Your Guide to Understanding Cannabis
DX CONSULTING PROPRIETARY AND CONFIDENTIAL Disclaimer: Please note that this presentation is for informational purposes only. Any comments or statements made herein do not necessarily reflect the views of DX Consulting or any sources cited. The information is intended for the recipient's use only and should not be cited, reproduced or distributed to any third party without the prior consent of the authors. Although great care is taken to ensure accuracy of information neither the author, nor DX Consulting can be held responsible for any decision made on the basis of the information cited.
DX CONSULTING PROPRIETARY AND CONFIDENTIAL Deirdra O’Gorman has 25 years of experience as a senior financial services executive. She has held numerous leadership positions, including CEO of a de novo financial institution and Market President for a nationally chartered bank, with $17 billion in assets. With her extensive banking experience, Ms. O'Gorman founded a successful consulting firm, DX Consulting, in 2014. Since 2015, along with her consulting practice, Ms. O’Gorman has served as the CEO of The Fourth Corner Credit Union (4CCU). 4CCU is first credit union chartered in over 10 years in the state of Colorado. Most recently, Deirdra and her business partners founded Empyreal Logistics, a logistics company that provides transit, cash processing and onsite audit solutions for financial institutions and businesses.
In 2016, Deirdra was named one of 20 “People to Watch” in the cannabis financial services industry and has been featured in articles by the New York Times, the Wall Street Journal, CNN and more. She is considered one of the foremost experts on banking and compliance for highly regulated industries. Through her work, she has become a nationally known speaker and can be found working with financial institutions, regulators, government agencies, entrepreneurs, and attorneys who are looking to gain a better understanding of emerging markets.
DX CONSULTING PROPRIETARY AND CONFIDENTIAL The Plant Overview
Photo credit: Chicago Tribune
DX CONSULTING PROPRIETARY AND CONFIDENTIAL The Plant Overview – Types of Cannabis
DX CONSULTING PROPRIETARY AND CONFIDENTIAL The Plant Overview – Cannabinoids
What are Cannabinoids?
Cannabinoids are chemical compounds that act on cannabinoid receptors in the body.
https://potent.media/understanding-cannabinoids DX CONSULTING PROPRIETARY AND CONFIDENTIAL The Plant Overview – Plant Phases
Mother Clone Vegetative Flower Harvest Dry Trim Cure Package
Photo credits: Leaafly
DX CONSULTING PROPRIETARY AND CONFIDENTIAL The Plant Overview – Types of Products
Photo credits: Leafly
DX CONSULTING PROPRIETARY AND CONFIDENTIAL Regulatory Overview
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DX CONSULTING PROPRIETARY AND CONFIDENTIAL Regulatory Overview – History
Brief History: Cannabis was widely used as a medicine in the United States until the states and the federal government ended that practice with state-level bans and the Federal Marijuana Tax Act of 1937.
DX CONSULTING PROPRIETARY AND CONFIDENTIAL Regulatory Overview – Controlled Substances Act (CSA)
In 1970, Cannabis was rendered federally illegal under the Controlled Substances Act and categorized as a Schedule I Drug.
Since then the CSA has been amended numerous times:
1. 1976 Medical Device Regulation Act 2. 1978 Psychotropic Substances Act 3. 1984 Controlled Substances Penalties Amendments Act 4. 1986 Federal Analog Act 5. 1988 Chemical Diversion and Trafficking Act 6. 1990 Anabolic Steroids Act 7. 1993 Domestic Chemical Diversion and Control Act (methamphetamine trafficking) 8. 2008 Ryan Haight Online Pharmacy Consumer Protection Act 9. 2010 Electronic Prescriptions for Controlled Substances Act 10. 2010 Secure and Responsible Drug Disposal Act (in response to the US opioid epidemic) 11. 2017 Protecting Patient Access to Emergency Medications Act 12. 2018 Farm Bill, which descheduled Hemp, but not Marijuana
Source: Drug Enforcement Administration
DX CONSULTING PROPRIETARY AND CONFIDENTIAL Regulatory Overview – The Cannabis Experiment What started the recent cannabis revolution?
Graphic by: http://www.rebrandingcannabis.com/wp-content/uploads/2015/02/state-flag-colorado-1.jpg 2012 - Colorado and Washington made history by legalizing recreational cannabis in their states. These states started the first FOR PROFIT model for cannabis distribution.
