 The dispensary approaches us for an account. We will set them up with an online link to a portal that will walk them through all the documentation requirements that we have and they just upload that information to the portal. And once that portal has been completed, then we would have one of our compliance specialists go in and start verifying all the files and documents. After that has been done, we actually go out and do a site visit for every dispensary and see how they're conducting their operations live. Yeah, so there's some technological software that will help monitor all transactions running through an account and it will red flag certain transactions that appear out of the normal cycle. What will help in that regard is the States Act which is still in the House of Representatives and that will allow for any activity that a state has deemed to be legal but that would be exempt from any kind of federal prosecution. You know, the beautiful thing in the world is just people showing kindness to each other. It's great when we can live in peace and harmony with each other and not have contention and disputes and arguments and wars. So just people being kind, I would say. Someone's opinion may contradict yours. Where's my friend Alan? It's all about your perspective. Who are we and what is the nature of this reality? 5, 4, 3, 2... Hey everyone, welcome to Simulation. I'm your host Alan Sakyan. We are on site at the beautiful New West Summit, the Cannabis Tech Conference. We are now going to be speaking with Chris Call. Hi, Chris. Hi. Thanks so much for coming on the show. Thanks for having me. I really appreciate it. I'm very excited for this. Chris is the CEO of North Bay Credit Union, which is a full-service credit union and it supports the cannabis banking as well. Alright, Chris, let's start things off by learning more about who you are and how you got even interested in this space. Sure. North Bay Credit Union, located up in the North Bay obviously, was originally started 70 years ago as an agricultural credit union and we felt that as cannabis began to emerge as a greater agricultural crop in our area, that it was an area that we should support. We've always been about supporting farmers and agriculture and so this was the next iteration of that process and also we wanted to help address the public safety issue in our area because it was becoming a greater issue with more and more cannabis operators coming into the area and having no banking alternative and so there was a lot of cash moving around our city streets and kept in homes and places that were just unsafe so we wanted to help address that problem. So then how did this... this was 70 years ago then when this first came up of, you know, this is a growing crop, a growing industry and that, you know, there's too much cash being stored in homes they're just being moved around like, you know, have it be banked, have it be safer. So then what was that like? What are the stories around that time for the starting of the North Bay credit union? Well, we started out as an agricultural credit union and supporting the agriculture in the area at the time which was largely fruit orchards and then migrated to vineyards so there's a lot of vineyards and winery operations in our area which we supported and like I said, now over time in the recent years with the past scene of Prop 215 and now Prop 64 a lot of that acreage in our area is being converted to cannabis operations and we're seeing a lot of manufacturing facilities, distribution operations come into the area as a result of that cultivation activity so it was kind of a natural extension for what we were doing in agriculture prior to that time so it's just been in the last two years really that we've been involved with cannabis. Yes, okay. And then so then what does that look like? Like the team having so much focus on agriculture in terms of food crop as well as grapes for wine and then how does the team readjust to something like the new regulatory frameworks for cannabis? Yeah, obviously cannabis is much different than any other business because of the federal illegality issue and so we've had to pivot our operations to address all of the compliance concerns. We built up a whole department of compliance specialists to help monitor all the activity in the accounts to do all the due diligence work on any applications that we get in. It's our responsibility to ensure that all the money being introduced into the financial system is 100% legal and so we have to monitor every deposit and make sure that it's the result of a legal sale and it's a labor intensive task which we've tried to facilitate with some technological tools but quite a bit different than any other business that we work with. You normally never have to monitor deposits to make sure they're 100% legal that they're actually real and not being laundered versus what's the concern with... Well, we do have a responsibility as a financial institution to know our customer and make sure that there's no illicit activities being conducted in the banking system and so we do monitor cash transactions in particular because cash is difficult to monitor from a paper trail standpoint and with cannabis, obviously, which is a cash intensive industry there's just an exponential number of those transactions as opposed to a regular business activity. So it's the money laundering aspect that requires a lot of work and certainly with cannabis industry being part of the drug culture and whatnot and there's been players who've been involved with both illegal drug distribution as well as the legal cannabis operations it's our responsibility to make sure that any money coming into the system is the result of a legal sale. Your responsibility to have to do that? Yeah, I mean, if we're going to allow the money to come to our institution it is our responsibility to make sure that it's legit. We're not law enforcement and so we probably are not held as to the same standard of going into forensic accounting kind of work but still we're responsible for at least making an effort to ensure that the money being deposited with us is a