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okay well we'll go ahead and get started thank you all for joining us today my name is Sean O'Brien and the president of quick rate I'm very pleased today to be joined by Tony Rowe panitch tony is a served as a community banker for 25 years and is a former executive vice president for People's Bank a 1.5 billion dollar community bank based in Washington State he was responsible for all aspects of retail banking mortgage lending cash management investment services and corporate marketing for the bank under his leadership the bank grew from less than 200 million dollars in assets to its current size prior to joining shield compliance tony operated a consulting firm focused on cannabis banking and finance community banking and financial technology before i hand it off to tony just a couple of other things from a housekeeping point of view oh you are in listen-only mode as you are for all quick rate webinars which means you know you can hear us but we can't hear you so certainly as you have questions or if you have questions during today's webinar please click the Q&A and submit them and we will take those as best we can at the end of the end of the presentation in addition we will send you out in the next day or two after the after webinar a link to the recording into the PowerPoint and again please submit any questions and we'll take those as we can we're very pleased today to have Tony with us this is certainly a topic that you know I think is demonstrated by the attendees today and the size of the the audience is certainly on everyone's mind there's certainly a lot of confusion around it and I hope today you'll learn quite a bit more about banking cannabis and and look forward to hearing Tony's presentation with that I'll turn it over to Tony Sean thank you so much and thanks to the quick rate audience for making time today to learn a little bit more about cannabis banking I thought what we do today is talk a little bit about the sort of the underlying problems that banks of credit unions are facing when they choose to Bank to legalize cannabis industry also just spill dispel some myths around what it means to provide services this industry and then talk a little bit about the business opportunity and why you would choose to jump in and provide services and then lastly really the risk assessment and some of the other operational considerations that need to take place within your financial institution should you embark on mrb banking and look forward to getting your questions at the end of today's presentation so a real high level as banks and credit unions look to enter the MRV banking space they're faced with a number of challenges beyond just the federal and state differences in legality so first there's an expectation of continuous due diligence and data monitoring and analysis that far exceeds what you're doing for your average commercial client and so that drives a lot of labor for the financial institution and a whole new compliance regimen around how to understand the deposits that are coming into your checking accounts for these clients and the funds that are going out it really begins with new client underwriting that looks a lot different than your commercial client walking in with their nice new LLC paperwork to your personal bank or a new accounts desk and wanting to open a checking account oftentimes these new account applications look much more like a commercial loan application it could take four to six weeks worth of processing in order to understand the total enterprise that's running this licensed entity in your state and the underlying beneficial owners that a part of this business relationship and so the new account underwriting is where a lot of the work begins and then this is still a very high cash intense business and that has other operational constraints and considerations and we'll talk a little bit about that in addition for many of our commercial clients today when we sell them that new checking account we're adding on Visa or MasterCard processing that really is not an option with these customers and so some of those other our sources of revenue that you may rely on to help make your business checking accounts profitable aren't yet available to these clients and then as you all know the ongoing government reporting requirements are quite steep for these customers with the ongoing stars every 90 days with detailed information about the kinds of activity that are happening within these accounts you know if you think about why we have this problem with banking Mr B's the first starts of course with this being a Schedule one drug at the federal level and that causes us to have problems with looking at this as being participating in illegal business activity and so we all know that the feds and the states are have a difference of opinion as states have continued to roll out legalization but right now cannabis is viewed like being heroin in terms of the threat that it has to the general public and the legality of the substance but beyond just the scheduling of the drug there are other bsa/aml risk issues that creep in to the equation when you choose to bank this industry one is this idea of Legacy Fund so as legalization has happened in each of these states what you find is some of the participants in the state came from the old black or gray market and so those funds that they previously made prior to today's legalization in whatever given state you're in are still looking for a home within the financial institution space and so you have to guard against those funds coming into your financial institution you also have a product they can very easily move from the legal market to the illegal market so I always like to say if you grow hops you don't have beer if you grow grapes you don't have wine there's a lot of stuff that happens that needs to happen in between unfortunately if you grow weed you've got weed it can easily move between the legal market and the illegal market and there's some market forces within individual states that increase the that might happen and also because of the differences in licensing from state to state whether your medical nothing at all or recreational there may be an incentive to try to move that product illegally