- Coloradans passed Amendment 64 amending the state constitution by legalizing (medical and recreational/adult use) cannabis and mandating regulatory oversight in the state. In Washington, with the passage of Initiative 502, the state was tasked with creating a regulatory structure and oversight for the program.
These states, as with most that have followed in their footsteps, require both state and local licensing for all stores, cultivations, infused manufacturers, and testing facilities.
Information Provided by the Colorado Marijuana Enforcement Division (“MED”) DX CONSULTING PROPRIETARY AND CONFIDENTIAL Regulatory Overview – S2S, Closed Loop System Seed-to-Sale (S2S, A Closed-Loop System) - no plant can be added or subtracted from the system without documentation and oversight.
DX CONSULTING PROPRIETARY AND CONFIDENTIAL Regulatory Overview – S2S, Closed Loop System BioTracTHC has deployed in the State of Massachusetts to provide bar tracking. Other S2S tracking solutions include bar codes, NFC, QR codes, and more.
DX CONSULTING PROPRIETARY AND CONFIDENTIAL Regulatory Overview – Tracking
Tagged Seedlings In Propagation Room. Tags enable inspectors to quickly count plants in a room using a scanner. The scanned tabulation is expected to match the S2S system plant count.
Plant tags inserted in growing medium Scanning a cultivation operation with a retail and medical scanners
DX CONSULTING PROPRIETARY AND CONFIDENTIAL Regulatory Overview – Typical Cultivation
DX CONSULTING PROPRIETARY AND CONFIDENTIAL Regulatory Overview – Typical Dispensary
DX CONSULTING PROPRIETARY AND CONFIDENTIAL Regulatory Overview – Typical Manufacturing Facility (MIP, Processor)
Extraction Kitchen
DX CONSULTING PROPRIETARY AND CONFIDENTIAL Regulatory Overview – Typical Extraction Methods
Extraction methods remove undesirable compounds, preserving the active terpenes and cannabinoids of the original plant.
Solvent-Based Solventless • Alcohol • Water • CO2 • Heat • Butane (PHO) • Pressure • Propane (BHO)
DX CONSULTING PROPRIETARY AND CONFIDENTIAL Regulatory Overview – Typical Testing Facility (Safety Compliance)
THC Potency Cannabinoid Potency Microbials Chemical Residue - Pesticides - Fungicides - Insecticides Residual Solvent Levels Mycotoxin Moisture Content
DX CONSULTING PROPRIETARY AND CONFIDENTIAL Guidance
Pic by: http://media.bizj.us/view/img/1668591/7abankingmarijuana*304.jpg
DX CONSULTING PROPRIETARY AND CONFIDENTIAL Guidance – Department of Justice
Pic and article by: http://www.weednews.co/jeff-sessions-provides-written-responses-to-marijuana-questions-from-senators William Barr, Pic by US DOJ In January 2018, former Attorney General Jeff Sessions rescinded the DOJ Cole Memorandum. Published on August 29, 2013, the memo provided guidance to federal prosecutors outlining marijuana enforcement as low priority in light of state laws legalizing marijuana. Session’s update left the discretion of marijuana prosecution priority to the AG’s in those states.
In January of 2019, Attorney General William Barr testified before Congress that he does not plan to “go after” [marijuana] companies complying with state law. However, Barr is on record that he does not support changing the Controlled Substances Act.
In April of 2019, Barr further clarified in a hearing before Congress, “Personally, I would still favor one uniform federal rule against marijuana.” “But if there’s not sufficient consensus to obtain that, then I think the way to go is to permit a more federal approach so states can make their own decisions within the framework of a federal law so we’re not just ignoring the enforcement of federal law.” Later, Barr said he would prefer that approach “than where we are now,” which he characterized as an “intolerable” situation because of the conflict between federal and state marijuana laws. https://www.forbes.com/sites/julieweed/2019/02/15/optimism-mixes-with-distrust-cannabis-industry-reacts-to-trumps-new-attorney-general/#269583442496 https://mjbizdaily.com/attorney-general-william-barr-federal-law-protecting-state-legal-marijuana-trumps-current-situation DX CONSULTING PROPRIETARY AND CONFIDENTIAL Guidance – The Drug Enforcement Administration (DEA)
August 2019 - the DEA plans to unveil a proposed regulation to govern applications to grow cannabis for scientific and medical research.
For half a century, only one grow was legally approved for such purposes — a University of Mississippi facility contracted by the National Institute on Drug Abuse (NIDA). This change could pave the way for the robust clinical trials cannabis experts believe could lead to the downgrade of Marijuana on the Controlled Substances Act.