legitimate. So then how do you leverage tools to be able to help you with that process? Yeah, so there's some technological software that will help monitor all transactions running through an account and it will red flag certain transactions that appear out of the normal cycle or appear like an excessive dollar amount or something that happens on a frequent recurring basis that looks unusual. It's just a warning signal to us to go look at that a little bit more closely. Yeah, okay, so software kind of giving you insights into patterns that may be of course harder to see by human eye but also just then you guys go look at what would you do then? Would you go and talk to the actual account holder about what happens in that scenario? Yeah, that's when the investigation begins and so you go talk to the account holder and we ask them to provide documentation for the transactions. You see if what they're telling you jives with all else that you know about the business. For example, if you have a dispensary that you're working with and you know that they have a certain level of transactions every month based upon their normal sales activity and then one month it spikes way up, you want to understand why that is occurring and oftentimes there's a legitimate reason for that and that's fine. And what would be like a legitimate reason? Maybe it's a 420 sale or something like that or they've added a new product line or something. So we just want to understand that we know why the activity is different than what we may have expected. What is it like then also for an institution that begins to take on dispensaries? What did it look like a couple of years ago and what is it starting to look like now? Yeah, was it harder two years ago? Why was it harder and why is it easier now? What came into place? Well, we've been very selective about who we choose to bring on as members of our credit union and so we're only dealing with what we feel are the most compliant, most transparent, most professional operators in the industry and those operators generally have had a culture of compliance for a long time and so introducing our banking requirements to them wasn't a big leap for them. It wasn't a hurdle for them to really have to deal with because they were already doing it. We have been approached by a number of dispensaries that are more, Johnny come lately's, newer to the game and they're not used to the kind of stringent rules and requirements that we would apply to them and so if they want to bank with us they have to really ramp up their compliance efforts and implement some things that are often times costly and employee intensive to make sure that they're doing the things that we want them to do to be transparent and compliant with us. And the cannabis industry now has funnels for credit unions or for banking like do I have a standardized application to join a credit union like yours or what would you look into for transparency at a dispensary stuff like that? We have a pretty extensive application process that we've developed for our own use. I can't speak for what other financial institutions may do for their purposes but we felt like to ensure that we're doing everything properly we've got a really extensive application process that goes into their financial history, their standard operating procedures, the information on all of their principles and their organizational structure, their operating agreements, their lease agreements. I mean it's the whole gamut of documentation that we would require to go through to make sure everything's above board. And then what percentage do you guys take in right now of applicants, of total applicants? Well, we're probably seeing, we put out a lot of applications and not, I would say maybe 60% actually complete the application process. Okay. I think some people once they see what's required will self-select out. Out, yeah, because it's strenuous. Yeah it is. And then what out of those 60% that do submit, how many do you guys take in? Most of them because if they can complete the hurdle and they have all their documentation in order and there's no problems then we have been accepting most of those accounts. Very cool. And how many total cannabis accounts do you guys have now? Right now we're at about 75 accounts. That's pretty cool. And we've got about another 75 in the pipeline that are waiting to be approved. Nice. You have a team of people that have to then go and look through all of the different submission milestones and checkpoints. Right. And so they're parsing, finding, making sure that everything's good and then they have 75 more. So then is there then like, oh my gosh, okay I have some questions. So like there's like kind of like, there's account staff or at the credit union that would then work with like specifically in terms of like a banker that works with the cannabis industry. And so then you have to hire more of those to deal with the 75 that are coming in. Yeah, we've had to add staff as we've grown. So we have account managers or compliance specialists that work directly with the accounts. And they're the ones that are constantly interacting with the account holders to get ongoing information about financial statements and sales transactions and those kinds of things. And so as we add more accounts, it's likely that we'll have to continue to add staff to accommodate that growth. And then do you guys have an easy way to take the dispensaries sales report and through their like point of sale system. And then you guys can just analyze that. Is that usually how? Right. We actually tie into their point of sale system. And so we're getting real time feeds from their point of sale system into our system to monitor the activity. What is that software? Is that like a plugin that you had to have specifically designed? We're using the Hyper software, which is a software company serving the cannabis industry. And they're helping on the compliance side of the operation. Hyper is the company's name. And so then Hyper designs the ability for like a credit union to be able to kind of plug into a point of sale at a cannabis dispensary. Right. And then