 The relief was instantaneous and I cried because I spent 12 years absolutely miserable and all of a sudden I was pain free. How I came to cannabis, about what benefits I derived from it, what kinds of things I've learned from also learning how to use the plant correctly from my particular condition, and what they can do to try to help their patients with their journey. And we've actually built that the FinCEN compliance into our platform such that when a payment takes place the compliance is going to be done automatically. And so we use a ledger based system. There's no cryptocurrency, it's dollars and dollars out. But basically that system makes it easy to integrate with point of sale, it makes it easy to integrate with the back office and banking, it makes it very easy to integrate with really anything that you have online shopping carts, you can use it on the go. It's very, very simple stuff. The user interface is a Venmo style wallet where the consumer is able to actually transact from their phone, direct from their bank account. So there's no cards implicated in the process, that's why our system is closed loop is to take all of the volatility out of it. It is dollar for dollar exactly what you put in. It's more like a smart contracting system and almost everybody on the team is actually coming from financial institutions and just feels very passionate about this problem and about trying to provide an equitable solution for the people who have been just blocked out of the financial system. And it really did. If you take a look at the economics of it you don't change behavior by slapping a no-no label on it. That doesn't happen. So the prohibition created the black market. And this is Keanu. He's Keanu the Howly. He is my buddy. He has helped me with a lot of things. And dogs in general have helped me get through some dark times of my own. Actually pertaining to my injury helped me relearn to walk. And the love and relationship that people have with their animals I think is just one of the most beautiful special things in the world. Everyone'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? Five, four, three, two... What's up everyone? Welcome to Simulation. I'm your host Alan Sokian. We are on site at the new West Summit, The Cannabis Tech Conference. We are now going to be speaking with Ashley Ellsner. Hi Ashley. Hi Alan. Thank you so much for having me. I'm so excited to have you on our show. It's really nice to meet you. Yeah, it's nice to meet you too. What a cool background. CEO and founder of Artery Pay. That's right. And also a fintech expert with 14 years of global finance, law, regulation and operations experience. Yes. Damn. Yeah. Yeah, like doing financial regulatory compliance of $600 million plus in transactions. Yeah. This is crazy stuff. Yeah, it was a lot. It's a lot. Yeah. So, this is why you're doing Artery Pay. And I'm excited to talk to you about this. I mean, you're the right person to talk to you about this and to pioneer this, to spearhead this out. Oh, thank you. Thank you. It's a very important issue and we just want to make sure that you can understand everything about your own industry and that's completely fine and you shouldn't have to also learn everything about the financial institution and industry too. That's not really fair and no other industry is required to do that. So how did you even get interested in tackling this challenge? Well, actually, Alan, I am also a patient. I have CRPS type 2, which is a very gnarly type of neuropathic pain disorder. Standing 4. So it is complex regional pain syndrome type 2, meaning it stemmed from an initial injury, an acute trauma to my knee. I had a really nasty injury and developed compartment syndrome, ended up with this pain disorder as a result of it and was on a host of different medications for years and years and years with very little relief and really no lasting relief. And then about a year and a half ago, I finally actually tried cannabis when my father who is a neurologist told me that the studies were very promising, that it was supposed to be very good for neuropathic pain disorders and the relief was instantaneous and I cried because I spent 12 years absolutely miserable and all of a sudden I was pain free and what was even more remarkable about it is after the sort of euphoric effects wore off, which was relatively short lived, I had pain relief for over 24 hours without having to re-dose and that's incredibly powerful given everything else that I had been on. That was enough to let me know that this was the right thing to do and just coming in with the right background and it became something that I'm very passionate about and think is very important. This is a recurring theme that we have from our guest is that there's some sort of a big issue that occurs with our health or our wellness and then we're just given these solutions that are actually don't actually heal the root cause of the issue or that are just band-aids that are not actually and here we have cannabinoids and we have this potential, this incredible potential augmentation to health and wellness issues but that is currently being buried and so that needs to come to the light of day and see it and like this is a great case of yourself then getting the health benefits that you needed. I actually feel so strongly about what my patient journey has been and about this plant that I'm going to be speaking actually to doctors at a pain management summit in Philadelphia in November about this very issue about how I came to cannabis, about what benefits I derived from it, what kinds of things I've learned from also learning how to use the plant correctly from my particular condition and what they can do to try to help their patients with their journey. So then how did that end up leading you into founding artery pay? Tell us about this transition. So I am a, as you as you spoke about, I'm a financial institution lawyer by background. I understand very well the challenges that financial institutions face wanting to work with the space and I also knew that the actual challenge did not stem from a legal challenge but really from the cost of compliance and the cost of working with the space. So what we did that was different is we wanted to make sure that we had a completely legal platform that was easy to use, easy to integrate with systems, was not going to get anybody into trouble because that could derail legalization which would be a nightmare, absolute nightmare for the patients who depend on this plant, including myself as I've said. But what we were able to do is build this platform, have it be completely legal, completely compliant with all of the FinCEN regulations that are asked for and we've actually built that the FinCEN compliance into our platform such that when a payment takes place the compliance is going to be done automatically. There are still investigations that have to go