from one state to another market and then there's other states that have very active illegal markets and so when you're providing services to the industry you're really trying to sort out the legal market participants from the illegal market participants and to make sure that they're not interacting with each other and a clear understanding of the business that's coming in to your financial institutions one of the things when we work with banks and credit unions that choose to enter this space is you can go to a national conference and hear about cannabis banking but really each state has its own set of challenges and so it starts with really what is the available market in your state as you start to consider it so is that medical or recreational and if it's a medical market not all medical markets are created equal either you have medical markets that have a very narrow set of conditions where medical marijuana can be prescribed to patients and you have other states where they have a broad set of conditions most notably chronic pain which seems like all of us have these days and so it makes a much broader market when you have chronic pain or those broad set of conditions so the total available market is really driven by the market type that exists within your state there's also issues with states around transparency and how licenses are issued so with that transparency provided by different states it really drives the compliance activities that are required by the financial institution so what information are you going to be able to obtain when you get that new account application about the application that was filed and approved by the state are they going to release that information to you how are you gonna be able to verify that so that you know that the information the license holder has provided you in order to get a banking account matches up with what they provided the state in order to get a license it's also understanding how enforcement occurs so some states have done a better job with enforcement than others and an understanding of how that enforcement information becomes available to you so as enforcement actions are taken you're not expected to be standing next to your mrb customer checking IDs to make sure that they're not selling to minors but if there's enforcement actions that happen against your license holder where they do end up selling to minors how are you going to know that and what action are you going to take when that occurs so again how that information is shared varies dramatically from state to state so part of understanding cannabis banking is understanding how your state handles these issues and then the actual licensing itself can really drive the profitability of the industry and how those license how those businesses are structured so you have states like Washington state where you have no vertical integration so you can grow and make product on one hand on the and then you can be a retailer on the other but you can't own all of those licenses you have states like Florida where you're just the opposite everybody is vertically integrated what you grow and turn into product is what you have to sell out of your stores that you've been licensed and then there's varying combinations in between depending on your state and then there's also restrictions and ownership so we have large multi-state organizations now that are buying licenses across many states while there's other states that say everybody that is a license holder needs to be a resident of our state and so that changes sort of the economics of Licensing within that given state so also helps you better understand who your potential customer may be and what kind of deposit balances will become available as a result of choosing the bank the industry and then some states have a sort of unlimited licenses available and others have very limited licenses and that number of licenses that are issued often determine what happens to that wholesale price and that wholesale price can really to help to determine the profitability of of your cultivators in your state and so again you can take a national view of there's this difference between state and federal law in terms of the legality of the substance once you get down to the state level there's big differences from state to state and how the marijuana economy has been set up for that geography so something to consider as you look to enter this space and as I said there's in some Marcus's legal and illegal markets are thriving so LA Times reported earlier this summer that good news California had 3.1 billion dollars in licensed cannabis sales last year unfortunately the next paragraph in the story talked about the 5.7 billion in illegal sales that are still happening out in the open in California so what that drives for financial institutions is additional due diligence need to understand not just the funds that are coming in but the counterparties that these license holders have to make sure that you don't have exposure to the illegal market when you take the step to bank the legalized cannabis market one thing I want to touch on real quick because it will drive a lot of our conversation as we get into some of the risk considerations and some of the legal constraints and that's really the issue of CBD and hemp with the farm bill passing last year there has been growing confusion about the difference between the two so first and foremost cannabis encompasses both marijuana and hemp the big driving difference between hemp and marijuana is the presence of THC and while hemp can have a very small amount of THC THC below that point 3% what you're really looking at is cannabis or marijuana has a THC hemp does not hemp can go across state lines and is used for a lot of different is also the banking rules around him are even less clear in some cases than they are for banking marijuana because at least at the state level today we have clarity on how licenses are issued how sales are tracked and everything is contained within the state in which the product is grown and sold that's not the case with that's not the case with him in addition CBD of course is the big issue that comes to play with hemp so you'll see CBD products that are hemp derived they can be sold in drugstores in a lot of different