Critics say this is just another stall tactic by the DEA, who has not been friendly to legalization efforts. https://thinkprogress.org/dea-concedes-that-marijuana-research-monopoly-must-end-opening-door-to-sweeping-change-2d60015acd1d/ GETTY IMAGES
DX CONSULTING PROPRIETARY AND CONFIDENTIAL Guidance – Department of Justice
In reaction to Session’s actions, AG’s and Legislators responded in support of state legal marijuana laws:
After Session’s action, a bipartisan coalition of 19 state attorneys general sent a letter to Congress requesting the advancement of legislation already presented to “provide a safe harbor” for banks that provide services to cannabis business.
“I am prepared to take all steps necessary, including holding DOJ nominees, until the Attorney General lives up to the commitment he made to me prior to his confirmation.” -- Colorado Senator, Cory Gardner (R)
Cory Gardner, Jeff Sessions. (Photos: Alex Wong/Getty Images, Joshua Robert/Reuters)
In a statement, California Attorney General Xavier Becerra stated, “Congress has the power to protect a growing $6.7 billion industry and the public safety of our communities.” Becerra concludes, “My team at the Department of Justice is committed to implementing and enforcing the law in California in a way that most effectively protects the health and safety of our people.”
“This is about public health. You can join me in fighting back by calling for support for my bill, the CARERS Act, which keeps the federal government out of the way when doctors and patients decide that medical marijuana is the best treatment for them.” -- New York Senator, Kristen Gillibrand (D)
https://www.cnn.com/2018/01/04/us/states-react-to-jeff-sessions-memo-marijuana/index.html https://techcrunch.com/2018/01/16/marijuana-banking-attorneys-general-letter/ https://www.thecannabist.co/2018/01/16/marijuana-banking-bill-perlmutter-state-attorney-general/96870/ DX CONSULTING PROPRIETARY AND CONFIDENTIAL https://twitter.com/SenGillibrand Guidance – President Trump’s Stance on Cannabis
June 2018 - After withholding support for Trump’s DOJ nominees, U.S. Sen. Cory Gardner, co-chair of the Congressional Cannabis Caucus, and President Donald Trump met on the issue of Session’s Cole Memo withdraw. After the meeting, the president stated, “I support Sen. Gardner,” when asked about the bill. “I know exactly what he’s doing. We’re looking at it. But I probably will end up supporting that, yes.” http://www.latimes.com/politics/la-na-pol-trump-marijuana-20180608-story.htm l
On September 2019 - When asked about e-cigarette use, President Trump said, “It’s very new and potentially very bad. There have been deaths and there have been a lot of other problems. People think it’s an easy solution to cigarettes but turns out that it has its own difficulties. Not only is it a problem overall, but really specifically with respect to children.” https://www.greenentrepreneur.com/article/339396
February 2021 – In his federal budget proposal, the president has called for ending existing federal protections that limit the federal government from interfering in the state-sanctioned regulation of medical cannabis. Doing so would place thousands of medical cannabis providers and the millions of patients who rely on them at risk for criminal prosecution. https://thehill.com/opinion/civil-rights/484540-congress-should-halt-trumps-plan-to-upend-states-medical-marijuana-laws
DX CONSULTING PROPRIETARY AND CONFIDENTIAL Guidance – Department of Treasury
The Department of Treasury, through it’s Financial Crimes Enforcement Network (“FinCEN”), issued guidance on February 14, 2014, outlining rigorous oversite and enhanced due diligence expectations should a financial institution provide banking services to cannabis businesses. Steven Mnuchin, on February 6, 2018, testified before the House Financial Services Committee, "I assure you that we don't want bags of cash," "We want to make sure that we can collect our necessary taxes and other things.“ In February of 2019, he stated banking concerns for marijuana businesses was at the “top of the list” of his department’s concerns.
At an April 9, 2019 House appropriations subcommittee hearing, --Secretary of Treasury, Steven Mnuchin “There is not a Treasury solution to this,” Mnuchin said. “There is Pic by: www.pbs.org/newshour/show/treasury-nominee-mnuchin-defends-record-perry-says-attitude-energy-changed not a regulator solution to this.
If this is something that Congress wants to look at on a bipartisan basis, I’d encourage you to do this. This is something where there is a conflict between federal and state law that we and the regulators have no way of dealing with.”