you guys get a stream of their transactions. Right. And then Hyper also does the analysis to create the flags. They do some of that. And we also use other technological tools to analyze it as well. There's anti-money laundering software that runs against the files as well to double check the activity. What are those called? What are those software files? There's like Verifin. We use Banker's Toolbox. Verifin Banker's Toolbox. Patriot Officer is another. Patriot Officer. Whoa. And then what would you say is like the most common thing that... Let's start with this one. What would you say is the most common thing that the dispensaries are missing in terms of needing? They want to get into being banked through a credit union, but they're struggling with filling out one or two of these checkboxes that you require. What would you say are those checkboxes and how can you maybe help teach some of the people that may be interested in that process to complete that? Yeah. So one of the things we're finding with dispensaries in particular are a couple of issues. First of all, there's the issue of an ATM on site. And we require that that ATM be not owned by the dispensary. It should be owned and operated by a third-party vendor so that the dispensary doesn't have control over putting money into the ATM or taking money out of the ATM. ATMs, unfortunately, have been used for money laundering purposes. And so if we take that whole responsibility away from the dispensary, then they have no control over it. Second area is the payment system used by the dispensary. We're finding that a lot of dispensaries have been convinced by various parties that it's okay to accept credit cards or debit cards using the Visa or MasterCard brand. What? That's not okay? It's not okay. Why is that not okay? So Visa, MasterCard, American Express have all prohibited purchases of cannabis products on their rails because it's a federally illegal product. And no flexibility for illegal states? No, it's just the federal issue. So if a dispensary is taking credit cards, they're probably violating federal laws and they're probably in jeopardy of some sort of action. So we are working with a number of payment processing companies that will allow them to transact with their customers via an electronic movement of funds and it won't use the Visa, MasterCard rails. So then what are the current solutions for dispensaries besides cash? So there's, like I say, they're called closed-loop systems. There's Hyper, it has a consumer payment product that is just an app. So it's like a Venmo? It's kind of a Venmo, essentially. Yeah, there's others that are used throughout the industry. So it's a way for a consumer to have an easy access to make a purchase without having to pull out a credit card or a debit card. But that Hyper would still tag into the classical banking accounts because, well, like Wells or Bank of America or whatever, they can't chase, they can't. I can make a transaction at a cannabis store through Hyper, through the bank, but just not through the Visa or the MasterCard card. Right. Okay, yeah, yeah, yeah. So it's just an ACH transfer between your account and the dispensaries account to make that purchase. It's a direct movement of funds. Yeah, nice. Well, it bypasses the 3% or 2.75 or whatever transaction fee as well. Yeah. Okay, so that and the ATM are the big two hurdles right now that you're seeing? Yeah, those are two areas that we look at very carefully when evaluating an account. Yeah. So dispensary literally has, they have to have an ATM on site because, yeah, people have to get cash a lot of the time. They have to have a third party then operated to be able to be banked by someone like you guys. Yeah. Okay. Where they also have to go through a process of educating their customers as they come through the door that they would need to use a platform like Hyper instead of their card or bring cash every time. Right. Yeah, the educational piece is really interesting in this as well because you want to onboard people that want the health, wellness, all these other benefits that come from it, but you want it to be frictionless. Like you don't want to create people that turn around and say this is too saturated with friction. Yeah. You don't want to make it so difficult that people just walk away from it. Yeah. And then, okay, now let's talk about on the most common instances with the flag, the flag points that are called by Hyper in the, you said Patriot, there's like all these other imparses, analyzers of the transactions that are happening. Flags were for, you gave us some examples earlier, like big spikes, maybe in a day or a big sale or whatever it may be. What are the other common ones and how do you deal with them? Is it like the account manager that goes and talks to them and then they learn and they say approved or if they disprove because the story isn't adequate, then like what would be the next step? Like that kind of stuff. Yeah, I guess there's a variety of situations that would cause us to launch an investigation of some type. It could be a return of product or bad product that has to be disposed of, that's not creating revenue when the inventory movement doesn't match up with the sales product. As in product was purchased because they thought it was good and it proved to not be good. Yeah, so we've run into a situation where a product was purchased from a distributor, for example, that wasn't labeled properly and therefore couldn't be sold, so it had to be returned to the distributor or disposed of. And so there's this disconnect between what was put out for purchase of inventory versus what was actually sold. And that's the kind of analysis that we would do to make sure that everything makes sense in terms of the operation that we're dealing with. If there's a gap in something that we would normally expect to happen, then we start asking the questions. Where do you see efficiencies to be made? Is there a streamlining of the credit union application process that can happen where dispensaries can maybe begin applying by submitting online and just checkmarking through and then you guys maybe can