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In addition, they recommended the following for
reinforcing internal guidelines: learn from your mistakes
and implement new training materials for security
awareness, use data to map the most common errors to
minimize frequency and mitigate damage, and implement
procedures to wipe all assets containing data clean before
you resell or trash them.
California vote
bumps pot toward
legitimatization
T he cannabis supply chain hailed California's
passage of Proposition 64, an initiative aimed to criminals' reliance on cash for money laundering, drug
at legalizing adult marijuana use. The ballot
measure achieved a 56 percent majority Nov.
8, 2016, prompting state legislators to issue preliminary
compliance guidelines for the fledgling cottage industry.
The California State Board of Equalization (BOE) imme-
diately exempted some forms of medical marijuana from
sales and use tax. Marijuana buyers will pay a 15 percent
excise tax beginning Jan. 1, 2017; growers' taxes are in
development, the BOE stated.
Marijuana-related businesses must comply with banking,
taxation and payment processing laws, which vary by
state, according to industry experts. Attorney Kenneth
Berke is Chief Executive Officer at PayQwick LLC, a closed-
loop processing platform designed to meet California
BOE track-and-trace requirements. "PayQwick has solved
the banking problem for the legal and medical marijuana
business in Washington and Oregon, so it's well tested and
ready for the California market," he said. "We combine the
functionality of a PayPal-type B2B payment platform with
a consumer-based, prepaid point-of-sale payment vehicle
that is safe, secure, trackable and traceable."
Expanding government oversight
Cannabis industry stakeholders must also be mindful
of guidelines related to the Bank Secrecy Act and Anti-
Money Laundering Control Act (BSA), Berke stated. His
company has implemented quarterly on-site inspections,
transaction tracking and state-appropriate disclosures.
As a federally registered Money Services Business in
Washington State and money transmitter in Oregon,
PayQwick can facilitate automated clearing house funds
transfers between merchants and participating banks,
thereby reducing problems commonly associated with
handling large amounts of cash.
The BSA, introduced by the Office of the Comptroller of
the Currency in 1970 and later amended in concert with
the USA Patriot Act, is a compliance program designed
to standardize recordkeeping and reporting across U.S.
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and foreign financial institutions. The OCC formally
and informally enforces BSA guidelines, notifying the
U.S. Department of the Treasury's Financial Crimes
Enforcement Network (FinCEN) and Office of Foreign
Assets Control of any violations or discrepancies.
FinCEN describes money laundering as the process of
making illegally gained proceeds appear legitimate. It
typically involves placement, layering and integration
of illegal funds by routing money through numerous
accounts before making bank deposits.
FinCEN takes a narrow view of most cash businesses due
trafficking and terrorism schemes. This can create a Catch
22 for legitimate marijuana business owners whose high-
risk status excludes them from establishing bank accounts
and whose reliance on cash makes them highly suspect to
government authorities.
Growing support, coalitions
Nate Bradley is Executive Director and co-founder of
the California Cannabis Industry Association, a trade
association for the state's recreational and medical
cannabis industry. "When we founded CCIA four years
ago, we were involved in industry outreach programs and
wanted to have infrastructure in place for this historic
event," he said. "The passage of Prop. 64 will facilitate
cannabis innovation, research and development and
create millions of jobs in our state."
Bradley noted that the industry's regulatory process affects
all facets of financial services and encouraged merchant
services providers to join the association. "As a CCIA
member, you'll have access to the industry, networking
events and panel discussions and the opportunity to
make your voice heard in the regulatory process," he said,
adding that merchant level salespeople who join the CCIA
will find an abundance of advisors and support.
Following is a partial list of resources affiliated with the
CCIA:
• Seventh Point LLC: This Norwalk-Conn.-based
private equity pledge fund in the cannabis space
compares the marijuana legalization movement
to 1930s-era post-prohibition, describing it as "one
of the most exciting eras in investing history,"
according to the company's website.
• Flowhub LLC: This company provides software
designed to help marijuana growers comply with
state regulatory requirements. "Tax dollars are going
to flow into the state instead of the black market,"
said Flowhub CEO and co-founder Kyle Sherman."
We're excited to help retailers and cultivators with
our compliance automation platform furthering the
safety of consumers and industry stakeholders."
• Green Lion Partners: This business advisory for
cannabis industry startups helps them navigate