places varies by state but that has a more open and free market where where CBD there's that is extracted from marijuana and includes THC content is going to be sold through your licensed retailers within your state marijuana system so you could have CBD that you get at CVS and you can have CBD that you get at your marijuana dispensary they both come from the same plant but different different species of that plant so something to understand so what we're going to talk about today is really marijuana it's where where we have THC present in the product and how states are licensing that and how that impacts your bank regulatory compliance so that takes us to the Cole memo versus the FinCEN guidance and so the Cole memo that was issued under the Obama administration by Deputy Attorney General Cole really address all of the Attorney General's across the country and asked lots of people that are participating in the market to do certain things so States law enforcement the license holders themselves in financial institution and financial institutions and that guidance has been rescinded but they tenants that were outlined in that guidance have remained the basis for how states have done their enforcement action they're licensing and largely have fun financial institutions have managed these clients and the reason for that is the fencing guidance specifically mentions the priorities that are outlined in the Cole memo but that that memo that Vincent guidance is more specifically targeted towards financial institutions and their regulators and so while there's things that are asked of the industry as a whole and all of the market participants in the Cole memo it's not the expectation is not that the financial institution will be doing every single piece of those priorities instead financial institutions will do certain things and react to things that are happening that are related to those priorities so the FinCEN guidance asks for a few key things so one is this business that you're working with licensed and registered and so that's a combination of what is the legal entity that LLC that corporation do you have an understanding of that registration and then from that LLC they should also apply for and get an endorsement or a license that allows them to grow sell create product or a variety of other things where they are plant touching and so this requirement that the people you're working with have that license structure in place and that you are reviewing that on an ongoing basis there's also an expectation that you understand how they got a state license and that you're reviewing the underlying documentation that they use to obtain that state license and to operate their business and so again helping you to uncover those underlying beneficial owners and the things that the business has agreed to do as part of their licensing in order to be compliant with the state rules many of those state rules are driven by those priorities in the Cole memo so things around security and training and selling to minors all of those pieces and parts also there's an expectation that you know when when and how to get enforcement action information now they're not expecting you create enforcement information that doesn't exist but that you have a clear understanding that when enforcement actions are taken against license holders that you are reacting to that by either closing the accounts making sure there's a mitigation plan in place whatever needs to be done based on the severity of that enforcement action to ensure that they have an ongoing license and that they're not presenting undue bsa/aml risk to your financial institution there's also like any of our customers there's a need to understand hat is the expected activity of the business what kind of deposit should be seen what kind of growth should we be seeing from this business what's their business plan and how would that relate to the deposits that we're seeing there's also a need to make sure that you understand ongoing public publicly available information so think about these multi-state organizations now that are acquiring licenses not just in your state with for the customer that you're banking or that LLC that you're banking but also the neighboring states so you may have a lot of information about what they're doing in the state of Nevada because that's where your financial institution is located and your banking there Nevada license but what if they end up doing something stupid in California you probably want to know about that too to make sure that you can ring-fence your account from any of those funds and if it's serious enough consider exiting the relationship and then at the account level really looking for suspicious activity that would create red flags that drive you to file additional stars or to terminate the relationship and then really with all of this that there's an expectation that you're refreshing this on an ongoing basis so a lot of labor for financial institutions is driven out of this need to continually refresh this information so it's great that I knew that they had a license on the that they applied for an account but I also need to know that they have a license today six months later and six months from now I'll need to know that again in an ongoing basis I'll need to make sure that I'm checking in on those licenses that enforcement information one other piece because of this Vincent guidance we see financial institutions drive their review of underlying beneficial owners some financial institutions all the way down to 0% or 1% ownership others are doing 5 or 10% so if your normal threshold is 20 or 25% on this portfolio you're going to be driving down to a much lower number as a percentage of ownership we're just going to increase your due diligence work upfront and an ongoing basis with this group of underlying beneficial owners there's probably a larger list than your typical commercial client okay that's all the scary stuff why would we do this well the good news is legalization is highly favored especially if you look at the at the medical side and so we see that crossover point in 2016 where the agreement on legalization surpassed people who think it should be illegal and when you look at younger generations we're seeing high support for