claim Data Analysis • Claim Management Best Practices • Disability Management • Medical Case Management • Litigation Management • Claim Reporting Guidance • Return-to-Work Planning • Third Party Administrator (TPA) / Carrier Selection & Monitoring • Claims Service Provider Audits • Loss Analysis & Reporting • Reserve Analysis • Settlement Evaluation • Subrogation / Second Injury Fund Recoveries • Risk Management Information Systems (RMIS)

186 © 2018 HUB International Limited.

186 NOTE S Advocacy. Tailored Insurance Solutions. Peace of Mind

Questions? THE HUB ADVANTAGE You’re at the center of everything we do.

187 © 2018 HUB International Limited.

187 NOTE S How to Automate and Scale Your Compliance Strategy

188 NOTE S How to Automate & Scale Your Compliance Strategy

Enhanced Due Diligence Strategy:

• Pre-Qualification – Customer Due Diligence • Initial Phone Interview • Account Application • Site Inspection • Source of Funds • Risk Assessment • Welcome Letter & General Standards Letter • MRB Reporting – POS/S2S • Ongoing Monitoring

1 How to Automate and Scale Your Compliance Strategy 8 9 189 NOTE S How to Automate & Scale Your Compliance Strategy

Pre-Qualification – Customer Due Diligence

• Necessary for initial screening

• Client completes the questionnaire

• Provides preliminary documentation

• Background checks; OFAC & Watchlist

1 How to Automate and Scale Your Compliance Strategy 9 0 190 NOTE S How to Automate & Scale Your Compliance Strategy

Initial Phone Interview

• Confirm information from Pre-qualification Questionnaire • Fully understand the nature of the customers business • Who is in charge of day-to-day operations • Beneficial owners: Do they own other MRBs? • What do you need to complete the Risk Assessment?

1 How to Automate and Scale Your Compliance Strategy 9 1 191 NOTE S How to Automate & Scale Your Compliance Strategy

Account Application

• Customer provides all the necessary

mandatory documents

• Client pays account opening fees

1 How to Automate and Scale Your Compliance Strategy 9 2 192 NOTE S How to Automate & Scale Your Compliance Strategy

Site Inspection

• Requirement to understand the business • Determine their compliance with state codes • BSA Compliance Team should review the Site Inspection Form for any items that could pose a risk.

1 How to Automate and Scale Your Compliance Strategy 9 3 193 NOTE S How to Automate & Scale Your Compliance Strategy

Risk Assessment

• With Pre-qualification form, initial phone interview, mandatory documentation and site inspection complete the risk assessment • Notify the Chief Compliance Officer of any catastrophic items that would prevent account opening

1 How to Automate and Scale Your Compliance Strategy 9 4 194 NOTE S How to Automate & Scale Your Compliance Strategy

Source of Funds

• For any initial deposits determine Source of Funds • Collect all necessary supporting documents • Sources of Funds  Legacy Cash  Transfer from Existing Bank Account  Loans or Lines of Credit  Investors  Sales of Hard Assets

1 How to Automate and Scale Your Compliance Strategy 9 5 195 NOTE S How to Automate & Scale Your Compliance Strategy

Welcome Letter & General Standards Letter

• Standard Welcome Letter to outline fee schedules and disclosures • General Standards Letter explains the customers ongoing compliance obligations • Make note to file “Marijuana Limited SAR” within 10 days of account opening

1 How to Automate and Scale Your Compliance Strategy 9 6 196 NOTE S How to Automate & Scale Your Compliance Strategy

MRB Reporting – POS/Seed-to-Sale Reports

• MRB must provide initial reports:  Obtain historical sales data from the seed-to-sale  Establish normal & expected transaction profiles  Obtain Approved Vendors List Customer has polices to ensure all purchases are from legally licensed entities within the state and purchases are inline with expectations  Competitive Analysis Completed All necessary financial ratios are inline with competitors in the same geographic area