Rather than getting into the question of federal legalization or rescheduling of cannabis via the Controlled Substances Act, Mnuchin pointed to the SAFE Banking Act, that he believed would prevent federal regulators from punishing financial institutions for providing services to cannabis businesses operating in compliance with state laws. https://www.fincen.gov/resources/statutes-regulations/guidance/bsa-expectations-regarding-marijuana-related-businesses https://www.forbes.com/sites/tomangell/2018/02/06/trump-treasury-secretary-wants-marijuana-money-in-banks/#3011cd143a53 https://www.cannabisbusinesstimes.com/article/steve-mnuchin-treasury-secretary-cannabis-banking/ DX CONSULTING PROPRIETARY AND CONFIDENTIAL Guidance – Congress, the Joyce Amendment ( Previously the Rohrabacher-Blumenauer Amendment)
First introduced in 2001 under the Rohrabacher- Farr Amendment, and ultimately adopted in 2014.
Rider in an omnibus appropriations bill funding the federal government
Prohibits DOJ from spending funds “to prevent [the listed] States from implementing their own State laws that authorize the use, distribution, possession, or cultivation of marijuana.”
Requires regular renewal/continuation each budget cycle
As of June 18, 2019, this Amendment looked to add protections for recreational cannabis programs, but the change has not yet been implemented.
DX CONSULTING PROPRIETARY AND CONFIDENTIAL Guidance – Congress, The STATES Act
On April 13, 2018, Sen. Gardner (R-CO) released his holds on 4 key Department of Justice nominees in exchange for President Trump publicly supporting a state’s rights solution to the application of the CSA in legal marijuana states.
On June 7, 2018, Sen. Gardner (R-CO) and Sen. Warren (D-MA) introduced the STATES Act, which stands for “Strengthening the Tenth Amendment Through Entrusting States.”
The bill prevents DOJ from enforcing the Controlled Substances Act for lawful conduct in states where marijuana is legal but does not change anything in states where it remains illegal under state law.
Bipartisan co-sponsors include: Sen. Rand Paul (R-KY), Sen. Catherine Cortez Masto (D-NV), Sen. Lisa Murkowski (R-AK), Sen. Cory Booker (D-NJ), Sen. Dan Sullivan (R-AK), Sen. Michael Bennet (D-CO), Sen. Jeff Flake (R-AZ), Sen. Amy Klobuchar (D-MN).
In December 2018, Gardner tried to add the STATES Act as an amendment to a criminal reform bill but was denied.
2020 - Insiders speculate key aspects of the STATES Act might make there way into the Safe Banking Act.
DX CONSULTING PROPRIETARY AND CONFIDENTIAL Guidance – Congress, The SAFE Banking Act
2013 - H.R. 1595, the Secure and Fair Enforcement Banking Act (SAFE Banking Act), the banking bill that attempts to provide a “Safe Harbor” financial institutions to serve marijuana-related businesses without the fear of reprisal from the federal government. Under the bill, federal banking regulators would not be able to threaten or limit a bank or credit union’s deposit insurance if they provide services to a marijuana business. This year's version of the SAFE Banking Act will also include some revisions, summed up by the National Cannabis Industry Association: "It adds protections for ancillary businesses providing products or services to a cannabis-related legitimate business; specifies how businesses on tribal land could qualify; and requires the Federal Financial Institution Examination Council to develop guidance to help financial institutions lawfully serve cannabis-related legitimate businesses.“
50 state banking associations, the National Association of State Treasurers, the top financial regulators of 25 states, a majority of state attorneys general and bipartisan governors of 20 states have also voiced support for the SAFE Banking Act.
The bill passed the House of Representatives on September 26, 2019
After holding public hearings, Senate Banking Committee Chairman Mike Crapo (R-Idaho) invited public feedback on ways to address public health and money laundering concerns with cannabis banking. Input is also requested on “Operation Choke Point,” an Obama-era initiative in which federal agencies devised and relied upon a list of politically disfavored merchant categories (e.g., firearm manufacturers, payday lenders, etc.) with the intent of “choking off” these merchants’ access to payment systems and banking services.