through if there is anything that actually looks like it should be investigated but standard practice for any cannabis transaction is that it needs to be reported to FinCEN and that's just something that since it was going to be such a big burden we built it into the system to deal with operational costs, to streamline the management of these systems and to make it easier for financial institutions to say yes to cannabis if their only reason really had to do with compliance resources. Okay, so when both banks want to take on cannabis growers or distributors or dispensaries or when they themselves want to become banked, all of those people want to become banked, that there's still a lot of regulatory climate that is occurring. Yes. Okay, so then to catalyze the emergence of this, you can build software that helps make those processes easier. Yes, if it does it correctly. One of the things about financial institutions that people are not really aware of is that the internal systems that are used are very, very outdated and a lot of the work that gets done in order to do compliance in order to actually run these financial institutions and operate them are done by very, very expensive professionals with very specific background and is also done manually. So you have siloed systems that don't transfer data interchangeably between them. They don't communicate with themselves and that means that you have to have a person actually sitting there taking that data, looking at it and transferring it over to the systems that need to be running the analysis and that's a lot of work. You're talking about billions of transactions a day. I mean that is a lot of work and compliance teams are frequently overworked as a result of that and typically not resourced with very good tools to help them do that and in particular the cannabis space because of the federal prohibition that has made many of the federally chartered institutions feel uncomfortable with it, with working with the space, the state chartered institutions like credit unions, community banks, they have been the ones that have been leading the charge into the cannabis space and their compliance teams are very lean, very lean and they also have capacity issues. So I mean this allows them to have their capacity increased just from using a software system that actually supports the compliance processes and makes this easier for them. So the stuff that they don't need to be looking at, it's automatically reported the way that it's supposed to, stuff that they are supposed to be looked at gets flagged and reported to them for them to investigate so that you don't have these false positives. Yeah, yeah. And then is this also similar to Hyper at all or? Yes, I mean I welcome that comparison, Hyper, they do things very well. What's nice about our platform though is it's a little bit more tech forward. We're actually using the latest and greatest financial technology which is actually a blockchain. It's been proven, it's consistent and we are using that as the foundation of the financial institution, so for recording transaction and reporting transaction. So it is our internal working system versus these old systems that are from the 1970s. I don't know if you've ever heard of COBOL? COBOL. I hope you haven't. It's a system that's actually older than I am but it's never been updated from the inside of financial institutions. This is still the software that they're running. Never updated. Never updated. The closest thing that you've got to an update is maybe a better user interface from the 1990s but the systems are all the same and all of them are siloed, they don't communicate. And so it ends up being a lot less expensive to run our systems and it's also something that's scalable whereas the old software systems really aren't. I mean they have scaled out through increase of servers and just huge, huge farms and more and more compliance professionals but the software itself on like an individual basis is kind of not that easy to use for scalability which is why a lot of financial institutions still use very clunky systems. Yeah and the regulatory frameworks are shifting. Yes. Okay. Blockchain is attractive for another reason that I want to go into just very quickly. For financial institutions in particular, you cannot actually change the transaction records once they've gone through on blockchain. So that's really important when you start talking about what regulators are looking for. The immutable ledger. Exactly. Exactly. And so we use a ledger based system. There's no cryptocurrency, it's dollars and dollars out but basically that system makes it easy to integrate with point of sale, it makes it easy to integrate with the back office and banking, it makes it very easy to integrate with really anything that you online shopping carts, you can use it on the go. It's very, very simple stuff. Okay. Much simpler than it's usually made to sound. Yeah, so the foundation of artery pay that you really wanted to make sure that you were building on top of was first and foremost an immutable ledger. Yes, that's right. First and foremost the immutable ledger, that allows transparency and trust where there has been some difficulty verifying records. You have to be careful about verifying the source of funds when you're coming from cash heavy systems, cash heavy industries. And that's one of the things that banks are very wary of is this legacy cash that's built up into the system. And one of the things that we are trying to help that with is if you have this immutable ledger where they can reconcile it back to a system that we could not have had any influence over as well as our records not being able to be changed, that source of funds coming from legitimate sources is already proven. So as more financial institutions come online, you are actually able to get banking more easily because your legacy cash is something that can be deposited into the federal reserve without any question as to where it came from. Hmm, it's a cool system. So then the immediately upon transaction at the dispensary level, then our artery pay is right there? Yes. Is right there so it plugs into point of sale? Yes, it does. It plugs into point of sale. The user interface is a Venmo style wallet where the consumer is able to actually transact from their phone, direct from their bank account. So there's no cards implicated in the process. So there's no chance of... Because that's a Visa Mastercard issue where they don't allow it because it's federally. There's no merchant category code so anybody who's having to try to do that is miscoding transactions which is unfortunately, it's money laundering. So then artery pay is tied to my bank account? That's right. Yeah, and so then like Venmo style wallet? Venmo style wallet. And then they also have artery pay on the POS's at the dispensaries? That's right. And so a QR code would be displayed, they would