legalization and so across the country now we're seeing both through voter initiative and through state legislatures we're seeing the creation of legal cannabis markets so first starts with a medical market starts with a bra then it extends with a broadening of those conditions that are covered under the medical program then ultimately we're seeing recreational legalization and so we anticipate that will continue across the country given the acceptance and the general public with 62% of public now believing that it should be made legal it's hard to get a lot of them 62% of Americans to agree on much so that's a positive news from the Pew Research study for financial institutions that choose to enter this space there really are some key reasons to to do all the additional work that's required to manage these relationships so we're all looking for low-cost sources of deposits and there are deposits opportunities with this portfolio of customers in addition we see very strong non-interesting come from these businesses sometimes ten to fifteen times what you're getting from a traditional business customer however there are significantly more costs associated with this portfolio but good programs can offset any of that marginal operational cost with the increase in non-interest income and get the full benefit of any of those low cost deposit balances that they gain from taking on these clients and then today when any of us go out to get new business checking accounts it's rare that we enter the market and don't have any competition and so a few things are happening here one in many states brand-new businesses are being created as new licenses are being issued and then you've got very few financial institutions in any given market willing to serve the market so you can carve out a first mover advantage for your financial institution by choosing to enter this space so across the country we're seeing a very strong growth in cannabis overall so we would expect that ten point three billion dollar market in 2018 to grow to nearly forty billion by 2023 those blue states where we see adult use of recreational I just realized I need to update my map for Illinois which will go recreational at the beginning of the year those recreational markets are driving the big sales numbers but states like Oklahoma and Ohio that have very strong medical programs we're also seeing great sales growth in those states also and I apologize for the duplication there sorry about that okay sorry about that um so some business considerations as we as we look at business considerations for entering the space then so your board of directors is kind of interested in the deposit opportunity you're telling them you can offset it with fee income but there are a lot of risks that you need to consider so one of the first conversations that we have with banks credit unions that are looking into is really a concentration risk so generally when we're talking about concentration risk we're talking about loans but in this case it's really about this as a source of deposits so how much of your funding are you going to rely on MRB deposits for and what the regulators want to see is that concentration risk should represent how difficult it would be for you to unwind this portfolio should there be some change at the at the federal level or if you ran into a BSA issue and you needed to unwind your individual program how hard would that be free to unwind it so you're looking at things like hey what are my contingent sources of funding how difficult would it be for me to get wholesale funding or other sources of funds should I need to unwind this portfolio often we see banks and credit unions limiting their exposure to this - about 10% of total deposits and again that varies depending also on the liquidity on your the asset side of your balance sheet so if you have a big investment portfolio that has a lot of liquidity in it you may it may change what your concentration limit is but if you're putting this all into loans you're gonna probably be maxed out at about 10% there's a lot of security risk associated with this so as most of us are trying to drive down cost within our branches and limited the number of stuff we have on the teller line bringing cash intense businesses into your financial institution not only where security risk has a lot of costs associated with it so when we talk with banks and credit unions about putting their program together we often see that there's a benefit in looking at using a cash transport service that can help to both pick up those deposits keep them out of your branch environment oftentimes do the deposit validation and even deliver those deposits to your correspondent or to the Fed as a deposit for your financial institution if you are doing branch processing of these deposits you need to think about the additional staffing cost security concerns there are businesses that will walk in with two hundred and fifty thousand dollars in cash and so looking at whether that's the kind of activity you want happening in your branch environment and whether you're even really set up to handle that with that deposit processing however using an armored car service your traditional players are generally out of the market so your Brinks and Loomis and Garda are not going to be particularly interested in picking up deposits from marijuana-related businesses so you're gonna have to look at specialized providers who are working in this marijuana space one of the concerns of boards has been reputational risk and so what is a negative impact on our brand should we start to work in this space I think the good news is we're not seeing a lot of negativity from the customer base when you begin to offer services here but it does require a really strong communications plan so one of the things to think about is why are we entering this and how are we presenting how are we presenting that to our members our customers if they ask about our involvement in this market and often if the financial institution has sort of a position of we aren't pro or con cannabis what we do believe is these businesses have been authorized by our state either through voter initiative or through the legislature to operate they have a tax liability that's part of these programs is paying pretty