automate some of the processes of viewing what they've... Where do you see some of the efficiencies in the future of software helping out streamlining more? Yeah, we've actually already got the online application down. Whenever a dispensary approaches us for an account, we will set them up with an online link to a portal that will walk them through all the documentation requirements that we have and they just upload that information to the portal. And once that portal has been completed, then we would have one of our compliance specialists go in and start verifying all the files and the documents. And then after that has been done, then we actually go out and do a site visit for every dispensary and see how they're conducting their operations live. Yeah. And then there's a lot of things changing with banking and regulations around cannabis. Do you see some things that the state level can do to make it better for banks to work with the cannabis industry? Well, the state of California has actually been pretty good to work with because we're a cannabis friendly state overall. The banking regulators that we have to deal with are still in need of some education about how the industry works and what we face as financial institutions serving that industry. I think there's still some misconceptions about some things that go on that they're catching up and I think they're becoming more knowledgeable about the industry and how banking works for the industry. The real problem now, as is at the federal level, and getting the federal regulators to allow the banking activities to proceed without interference and I think that's going to take a while. The Safe Banking Act is certainly a big step forward, but you're not going to see a lot of banks or credit unions jump into this market until cannabis is deschedulized. So that'll be a while. Okay, so at the federal level we have this Safe Act that was moved through that is kind of slowly enabling the banking of the emerging market, but it's kind of just a baby step. And we need the bigger steps and the bigger steps. What would be like the second and third bigger steps to open up the banking? So the Safe Act will prohibit a state banking regulator from taking punitive actions against a financial institution conducting cannabis operations. It does not remove federal ability to come in and prosecute or investigate a financial institution for money laundering activities from a federal standpoint. What will help in that regard is the States Act, which is still in the House of Representatives, and that will allow for any activity that a state has deemed to be legal that that would be exempt from any kind of federal prosecution. So if that were to pass, that would certainly help things as well, but the mother load of where this is all going to turn around is when cannabis is deschedulized as a Class 1 drug. Okay, yeah. Let's get there. Yeah, let's get there. And also distributing the fruits of the democratization of the cannabis is critical. Cannabis comes in as a emerging market, distributing the fruits widely. Very important. Maybe then another question that I should ask is around the use of, again, another thing that's an emerging market that's being stacked into this emerging market, cryptocurrency decentralization technology. Do you feel like, how is that intermingling with transactions at dispensaries? You know, we've seen some payment platforms emerge recently that use cryptocurrency. Is there a tool of exchange? We've been hesitant to do much with those companies because you're combining really two high-risk activities into a single transaction. And it's just a lot to take on. There's so much compliance work and oversight that has to go on with just cannabis activities that we don't need the additional complexity that arises when you throw in a cryptocurrency angle to it. So, I mean, over time, I think that that's probably going to grow as an accepted means of transaction, but I don't think that's going to happen in the near term. And we're going to work our way into that slowly. Yeah, see how it's like a double risk in that sense. So that's another one of those things to hopefully get around the world faster and safer so that we can then be able to more swiftly use it within cannabis and so many other important transactions that we want to make. There's overall future of just cannabis dispensaries being banked. Do you see cannabis dispensaries always selecting to be banked? Do they always have to be banked? What are alternative options for them? Ideally, they would be banked. I mean, it's hard to pay your bills. It's hard to pay your employees if you can't write a check. If you're always dealing in cash, you're always going to have this issue of storing the cash, counting the cash, keeping your operation safe from any kind of criminal activity. So ideally, more cannabis operators would find banking solutions and we could remove that cash handling component from their activities just like any other business that operates on a mostly electronic currency basis. So it's difficult until more banks start getting into that space. We can only take on so many accounts as a small credit union. So we're going to need other players to join us in this effort. And then do you see some of the protocols that you've laid down as frameworks for dispensaries to come on to your credit union? Are there any inquiries happening from Colorado or Washington or other states where they reach out and they ask for those frameworks? Is there some sharing going on of the protocols to onboard dispensaries to banks? Well, I get approached fairly frequently by banks or credit unions that want to start a cannabis program and they want to know what our experience has been and how we do it and what our compliance team looks like and what the procedures are and I'm happy to share information with them. But it's not something that you do overnight. I mean it's a month long, if not a year long process to just get the infrastructure in place to start taking on accounts. We followed sort of the template of a credit union, partner Colorado credit union in Colorado. They were really