1. Working Out Cannabis Banking Issues
Alan Hanson, Senior Attorney, Emerge Law Group Carmella Houston, VP, Business Services, Salal Credit Union Rachel Pross, Chief Risk Officer, Maps Credit Union

2. We are not lawyers and we are not providing legal advice nor are we advocating for or against offering services to this industry. To para phrase the FinCEN guide we will discuss later, each financial institution must make its own decision as to their relationship with this industry.
We are not hear to talk about the sociological impacts of legalized cannabis and we are not advocating for or against banking companies and individuals within this industry. We know there are strong opinions on both sides of this issue, today we are going to talk about the impact the cannabis industry on the banking and payments industry and the impact of tax revenue in the states that have legalized recreational cannabis.
This material is not intended to provide any warranties or legal advice, and is intended for educational purposes only.

3. States with some form of legalized cannabis
There are several more states with medical
cannabis laws and several others that have laws related to medical cannabis but no distribution
network or prescription support.
Dark green = Recreational (9 states & the District of Columbia) 9 currently have active sales.
Orange = Medical and or with laws that decriminalize possession
Yellow = allow use of "low THC, high cannabidiol (CBD)" products for medical reasons in limited situations all but 4 to some level
46 of 50 states have some form of legalized cannabis with different degrees of access.

4. Real economic impact
A report from New Frontier Data projects that by 2020 the legal cannabis market will create more than a quarter of a million jobs
The total number of job postings for the cannabis industry increased 445% in 2017, according to job-search website ZipRecruiter
There are now more people working in the legal cannabis industry than there are dental hygienists in the US

5. Federal Law & Guidance
Cannabis (including cannabis extract) remains illegal under federal law and is still classified as a “Schedule 1” Drug
Connection to providers of banking services?
The Controlled Substance Act (Title 21 of the U.S. Code)
The Money Laundering & Control Act (Title 18 of the U.S. Code)
The Bank Secrecy Act (Title 31 of the U.S. Code)
(to Alan) Can you take us through a little of the history of Cannabis and the Banking industry, maybe talk a little bit about FinCEN Guidance and the “Cole Memo”

6. Federal Law & Guidance
Federal Law Enforcement Priorities and Other Guidance
Cole Memorandums – October 2011, August 2013, February 2014
FinCEN Guidance – February 2014
Until…
January 4, 2018 – Attorney General Jeff Sessions Rescinds Cole Memorandum
FinCEN Guidance remains in place, but under review

7. FinCEN Guidance
Clarified what will be verified at financial institutions who provide services to cannabis-related businesses consistent with Bank Secrecy Act obligations
Due diligence requirements related to Cole Memos (see next slide for details)
New Suspicious Activity Report (SAR) categories:
Marijuana limited
Marijuana priority
Marijuana termination
Carmella – has the recession of the Cole Memo changes your activities in the industry
Monica – What about your FI.

8. FinCEN Guidance FinCEN Guidance Enhanced Due Diligence requirements
Verifying proper state license and registration
Reviewing the license application
Requesting from state all available information
Developing an understanding of normal and expected activity
Ongoing monitoring of public info
Ongoing monitoring for suspicious activity
Ongoing customer due diligence

9. What’s Happening in the Industry Today
Current legislation
SAFE Act - Secure and Fair Enforcement Banking Act
STATES Act - Strengthening the Tenth Amendment Through Entrusting States Act
REFER Act - Restraining Excessive Federal Enforcement & Regulations of Cannabis Act of 2018
The Fourth Corner Credit Union
CA Senate Bill 930 – First Marijuana-Focused State Chartered Bank
(to Alan) what do you think the chances of any of these laws passing congress

10. What do you do with all that cash?
California is anticipating $1.5 billion in recreational cannabis sales in That number could increase to $3 billion in 2019 and nearly $4 billion by 2020
The legal cannabis industry could be a $21 billion industry by 2021
(to Rachel and Carmella) Does it Smell, what do you do with all the cash, do you sell to your branches or only to the Federal Reserve

11. Why is this important?
This much cash unbanked causes a public safety issue
Conducting normal business activity is severely limited
Paying taxes
Paying utilities, insurance and other bills
Paying ancillary industries
Paying employees
Lack of adequate banking records increase the potential for illicit activity
(to all) why do we need worry about all this cash.

12. Have you talked about cannabis yet?
Discuss cannabis banking at your FI, even if you don’t offer services to the industry
Ancillary cannabis businesses
Property Management
Accountants
Legal Counsel
Employees
(to all) Why do you think cannabis banking is a topic that should be discussed even if you are not directly involved.

13. Considerations before banking the industry
Direct cannabis businesses and retailers
Wholesalers/Retail
Obtain Board Approval
Work directly with:
Legal Counsel
State Regulators
Bonding companies
Insurance Companies
Audit/CPA firms
(to Rachel and Carmella) has much as possible can you walk us through your cannabis banking program.

14. Education is key Develop employee/Board training
BSA/AML compliance and certification
Understanding the industry
Develop a Board approved business plan
Understand the risks and ramifications
Cole Memo
DOJ Recession
FinCEN “Guidance”

15. Education is key Develop an “Enhanced” Customer Due Diligence Program
Internal program audits and reviews
Onboarding
Ongoing

16. Have an Exit strategy
"From a legal and scientific perspective, cannabis is an unlawful drug. It's properly scheduled under Schedule I and therefore we have this conflict," Deputy Attorney General Rod Rosenstein
An Exit Strategy is a vital part of the development of a cannabis banking program
(to all) What type of exit strategy do you have.

17. Questions?
Questions from the audience

18. Resources
Cole Memo
Sessions Memo
FinCEN Guidance
FinCEN Update
SAFE Act