high taxes for products being sold we believe these businesses should have access to banking from a public safety standpoint having cash out there is not safe for anyone and number two they need a way to remit their taxes and so most clients and members will understand that yeah I agree I want public safety to be to be taken care of and I do want these businesses to pay that tax liability that they're incurring in addition you don't generally have to buy Billboard's or newspaper ads to say you're in the marijuana banking business so this isn't something that needs to be in the face of your customers about your plans to enter this business we generally see that there's a tight-knit community of license holders that once you begin providing services for one you will have ten more that are in line to obtain services so through the network through the cannabis licensing network you're able to access this market without really disrupting your other marketing or branding activities so there is compliance risk and compliance costs there's initial and ongoing due diligence for each of these clients and really making sure that you're understanding on an ongoing basis that you have a good entity good license holder understand those sources of funds and the people that your license holder is working with that due diligence represents risk but there is a good formula now with a number of banks providing services and regulators doing compliance exams on those financial institutions for what you should be doing on an ongoing basis and what looks good to them one thing that some financial institutions don't always consider is some financial risk and it really comes down to counterparties so depending on who your correspondent banks are who does some of your insurance those providers may decide that you they don't want to do business with you if and marijuana banking business and so depending on how important those relationships are to you to you you're going to need to verify whether or not you're going to need to change providers or whether that prevents you from entering this space at all so as part of your overall review is really understanding what is my exposure because of my counterparties even if these marijuana businesses never touch that counterparty a good example we had is a client who worked with a correspondent bank bankers bank had a lot of loan participation wasn't planning on participating and he wasn't even planning on doing cannabis loans let alone participate in cannabis loans but because they were entering this space the bankers Bank said we need to work out an agreement for you to buy back all your participation or find a new participant and so something that's sort of unexpected because it's completely unrelated to providing deposit services to the MRB so something you need to think about as you're building your program is who are those people and what is the risk associated with us entering this space as boards begin to jump in and think about entering the space and the management team obviously you're going to do a full-blown risk assessment for your board but there's some things that they come up pretty early one is that we already discussed as that concentration limit and really for the board to understand how much of this business do we have an appetite for and what is that and what does that exit strategy look like for our financial institution should we decide that this is not a fit for us or worse yet already regulators decide this is not a fit for us yeah the other piece that a lot of boards don't consider because they're looking at it just as a deposit strategy is the impact on lending however as soon as you provide deposit services you will find that you will be getting requests for lending and those requests come in a number of different forms some of which you may not expect so one you're gonna have w-2 wage holders that are working at that business they're getting declined for car and mortgages at other financial institutions because of who their employer is are you willing to do loans for them on a w2 basis even though their source of income for that w2 is a cannabis company and so something for you consider there for just a standard w-2 employee you've then got the principles of that business and they may have a lot of different business entities or business interests how will that impact the rest of your banking relationship with them especially if they decide that they want a portfolio mortgage for that new home or for something else that they're doing and then you have the real estate that a lot of these marijuana businesses live in often that's held in a separate entity with the same ownership as the licensed entity are you willing to lend to are you willing to lend to the landlord who is the same people that ultimately the same people who hold the licensed business as sort of a tenant landlord relationship you've agreed to provide deposit services does that impact your willingness to lend on that piece of property and then lastly in the supply the area where there's the most need in the industry is many of them are asking for direct loans to the licensed entity these are small growing businesses but many of them are tens tens of millions in annual revenue and so they're looking for lines of credit to deal with timing issues they're looking for credit facilities for tenant improvements when they're having to lease space and then improve it for a retail store or even a cultivation facility and so thinking about am I gonna lend to the licensed business probably not immediately but a lot of times boards when you say marijuana business lending they think of just that lending to the entity itself but there's a whole lot of other people that are related to that entity that will also be asking for loans and because you've provided deposit services you'll be the first on there list to come and ask by your willingness to provide loans to those folks we almost always see a very separate product development routine happening so there's a whole separate pricing schedule with initial underwriting fees so not often in deposit-taking do we get an underwriting fee but we see pretty aggressive underwriting fees to offset the cost for the financial institution to review all of that license application