March 2020 - In a recent press conference, Senator Gardner optimistically states a vote on this bill is “months away.”
https://www.washingtonpost.com/business/2019/02/13/banks-want-hit-marijuana-business-will-they-get-partake/?noredirect=on&utm_term=.4c86b72b526a https://www.bankingdive.com/news/vote-pot-banking-bill-months-away-sen-gardner/573118/ https://www.marijuanamoment.net/marijuana-banking-bill-will-get-a-full-house-floor-vote-this-month-sources-say/ DX CONSULTING PROPRIETARY AND CONFIDENTIAL https://www.banking.senate.gov/newsroom/majority/chairman-crapo-outlines-concerns-with-cannabis- banking-legislation Guidance – Congress, The Marijuana Justice Act Introduced by Senator Cory Booker (D-NJ), along with Representatives Barbara Lee (D-CA) and Ro Khanna (D- CA),The Marijuana Justice Act of 2019 would:
Remove marijuana from the list of controlled substances making it legal at the federal level;
Incentivize states through federal funds to change their marijuana laws if marijuana in the state is illegal and it disproportionately arrests or incarcerates minority and poor people for marijuana-related offenses;
Automatically expunge federal marijuana use and possession records;
Allow individuals currently serving time in federal prison to petition a court for a resentencing;
Create a community reinvestment fund to invest in communities most impacted by the failed War on Drugs and allow the money to go towards the following programs:
Provide Job training and Re-entry services;
Aid with Expenses related to the expungement of convictions;
Fund: Public libraries; Community centers; Programs and opportunities dedicated to youth; and Health education programs.
https://blog.norml.org/2019/02/ DX CONSULTING PROPRIETARY AND CONFIDENTIAL Guidance – Congress, The 2018 Farm Bill In December 2018, The Farm Bill and was signed into law. Championed by Senate Majority Leader Senator Mitch McConnell (R-KY) with strong bi-partisan support, the Bill:
Defines hemp as the plant Cannabis sativa L. and any part of the plant with a delta-9 THC concentration of not more than 0.3 percent by dry weight. Any cannabis plant that contains more than 0.3 percent THC would be considered non-hemp cannabis—or marijuana—under federal law and would thus face no legal protection under this new legislation.
Removes hemp from the Controlled Substances Act
Delegates to states and Indian tribes the broad authority to regulate and limit the production and sale of hemp and hemp products within their borders. States and Indian tribes cannot, however, limit the transportation or shipment of hemp and hemp products through their respective jurisdictions. State departments of agriculture must consult with the state’s governor and chief law enforcement officer to devise a plan that must be submitted to the Secretary of USDA. A state’s plan to license and regulate hemp can only commence once the Secretary of USDA approves that state’s plan. In states opting not to devise a hemp regulatory program, USDA will construct a regulatory program under which hemp cultivators in those states must apply for licenses and comply with a federally-run program.
Outlines actions that are considered violations
The new law allows interstate commercial transfers and sales of hemp and hemp-derived products, but clashes with the U.S. Food and Drug Administration (FDA), which has flatly rejected the notion that hemp-derived CBD products are legal. "Selling unapproved products with unsubstantiated therapeutic claims is not only a violation of the law, but also can put patients at risk, as these products have not been proven to be safe or effective," Former FDA Commissioner Scott Gottlieb wrote shortly after the 2018 Farm Bill was approved by Congress.
Ultimately, the Farm Bill legalizes hemp, but regulation additional clarification from the USDA. The FDA has yet to published any regulation.
https://www.brookings.edu/blog/fixgov/2018/12/14/the-farm-bill-hemp-and-cbd-explainer/ https://www.perkinscoie.com/en/news-insights/what-does-the-2018-farm-bill-mean-for-the-hemp-and-cbd-businesses.html DX CONSULTING PROPRIETARY AND CONFIDENTIAL Guidance – The NCUA
Picture Credit: CU Journal
In August of 2019 the NCUA’s Chairman, Rodney Hood explained that Credit Unions in states where marijuana is legal won’t be sanctioned for providing services to cannabis-related businesses as long as they follow money laundering, Bank Secrecy Act, safety and soundness and other rules.
“It’s a business decision for the credit unions if they want to take the deposits,” Hood told CU Times, in a wide-ranging interview at NCUA headquarters in Alexandria, Va. He added, “We don’t get involved with micro-managing credit unions.”
He said that credit unions that provide services to cannabis-related businesses must comply with FinCEN rules, file Suspicious Activity Report and must strictly adhere to other rules. Then, they will not be cited for merely doing business with cannabis firms, Hood said.
https://www.cutimes.com/2019/08/05/cus-wont-be-sanctioned-for-providing-marijuana-banking-ncua-chairman-hood/?slreturn=20190813191028 DX CONSULTING PROPRIETARY AND CONFIDENTIAL Guidance – The Federal Reserve Bank
Twelve Federal Reserve Districts of the Federal Reserve Bank operate in district boundaries which are based on economic considerations; the districts operate independently but under the supervision of the Federal Reserve Board of Governors.