the first in this area and kind of the leader in that regard. So we followed what they did and then built our own program here in California according to the California market and California state laws around cannabis. Seems like hopefully in the future we'll be able to do things like create the similar frameworks that were brought from Colorado to here that are then now being brought on to so many other banking institutions that want to take on cannabis industry. If we can do things like help them get the greatest amount of signal from the protocols and implement them quickly then they can then bring on the cannabis dispensaries themselves faster. So there's also in addition dispensaries you guys take on like farmers as well? Yeah, we do the whole supply chain. Cultivators, manufacturers, distributors, delivery services, ancillary accounts like packages or... Damn, even a packager? A packager can't be banked because they're banked because they're packaging cannabis stuff. That's so crazy and they have to like go get their own license for the packaging stuff. They don't have to be licensed. If you're not plant touching you don't need to be licensed. But if you're accepting revenue from a cannabis operation it's very difficult to find a banking relationship because banks don't want to have anything to do with cannabis money. So packages are banked by you, farmers are distributors, so the last mile delivery companies banked by you. Interesting. We've had some on our show so then they must be either working in complete cash or banked by someone like you guys. How do you guys figure out the analytics on the side of the last mile on the drivers or on the... So this software like Hyper help with all of those, the farmers and the packagers, it can do all of those? It can analyze all of those? Well there's certain elements that are going to apply to all license types, compliance elements. And then there's nuances for each license type that have to be considered individually. So obviously when you're dealing with a consumer in a retail setting like a dispensary, it's a different set of compliance analytics than if you're just growing the product as a cultivator and you're not dealing with any consumers. So we have to consider those differences and we've incorporated those into our internal procedures. Like getting one big transaction of like 100,000 bucks for a product every couple of months or whatever versus the couple minutes of buy at a store, stuff like that. Interesting. Seems like also the more that the data silos open up and are able to talk to each other than your information about a certain farmer and the way that they grow and distribute can also help other banking institutions better understand their growers and their dispensaries. So the more that your data silos can talk to each other, the more insights you can see from each other. Yeah, it creates a domino effect too because the more you can service the entire supply chain, you're able to remove the cash that would go all the way from the manufacturer who's paying the cultivator and the distributor who's paying the manufacturer and the retailer who's paying the distributor. If you're banking all of those, then it's all visible. Interbank transfer of funds. Yeah, interbank. And you don't have to deal with the cash payments. So that's the advantage of funding. It's all digital. You're just moving it in their accounts then. Yeah. Yeah. Yeah. Which is how it should be. There shouldn't be the need to move cash. That's why this stuff's really interesting just to just be able to send you a bit of crypto and just be a digital bit, just change those little bits in the accounts. Yeah. Yeah. That's fascinating. That's a really interesting part of our future that I hope that we can get to and also just move away from fiat and also regardless money is something that is just a shared collective hallucination and one that's at least more decentralized, one that's more in the power of people seems to be something that we're all excited to move towards. So there are two questions that we like asking that we ask on every show that are different than what we normally talk about with our guests topic-wise. The first question is, do you think we're in a simulation? That's an interesting thought. Sometimes I wonder. Sometimes life is too strange to think that it's occurring without some sort of manipulation somewhere. Yeah. In design. Yeah. Yeah. Although, I don't know if we're in the matrix. I wouldn't go that far. And the other question is, what do you think is the most beautiful thing in the world? You know, beautiful thing in the world is just people showing kindness to each other. It's great when we can live in peace and harmony with each other and not have contention and disputes and arguments and wars. So just people being kind, I would say. Yeah. Yeah, I love that. Thanks, Chris. Thank you so much for coming on our show and teaching us about this. It's been so interesting learning all of this. Yeah, thanks for having me. Thank you. Thank you. Glad you had a good time. Thanks everyone for tuning in. We greatly appreciate it. We'd love to hear your thoughts in the comments below on the episode. Let us know what you're thinking. Also, check out the links in the bio below to Chris's work. Check out the links in the bio to the North Bay Credit Union as well. Check that out. Also, have more conversations about that. Have more conversations about the New West Summit as well. Check those links out in the bio. And also support the artists, the entrepreneurs, the organizations, the leaders around the world and your communities that you believe in. You can support us on our show. Our links are below. And go and build the future, everyone. Manifest your dreams into the world. We love you very much. Thank you for tuning in and we will see you soon. Peace. That's a wrap. Thank you. Good job. That was very enlightening. There's so much complex nuance to it's crazy. Yeah. It's crazy, but it's so interesting. Yeah. That's why I'm getting so many requests to do these kinds of things. Yeah. Because not many people really know about all this stuff.