information and review all of those underlying beneficial owners ongoing charges tend to be significantly different than what you're charging your small business customers so your ala carte fees like wires and ACH stop payments those will come off your standard fee schedule but your base fees will be MRB specific and we'll help you offset the cost of offering this program we often see no earnings credit offered or if an earnings credit is offered to help offset the service charges it's either a lower earnings credit rate than what you're paying your traditional business client or there's a minimum fee before the earnings credit would apply we also see very strict operational requirements for these businesses so some some financial institutions have a no branch transaction policy so you're not allowed to come in and make branch deposits or if you do make branch deposits that's checked only they're requiring Uzziah cash logistics provider and they're looking at outsourcing deposit processing to again keep the financial institutions operational costs in check oftentimes those costs for cash fl w just cash logistics or deposit processing can also be sent directly to the license holder so not even billed through the bank so you those costs never touch the bank depending on how you structure your program we also see that this isn't a business development product that you're you know your branch managers are new account reps are selling actively out in the market there's usually a concentrated team or in an individual person that's responsible for MRB business development there's a few benefits in that one is the application process is significantly more intense and they'll be in a being a better frame of mind to manage all the pieces and parts that are required in addition the license holders are looking for expertise people that understand what the licensing looks like in the state and what the overall sort of market conditions are and so by concentrating that business development effort that person or a team of people will start to get deep knowledge about the industry in your geography and we do see that there's add to compliance steps so shield provides services to help with some of the automation to keep your cost down but even with that there is additional judgmental decision-making that needs to be made on an ongoing basis about what's going on in these accounts and so you'll need to add to staff to be able to make those judgmental decisions review and file those sars and then also you're gonna see an increase in CTR reporting so that all needs to be built in to your staffing model also there's a few other business considerations for these businesses that it's important to know one is the 280e tax code so for those of you not familiar with 280e it taxes a criminal enterprises differently the normal operating businesses it was a tax code created for the mob and so when the federal government seized assets from the mob they could also hold them liable for taxes on any of their illegal business operations what that means is all of the standard deductions that a normal business gets with the exception of cost of goods sold are not allowed so if you have the mob your your guns and your cement shoes for people we're not deductible for the marijuana industry it means your sales and marketing costs aren't deductible a lot of your operational costs that fall outside of cost of goods sold are not deductible for many of these license holders its leading to a federal tax liability of sixty to seventy percent it's very high so you'll see very strong top-line revenue but it is creating a lot of difficulty for some of these license holders on the bottom line and so that also represents risk to the bank because if these license holders are can't make enough money does that increase the risk that they will be tempted by the illegal market and so it's understanding the financial health of these businesses and tax has a huge impact on the financial health of these businesses in addition if you decide to get into lending there's no access to bankruptcy for these businesses bankruptcy is a federal construct and federally illegal businesses do not have access to bankruptcy so as a result when these businesses do need to be dissolved it's usually done through some sort of state receivership often that causes it causes a lot of chaos with the licenses themselves so you are providing credit facilities you know while we never want our clients to claim bankruptcy it does hold our place in line in the event that the business fails and so you don't have that protection for these businesses and then a lot of our small business customers today and AG customers rely on loan guarantee programs in order to obtain credit and to lower their total credit cost those programs are federally offered and not available to these businesses so typical tools that we would use in order to lower borrowing costs or to decrease our risk are not available to these customers and so that also impairs access to credit so we see a lot of hard money lending to this space because of these issues facing the industry a lot of people ask me they say why would I enter this business hey isn't it gonna just be legal soon everywhere and then any investment I've made will be for naught and what or is a risk that we're going to go backwards so what we see is number one the states are dependent on this source of tax revenue now and the federal government has pretty much acknowledged that we're not going backwards from where we stand today so I think most financial institutions feel fairly confident that while there's a lot of uncertainty given that we only have guidance not actual rules from our regulatory agencies that we're unlikely to go back for backwards from where we stand today the next step is really some sort of carve out for banking you know we've seen the state the state's act the safe banking act that provides more instructions to bank regulators on how to assess these programs and moves things out of the guidance phase into actual rulemaking you know we'll see when that passes what we see with that is there will be banks and credit unions today that are waiting for that to enter the market so while we won't see a big change in the underlying bsa/aml requirements because of