This structure allows for each Reserve Bank President to determine policy, within guidelines, for their regional bank.
Relying on the FinCEN guidelines from the Department of Treasury and their state Attorney General’s stance on cannabis policy, some Reserve President’s have opted, discreetly, to accept cannabis-related funds.
Ultimately, the financial institution must work with their local Reserve Bank to determine whether or not it will accept cannabis funds. However, we have found states that mandate secured transport for cannabis funds have greater efficacy swaying local decision-makers on this issue.
Map by Federal Reserve Bank of San Francisco
DX CONSULTING PROPRIETARY AND CONFIDENTIAL Guidance – Department of Treasury, SARs
Marijuana limited SAR- a FI files a marijuana limited SAR to report the transactions and activity of the business but reaffirms that the activity is consistent with state law and does not violate any of the eight federal priorities, such as sales to minors. However, this expectation reverses the normal approach to suspicious activity and imposes a new level of obligation. When it comes to marijuana-related businesses, the FinCEN guidance implies that it is the FI’s responsibility for ensuring marijuana is not distributed to minors, a subtle but highly critical distinction that places a new level of regulatory oversight. If the FI opens an account for a marijuana-related business and does file an initial marijuana limited SAR to alert FinCEN and law enforcement that it is serving the business, the FI will have to continue to report as long as the account stays open because each transaction is possible money laundering.
Marijuana priority SAR - If the FI decides that one of the federal priorities has been violated, or that the business is not in full compliance with state law requirements, then it files a SAR that identifies the wrongful activity.
Marijuana termination SAR - Even though the business may be operating in compliance with state law and satisfying all eight priorities set forth by FinCEN, an FI might not feel comfortable maintaining a relationship. Or, as FinCEN puts it in the guidance, the FI might decide to terminate a relationship “in order to maintain an effective anti-money laundering program.” (This might be the only situation where FinCEN acknowledges de-risking as acceptable for managing AML risk.) If the bank does end its relationships with the business, then it reports that to FinCEN using the marijuana termination SAR. If the FI knows that the company has moved its accounts elsewhere, FinCEN also encourages the FI to take advantage of the 314(b)-information sharing process to notify the successor bank that it terminated its relationship with the business.
DX CONSULTING PROPRIETARY AND CONFIDENTIAL Guidance – Department of Treasury
The Financial Crimes Enforcement Network (FinCEN) reported that SARs for marijuana businesses declined from 747 as of November 2019 to 739 by the end of the following month. Short-term declines maybe explained by the recent clarification on SAR Hemp filings.
Of the total amount of SARs filed, 114,859, 85,193 contained the phrase “marijuana limited,” indicating that none of the eight Cole Memo priorities were involved; whereas, 8795 SARs filed contained the phrase “marijuana priority,” indicating that one of the eight Cole Memo priorities were implicated. The remaining SARs filed contained the phrase “marijuana terminated” with 28,025 termination SARs filed.
Between 2014 and 2019, “marijuana limited” SAR filings saw the largest increase. This data illustrates that the majority of SARs filed do not implicate the Cole Memo enforcement priorities.
https://www.fincen.gov/sites/default/files/shared/287473_3Q_FY2019_Marijuana_Banking_Update_Public.pdf DX CONSULTING PROPRIETARY AND CONFIDENTIAL Cannabis Banking Compliance – Focus on AML
“Identification as a marijuana-related business does not imply that a customer relationship should not be extended or terminated. The decision to open or retain a relationship with a marijuana-related business should be defined in policy and by the risk tolerances established by the financial institution's senior management and board of directors, including the existing conflicts between state and federal law. Opening or maintaining the relationship simply means that due diligence for the customer and that the customer’s transactions should be subject to heightened scrutiny.” --- Protiviti, Guide to U.S. AML Requirements Money laundering statute requires proof of specific intent to conceal or disguise the nature, location, source, ownership, or control of property believed to be the proceeds of unlawful activity.
Looks to see if the financial transaction designed in whole or in part to conceal or disguise the source, ownership or control of those proceeds.
Identifies if the specific intent is to promote, further or facilitate an illegal purpose.