How to Automate and Scale Your Compliance Strategy 197

197 NOTE S How to Automate & Scale Your Compliance Strategy

Ongoing Monitoring - POS/Seed-to-Sale Reports

• MRB must provide initial reports:  Obtain historical sales data from the seed-to-sale  Establish normal & expected transaction profiles  Obtain Approved Vendors List Customer has polices to ensure all purchases are from legally licensed entities within the state and purchases are inline with expectations  Competitive Analysis Completed All necessary financial ratios are inline with competitors in the same geographic area

How to Automate and Scale Your Compliance Strategy 198

198 NOTE S How to Automate & Scale Your Compliance Strategy

Ongoing Monitoring—What to Watch Out For:

Open Loop Network Branded Stored Value Cards

• A Visa or MC branded card where funds can be

loaded on it

• Card can be used in any retail establishment

• Unverified source of funds

How to Automate and Scale Your Compliance Strategy 199

199 NOTE S How to Automate & Scale Your Compliance Strategy

Ongoing Monitoring—What to Watch Out For:

"Cashless ATM's", and “Point of Banking” Terminals • Allows a business to charge a debit card or a credit card effectively as an “ATM Withdrawal” or “Cash Advance at ATM”. • Devices can be set to mask the name of the business, or to mask the type of transaction

How to Automate and Scale Your Compliance Strategy 200

200 NOTE S How to Automate & Scale Your Compliance Strategy

Ongoing Monitoring—What to Watch Out For:

Closed Loop Payment Systems/Mobile Wallets • Stored value device in that it is used to facilitate the movement of funds from a regular bank account or a credit card account to a stored value device with the funds then used to pay for marijuana purchases. • These closed loop payment systems or mobile wallets take numerous forms.

How to Automate and Scale Your Compliance Strategy 201

201 NOTE S How to Automate & Scale Your Compliance Strategy

Ongoing Monitoring—What to Watch Out For:

Credit Card Processing • Visa nor Mastercard have approved marijuana transactions • Any vendor processing credit cards is likely misidentifying the business or the transaction • Violation of Visa & Mastercard Network Agreements and possible concealment

How to Automate and Scale Your Compliance Strategy 202

202 NOTE S How to Automate & Scale Your Compliance Strategy

Why Automate?

Accuracy Scalability Profitability

How to Automate and Scale Your Compliance Strategy 203

203 NOTE S How to Automate & Scale Your Compliance Strategy

The ICS Story M – Monitor III

 Core Bank Software  Regulatory Feedback  M-Monitor III  Integrated to All Major Seed-to-Sale POS Providers

How to Automate and Scale Your Compliance Strategy 204

204 NOTE S How to Automate & Scale Your Compliance Strategy

M – Monitor III

POS Data Monthly Monitoring Vendor Management

How to Automate and Scale Your Compliance Strategy 205

205 NOTE S How to Automate & Scale Your Compliance Strategy

What to Track?

1. Client Information 2. Sales Tracking 3. Revenue Tracking 4. Variance Reporting 5. Reconciliation Reporting 6. Vendor Management