the reasons that we outlined earlier legacy funds the ability to the ability to move the product from the illegal from the legal market to the illegal market and differences between state rules that the bsa/aml rules and that are in place today will likely continue and so and even with all of that federal recognition the long-term bsa/aml risks will probably remain largely unchanged and so we have other high risk businesses in the financial institution space MSBs come to mind we're a limited set of financial institutions decide that they're willing to take on the additional labor in order to earn those accounts and the fees associated with those accounts we see mrb staying in that space for an extended period time and we talked to bank regulators they tend to agree with that assessment so a quick recap and then we'll take your question so one is there is a regulatory burden but there is an opportunity and a roadmap to pull together the data that you need in order to manage these businesses small banks and credit unions have really been leading the way with in order to gain those low-cost deposits and they know they can earn on interest income what I will say is these businesses are growing rapidly and many of them are looking for more sophisticated commercial banking in order to meet that the cash management needs of their business so if business banking is a real strength for your organization and cash management that's something that these Mr B's are craving and another way that you can be highly competitive in this space and then today the compliance burden is largely being overcome with labor in order to pull all of that data together with whether it's the state C to sell tracking information about all the sales happening all of those licenses and forcement actions and reviewing that against your own bank transaction data that's happening manually there is an opportunity to introduce technology in to help lower those costs and provide more predictability in that review so I'll stop there and I'll take your questions awesome thank you so much Tony we're gonna go ahead and open it up for questions on your control bar you do have a question section that you can go into if you want to go ahead and submit those we have had quite a few people asking about the slides we will send out an email in the next day or two that will include a copy of the presentation and also recording from today our first question is in regards to doctors doctor offices who provide recommendations for medical marijuana would you still treat these businesses the same as an MRV you know I wouldn't you know if you if you think about the guidance you're really looking for folks who are participating in financial transaction related to the sale of the plant in the case of a doctor who is providing a recommendation generally there would be no financial exchange between license holder and that doctor and so as long as there's no money trading hands with the doctor who's writing scripts it's just as a purely a relationship where they're writing the script giving it to the patient a patient is taking it to the dispensary I don't think there's any need to classify that doctor as a as an MRB or an ancillary business ok the next question is in regards to a armored car they're having a difficult time finding armored cars providers that will service this industry do you know of any that do we do and I would be happy to depending on the market where that question is coming from you've got my email on these slides you're welcome to email me with what market you're in and we have folks that we could recommend in different markets so they tend to be regionalised companies that are providing these services so let me know your state and be happy I'll be happy to make that referral okay our next question should should we be following stars for business customers that sell hemp CBD products so that is that's a very good question and there's a lot of there's a lot of debate on that and so I think there's a few things you need to look at one is you need to look at what is the percentage of total sales so if you have your banking the local drugstore chain that has a small shelf of CBD product and it represents a small percentage amount of their total sales think the general consensus has been that is not material and that sour filing is not required if you have a shop that a majority of the sails is coming from hemp CBD product one of the best practice that we're seeing today is that you're doing the same entity due diligence understanding how they're sourcing their product and then you are filing continuing SARS until we get better guidance from the regulators now I will say banks and credit unions are doing individual risk assessments on that and there's a variety of opinions unlike the FinCEN guidance there is not a similar guidance for hemp derived products and well we're seeing some of the biggest risk right now coming out of the hemp products side is really not bsa/aml risk but really product liability risk that FDA of FDA is issuing warning letters to businesses that they are illegally representing their products to the market that they are putting them in food products where they're not permitted so there's other regulatory issues related to these customers that you may want to consider if you're dealing with a product manufacturer if you're dealing with somebody who's retailing those products I think you really need to just look at how how much of their business is dependent on this line of business and if it is significant then I would go through the same steps you would go through for your marijuana customer the downside is you're not gonna have access to the same sort of robust licensing information in most states that you do on the on the cannabis lysa on the marijuana licensing side okay and the next one we've got for a bank which is waiting to see if the state Banking Act passes before incepting its program what would be your best advice that's a good question so one is like our assessment is that the bsa/aml risk will not change significantly so if you are if if that is the if that's the hurdle by which you're enter the market a lot of that due diligence work that you can do on your risk assessment your policies and procedures and evaluating what systems