Reviews if the transaction involves the transmission of funds that are Graphic by: https://s-media-cache-ak0.pinimg.com/736x/16/f4/1f/16f41f9a77da2129a029c2609fc839a2.jpg known to have been derived from a criminal offense or are intended to be used to promote or support unlawful activity
https://www.protiviti.com/CA-en/insights/servicing-legalized-marijuana-businesses-weighing-risks-light-fincen-guidance DX CONSULTING PROPRIETARY AND CONFIDENTIAL Cannabis Banking Compliance – Considerations There are many compelling reasons to offer financial services to the industry, but these are some items for consideration:
Insurance – FI’s should review their Directors & Officers Policy’s to ensure coverage for providing services to MRBs. Does the deposit insurance cover MRB Deposits?
Board Members – has the board been duly advised of the risks involved?
FI Staff – HIPAA and privacy issues related to medical cannabis patients; exposure to the plant (workforce impairment); drug policy issues; employer liability.
Vendors – will current vendors work with the FI to provide MRB banking? Will the vendor’s products require customization?
Industry – understanding the nuisances; issues of privacy/trade secretes; evaporating product – how to track? Knowing good vs. bad industry vendors/systems.
Branches – with cash-intensive businesses such as MRBs, is there a risk to existing customers/membership or employees at the branch?
Lending – are there impermissible direct financial interests; challenges for bankruptcy; no RMA data; collateral issues; can FIs legally take over entity due to default(?).
DX CONSULTING PROPRIETARY AND CONFIDENTIAL Market Opportunities
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DX CONSULTING PROPRIETARY AND CONFIDENTIAL Market Opportunity – States With Cannabis/Hemp Laws
The Marijuana Domino Effect Totals: Medical - 34 States and the District of Columbia (D.C.)
Hemp - 50 States*
Low THC Concentration or CBD – 14 States
Allow Adult/Rec Use – 11 States plus D.C.
More to come: Eight states have cannabis-related initiatives on the ballot including: New Mexico, New Jersey, and Delaware.
*Regulations and rule making still in flux.
DX CONSULTING PROPRIETARY AND CONFIDENTIAL Market Opportunity – Green Gold Rush
DX CONSULTING PROPRIETARY AND CONFIDENTIAL Market Opportunity – Green Gold Rush
In recent history, most cannabis or hemp businesses found investment funds through friends, family, or hard money lenders. With the rapid growth of the industry, the profile of potential investors is rapidly changing as well:
Nasdaq - even though most of the stocks are not covered by broker dealers, there are a handful of hemp-related companies listed on Nasdaq, such as GW Pharmaceuticals (GWPH). Toronto Stock Exchange (TSX) or the Canadian Securities Exchange (CSE) - There are over 400 publicly traded cannabis companies listed. Private equity, hemp-focused investment funds, and specialized brokers - with groups such as Privateer (which received an infusion of capital from Founders Fund), Chardon Capital, ArcView, Canopy, Viridian, etc., many cannabis and hemp businesses now have an expanding network where they can shop their deal. Loans - not yet, but it is only a matter of time. Until then, family and friends (and hard money lenders) will remain the primary source of loans to the industry.
Information provided by The Street, https://www.thestreet.com/story/13537433/1/how-to-invest-in-nasdaq-traded-marijuana-stocks-and-private-pot-companies.html
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DX CONSULTING PROPRIETARY AND CONFIDENTIAL Market Opportunity – Celebrity Green Gold Rush
Joe Montana’s venture capital firm, Liquid Martha Stewart joined the Canadian 2 Ventures, was a part of a group that marijuana company, Canopy Growth, invested $4.1 million into the cannabis- as an adviser to help them develop focused media outlet Herb. cannabis products for people and their pets, according to a news “Legalization is picking up steam on a release. Stewart claims she doesn’t global level, and I feel like now is the time consume cannabis, though that to spread information about the curing capabilities of this plant. doesn’t mean she has never felt its https://www.denverpost.com/2019/03/02/martha-stewart- effects: She says she has gotten a canadian-canopy-growth/ As with any medicine, increased accessibility comes with the need for education. contact high from being around Cannabis eased my pain. It also put me in a state of healing and relief.” Snoop.
Created in conjunction with 10-time High Times Cannabis Cup winner Maya Elisabeth, Whoopi & Maya’s female-focused products are designed specifically for relief from menstrual discomfort.
“It’s not so much the laws that have to change but the attitudes. When you think of penicillin and all the things, we discovered penicillin could take care of, I feel that’s what marijuana Sir Richard Branson’s ride service and marijuana delivery is.” company, Sidecar, didn’t last long in the competitive San Francisco market, but Branson’s commitment to cannabis has been well-documented.