How to Automate and Scale Your Compliance Strategy 206

206 NOTE S How to Automate & Scale Your Compliance Strategy

Client Information

How to Automate and Scale Your Compliance Strategy 207

207 NOTE S How to Automate & Scale Your Compliance Strategy

Sales Report Summary

How to Automate and Scale Your Compliance Strategy 208

208 NOTE S How to Automate & Scale Your Compliance Strategy

Revenue Tracking

How to Automate and Scale Your Compliance Strategy 209

209 NOTE S How to Automate & Scale Your Compliance Strategy

Variance Reporting

How to Automate and Scale Your Compliance Strategy 210

210 NOTE S How to Automate & Scale Your Compliance Strategy

Reconciliation Reporting

How to Automate and Scale Your Compliance Strategy 211

211 NOTE S How to Automate & Scale Your Compliance Strategy

Vendor Management

How to Automate and Scale Your Compliance Strategy 212

212 NOTE S Q&A

How to Automate and Scale Your Compliance Strategy 213

213 NOTE S Marijuana Banking Panel

214 NOTE S Cannabis Banking It CAN Be Done!

215 NOTE S FL choice bank Pecha #3

216 NOTE S Motorhome Pecha #4

217 NOTE S 218 NOTE S 219 NOTE S 220 NOTE S 221 NOTE S Orlando building Pecha #9

222 NOTE S Cool Stuff • All Buildings LEED / Net Zero / Energy Star • $33,000 Living Wage • Best Solar Loan Program in USA • Best Place to Work Award Every Year • Paid Sabbatical Program • Zero Rate Car Loan for High MPG

223 NOTE S Cannabis Slide Sungate #2

224 NOTE S Case for Banking the Cannabis Industry Hemp is of the first necessity to the wealth & protection of the country. The greatest service which can be rendered any country is to add a useful plant to its culture - Thomas Jefferson

Make the most you can of the Indian hemp seed and sow it everywhere. - George Washington

We shall, by and by, want a world of hemp more of our consumption. - John Adams

225 NOTE S Valuable Medicine or Evil Weed?

1930 1970 1619 Creation of Federal 1951-56 1986 Virginia 1906 Repeal of most President Bureau of Narcotics Stricter Assembly Pure Food mandatory minimum Reagan signs (FBN) and the unfamiliar Sentencing passes and Drug Act sentences Anti-Drug Abuse name “marijuana” Laws: legislation required any Mandatory Act requiring 1996 requiring cannabis to 1937 sentences Controlled Substance mandatory The state of farmers to grow be labeled in Marijuana Tax Act enacted for Act passed with sentences for California hemp OTC passed to drug-related marijuana being drug-related legalizes medical medicines tax rather than offenses, placed in Schedule 1 crimes marijuana criminalize including category cannabis. 1600 – 1800s 1900 – 1920s 1930 – 1940s 1950marijuana.– 1960s 1970s 1980s 1990s

1631 – 1930s 1940s 1972 1989 1900-1920s FBN racialization President Nixon’s Shafer commission 1800s Hemp for Victory: President Mexican of the plant and finds marijuana should be Hemp used as Dept of Agriculture Bush immigrants massive decriminalized. Nixon rejects legal tender in encourage farmers declares introduce unemployment recommendation – animus towards Pennsylvania, to grow hemp. war on recreational use from Great counterculture 226 Maryland, and drugs of cannabis Depression turned Virginia Late 1800s 1960s Cannabis was a public sentiment. Widespread use in popular ingredient 29 states white upper middle in many medicines outlawed class – the 1973 and sold in public marijuana by counterculture Creation of Drug pharmacies 19441931. Enforcement Agency NY Academy of Medicine issues report refuting (DEA) Source: Frontline, PBS dangerous claims of marijuana.

226 NOTE S The White Paper

227 NOTE S 228 NOTE S First they ignore you, Then they laugh at you, Then they fight you and Then you win. -Mahatma Gandhi

229 NOTE S 230 NOTE S Approval

231 NOTE S Implementation Completely Transparent Fully Compliant

 Disclosed & Discussed with Regulators  Detailed Customer Due Diligence • Prior to Implementation • Obtain & Verify Florida Licensee Registration • Policy & Systems Acknowledged During • Complete Understanding of Business Owners Recent Exam & Activity • Initial & Ongoing Compliance with DOJ  Board Approved Policy Guidelines • Active Involvement • File All SARs as Required by BSA

 Publicly Promoted  Enhanced Due Diligence • Driven by Bank’s Mission & Values • Monitor Public Sources on All MMB Proposition • Periodically Update Customer Profile & Activity  Recognized Industry Leader • Monitor Suspicious Activity & BSA Red Flags • First to Market in Florida • Periodic Dispensary Audits • Bank All Fully Authorized Licensees in Florida