you might use to augment your current risk management platforms could be done now and sort of staged and ready to go so whether that's when the safe Banking Act passes you can take you can be kind of first-to-market out of those banks and credit unions that are waiting for that event to occur we don't think initially that there will be a big change in those requirements once the safe Banking Act change it or it gets passed you just won't you'll have less uncertainty so the work you do today won't be won't be wasted effort okay and I think this is a follow up from the previous question if the retail store only sells hemp CBD products from a third party not items they produce is the regular reporting require I think that just goes back to that original answer and that's really how much of their business is dependent on that and it's a risk assessment item for for the financial institution themselves it is is not clear what what is expected the one thing to know however is there are certain states that are beginning to pass licensing requirements for hemp CBD retailers so it's a small number but you should at least know for your specific state whether or not a unique license is required in order to sell those products and that's something you may want to monitor or at least obtain that initial application package okay would you file a car if you Bank a hemp business who has an owner in a marijuana business yes yes I yes for sure you I think you want to make sure that you understand I think more important than filing this ourself you want to make sure that you understand that those entities are clearly separated and that the hemp business that you're banking if you're not banking the marijuana business that you have no exposure to the marijuana business itself so one is it's it's good to file the SAR even if you just do as a one-time SR but more importantly it's to be able to demonstrate to the regulator that I understand that that business over there and the funds that are being generated for that marijuana business have no they're not being commingled with the funds for my hemp business one of the things with that with that tax liability problem you know it would be advantageous wouldn't be recommended but it would be advantageous for a business to run more of their proceeds through the hemp business then through the marijuana business because you get full deduct full tax deductibility for that hemp business you don't get that advantage in marijuana business and so just making sure you don't have commingled funds between those unique entities and this nazar doesn't hurt is another way for you to demonstrate that you did that work okay we had another one it's not a question but it kind of goes back to following the SAR somebody just commented if you email since and regarding saara filings content products they will respond and tell you not the file based on their guidance but you should file if you see suspicious activity all right I will say NCUA has given NCUA specifically has given that guidance we have seen other we've talked directly with bank regulators however and they have not given us stronger guidance as directly from FinCEN or from NCUA so in addition to talking to fence in your bank your direct bank regulator is another good party to talk to about that okay and this will be our final question Visa Mastercard seem to have declined to participate in any processing are there workarounds or any merchant processing options that would limit cash cash exposure and security risks posed by cash handling yeah so what we are seeing is we are we're seeing two forms of payment that seem to be sustained in the market one is an ACH based solution so it's either stored value or the ACH is happening after the retail sale has occurred and there's platforms that support that obviously getting customers to sign up and provide their checking account information routing transit all of that stuff is a little bit of a barrier to entry but they are able to convert a certain percentage of store sales to an ACH solution we also see some crypto based solutions where you are using the pin base tepid networks to load up basically a stored value instrument even if it's only for a few moments while you're doing the transaction but you are using the pin base debit network in order to in order to purchase the crypto immediately that's being converted at point-of-sale and in being used to purchase product and because it's being used to purchase crypto currency rather than directly purchase cannabis the pin base debit networks to this point have been accepting of those transactions and so those are opportunities generally we see somewhere between 20 to 25 percent of store transactions can be with can be converted to some sort of pay ent network what we do see commonly and what banks have to fight against is customers are constantly signing up for what they think is going to give them Visa or MasterCard access or they misrepresent the business in order to get a traditional player to give them access to Visa and MasterCard so looking for those square or Costco heartland those merchant providers all of a sudden showing up in your ACH file for these clients generates a conversation with these Mr B's about they published it would be misrepresenting their business to get access to Visa and MasterCard processing okay I think it in Tony if you don't mind we'll do one more okay as a credit union should we run an MRP at the Q so two completely separate risk from our natural person credit union Charter I'm not I am NOT a legal expert on that setup what I do find what credit unions is at times they're struggling with field-of-membership when it pertains to bringing these clients into the credit union and whether they qualify under their current field of membership rules and so that may drive you to consider how our CUSO might support that but I am NOT an expert on credit union the CUSO format versus putting it within your field of membership okay awesome I think that's it for today Tony we'd like to thank you so much for your time 3 presentation if anybody has additional questions you do have Tony's email address available on screen and I'd like to thank you again Tony and everybody have a great day thanks Jennifer thanks John have a great day yeah okay