DX CONSULTING PROPRIETARY AND CONFIDENTIAL Current State of Cannabis
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DX CONSULTING PROPRIETARY AND CONFIDENTIAL Current State of Cannabis ArcView Research estimates legal retail sales of cannabis in North American totaled $12 billion in 2019; up 23% YOY.
There are now over 10,000 licensed “plant-touching” businesses in the United States, and at least as many ancillary businesses (e.g. providers of goods, services, technology).
According to Leafly, the cannabis industry supports 243,700 employees nationwide, with over 33,000 jobs added in the last year.
Arcview Research estimates the industry will experience a compound annual growth rate of 27 percent over the next three years.
According to Cowen & Co., North American cannabis sales will reach ~$75 billion by 2030.
Cannabis businesses' say the biggest challenges for the industry’s continued growth are Banking and the IRS rule 280E.
DX CONSULTING PROPRIETARY AND CONFIDENTIAL Current State – Cannabis Goes International
The following countries have cannabis-friendly laws in place (adult use, medical, and/or CBD/hemp oil): Argentina, Australia, Bangladesh, Cambodia, Canada, Chile, Columbia, Czech Republic, France, Germany, India, Jamaica, Jordan, Mexico, Netherlands, Portugal, Romania, Spain, United States, and Uruguay. With more considering legalization such as: Ireland, Switzerland.
DX CONSULTING PROPRIETARY AND CONFIDENTIAL Current State – Canada
Delivering on a campaign promise, Canadian Prime Minister Justin Trudeau legalized the production, distribution, and possession of marijuana for recreational purposes in October 2018.
“Legalization wouldn't just be an important milestone for Image https://www.oneyoungworld.com/sites/oneyoungworld.com/files/images/JustinDrapeauCanadien-1080x628.jpg Canada and the world; it could also send ripples across the international system of drug policy. That's because drug policy is tied not just to each country's individual laws, but to a network of treaties that effectively make the war on drugs a global effort. Marijuana legalization in Canada would act as the most high-profile rejection of these treaties, sending an important signal of the changing times as the international agreements come
under a critical review.” http://www.vox.com/2015/10/20/9573497/canada-marijuana-legalization-justin-trudeau
Image: Offbeat News; Article :http://reason.com/blog/2016/07/05/task-force-offers-hints-of-what-legal-po
DX CONSULTING PROPRIETARY AND CONFIDENTIAL Current State – Former Speaker of the House, John A. Boehner
Formerly one of its biggest critics, Former Speaker of the House John A. Boehner said his thinking on cannabis "like that of millions of other Americans, has evolved as I've learned more about the issue…I decided to get involved because of the struggles of our country's veterans and the opioid epidemic, after learning how descheduling the drug can potentially help with both crises," he said. On the topic of descheduling he stated, "Descheduling will reduce the conflict between federal policy and state programs" which have pursued more lenient policies on marijuana under the 10th Amendment to the U.S. constitution.” https://www.cnbc.com/2018/04/11/john-boehner-joins-marijuana-company-view-on-cannabis-has-evovled.html
DX CONSULTING PROPRIETARY AND CONFIDENTIAL Current State - What do Americans think about Marijuana?
Edibles are the most popular product by far, with 34% of Americans saying they are at least somewhat interested in using marijuana through food products.
Why smoke? Among users, 71% say they use marijuana to relax –the most popular reason. 46% say they use marijuana to sleep.
If marijuana was legally available to purchase online, 36% of millennials say they would be interested in taking advantage(notably more than older generations).
While about half of Americans don’t have opinions on CBD, the majority would be open to trying it if they were told it could help with a medical issue.
Morning Consult conducted this poll online from July 17-18, 2018, among a national sample of 2,201 adults (21+)
DX CONSULTING PROPRIETARY AND CONFIDENTIAL Current State - Support for Continued Growth
A Sept 2019 Pew Poll shows the majority of Americans support marijuana being legal in the United States.
https://news.gallup.com/poll/243908/two-three-americans-support-legalizing-marijuana.aspx DX CONSULTING PROPRIETARY AND CONFIDENTIAL Questions? Thank you
Deirdra A. O’Gorman Founder + Principal DX Consulting Ph. 720-261-5359 [email protected] https://www.linkedin.com/in/deirdraogorman/
DX CONSULTING PROPRIETARY AND CONFIDENTIAL