232 NOTE S Policies & Procedures

233 NOTE S General Guidelines • No cash! • Seed to sale inventory tracking • Third party integration: Seed to sale ICS’s MMonitor III • Electronic payments – CanPay • Require ENTIRE depository relationship • Periodic compliance assessment & reviews

234 NOTE S BSA Compliance • CTRs – Within 15 days • SARs • Limited – “Update” SAR • Priority – Suspected illegal activity • Termination – When the account closes

235 NOTE S No Lending • Federal Forfeiture • Lose Priority Interest • Limited Defenses /Assertions of Superior Interests

• Invalid Contract • You Can’t Contract to Do Something Illegal

236 NOTE S 237 NOTE S M & A Implications Cannabis WILL impact your M & A Potential Negative Impacts • Reputation Risk • Legal & Compliance Risk • Operational Risk • Financial/Liquidity Risk

238 NOTE S Reputational Risk

239 NOTE S Legal/Compliance Risk

240 NOTE S Tail Risk

241 NOTE S Public Company Argument

242 NOTE S Financial / Liquidity Risk

• Mark to Market

• Replace Those Deposits

243 NOTE S 244 NOTE S 2014 Proforma Based on Disease States Approved INCOME 25 CUSTOMERS 160 CUSTOMERS Non-Interest $360,500 $2,830,000

Interest Income $375,000 $2,400,000

TOTAL $735,500 $5,230,000

Average(Deposit + Assets Capital) Deployed $13,570,000 $88,000,000 ROAA 2.62% 3.22%

245 NOTE S Disease States Approved Initial Legislation

# CASES POTENTIAL USERS

Cancer 835,000 5,900

Seizures 395,000 3,400 - 9000

Muscle Spasms N/A Estimates from 7,000 – 129,000 other states

*Before Chronic Pain

246 NOTE S 2014 Proforma - Assumptions Based on sales between $123mm to $800mm • Deposits per MRE - $400m to $500m • Potential MREs – 246 to 1,600 • 10% Market share • Monthly service charge - $2,000 • FTE – One per 25 customers @ $52m FTE • Third party compliance - $3m per customer • Earnings from DDA – 3% • FDIC Insurance - .10%

247 NOTE S Cannabis Metrics

• Deposits - $60mm, all DDA • Fees per Month - $55,000 • Number of Accounts - 147 • Number of Indirect - 90 • Number of Direct - 65

248 NOTE S First GREEN Bank Cannabis Income

Income Net Interest $412,885 Non-Interest $516,000 TOTAL Income $928,885 Expenses Additional Staff $52,000 Compliance Software $108,000 Cash Shipments $20,400 FDIC Insurance $33,568 TOTAL Expenses $213,968 Net Pre Tax Income $714,917

249 NOTE S Going Forward ProformaFirst Green Bank

Annualized Year Ending YearYear Ending Ending Year Ending Income 10/31/2017 12/31/2018 12/31/2019 12/31/2020 Net Interest Income $ 412,885 $ 773,701 $ 967,617 $ 1,161,140 Non-Interest Income 516,000 3,856,000 8,131,000 10,851,000 Total Income $ 928,885 $ 4,629,701 $ 9,098,617 $ 12,012,140

Expenses Additional Staff $ 52,000 $ 312,000 $ 689,000 $ 910,000 Compliance Software 108,000 855,000 1,896,750 2,571,750 Cash Shipments and Storage 20,400 111,600 240,600 323,700 FDIC Insurance 33,568 62,903 78,668 94,402 Total Expenses $ 213,968 $ 1,341,503 $ 2,905,018 $ 3,899,852

Net Pretax Income $ 714,917 $ 3,288,198 $ 6,193,599 $ 8,112,288

250 NOTE S Growth of FL Cannabis: Total Patients Qualified Patients (Active ID Card) 200000 180000 160000 140000 120000 100000 80000 60000 40000 20000 0

251 NOTE S Your Bank on Cannabis Any Questions?

252 NOTE S Thank You!

253 NOTE S