snap a picture in the artery app of the QR code, it'll tell them what products they're purchasing, how much, you confirm the transaction and the transaction occurs from their bank account. Yeah, great. I'm glad that you guys are also using QR quick response codes. Oh, yes. Yeah, it seems like China and Asia picked up on QR codes and the US kind of threw them away for some reason. So... Yeah, I don't have an answer for why, but we're starting to adopt it now. Yeah, yeah. It's good for us. Yeah, yeah, yeah, yeah, yeah. It's interesting, yeah, being there doing interviews recently and seeing that in play as a major technology and then now hearing you talk about it and using that in your service here makes me actually, you know, it makes me like, cool. I'm glad to hear that someone's, yeah, because I don't get to see it at, you know, restaurants and transit and like contacts and all this other kind of stuff like they get to... I think it's coming. Hopefully maybe there's even something, yeah, there's that and maybe even something better than that that's... Just around the corner. Around the corner. I hope so. Yeah. Now then what's going on then in your system for this, like I check out, I have a couple items at a dispensary, I'm checking out, I'm using artery pay, you know, on this immutable ledger so you must have then me as some sort of a unique identifier on your ledger and then you know that I have a certain amount of finances available and then you just move those numbers over to the digital ledger of the unique identifier of the dispensaries account storage and then this is all in, like you said in dollars, this is not even... This is in dollars, that's correct. This is in exact dollars and the way that we're able to do that is we interface with banking. We also, we work with banking or without so for quite a few of the folks in this space there has been problems with finding reliable banking services as well and some of that has to do with certain banks deciding that it was not for them and so clearing out accounts. Some of it also has to do with the lack of capacity so credit unions and community banks are smaller and for safety and soundness purposes you really can't have your deposits come from only from a single industry. It needs to be diversified across a number of industries for you to actually be able to maintain safety and soundness and the rule of thumb that you cannot go over is about 10% towards any single specific industry. Better rule of thumb is somewhere between 2 and 4% if you're really trying to prevent an economic catastrophe from causing your financial institution to close up but that means that there is a limited capacity for the institutions that have actually come on board to help the space and that's why we also are able to actually help with the custody of some of those assets outside of the banking system and they will still have this financial resource with the verified source of the transactions that is coming from legal sources even if they're unable to obtain banking just because wait lists aren't moving. So this works with or without banking. That's also unique to our system. I think so literally wait a dispensary can list themselves on artery and then just like accrue credits and it's held in the banking system it's held with our banking partners that capital is held with our banking partners in the name of of the in a for the benefit of account. So this is like PayPal when it first started out where and Venmo actually where there was no cards attached to it you were using it for peer-to-peer and basically you were just changing who owned the underlying assets that were held in those accounts. It's the same thing. And then when I want to withdraw though that's when how does one withdraw then when you're not tied to a traditional bank where right so we can either write a check we can also actually cash you out if you want cash you can have it but the whole idea is to try to help stem the flow of cash so that everyone can be safer physically like you'll write a check then where do they deposit the check well if they don't have banking that's a problem but they can also cash it but that's the reason why we have multiple options for them and eventually we probably will be able to cash that out to various forms of crypto if they want it but you know it's not the kind of thing that you necessarily want to run your business on because of the volatility. And then does a does a grower able to use artery pay yes also with or without banking. You can use it for business to business transactions we work with faulting partners again to deal with this overflow and to be able to provide that correct bank level reporting on the transactions that are going on so that everybody stays completely clean. So just the grower and then the buyer who is probably a distributor at that time would go over with their artery pay QR code saying that they're buying a thousand pounds of flour. Yes and eventually we'll have this hooked up to smart contracts that will also allow them after testing where the testing results come back clean that it'll initiate payments as well. Sure so that's gonna be fun it goes and gets tested and the testing results come back clean and then it's all within the smart contract for the help and protect everybody in the business supply chain. Okay okay yeah so it also makes sense then that artery wants the entire supply chain to be on artery yeah. As much as possible however we're also because we have banking partners for those who are not banked but who are not part of the system yet we are able to write checks do ACH wire transfers on behalf of those other clients it would just look like it's coming from artery pay rather than that client but we would memo in the bottom. So it works until we can get everybody on the system it still works with traditional banking until everybody is able to get up and on the platform but it will be much faster to do the transfer on boarded and probably less expensive as well for everyone. How does artery make money? So we have a couple of ways that we make money it's primarily off of fees for transactions and that is primarily at the dispensary level or delivery level from the retail level we have fees that are as low as 2% and on the business to business side we have actually have a couple of options we do have monthly fees that you could do if you're a larger operation and want to opt out of per transaction fees but for the smaller operators that aren't able to afford some of these high monthly fees that go along with it we are actually doing rates as low as a hundred bucks per transaction so equivalent of a wire transfer fee. Okay okay. It's meant to be priced for everybody. Yeah okay okay and then what are you guys doing in terms of volume of transactions right now? How many people are on boarded? You know I have not had a chance to look at the system recently to know exactly how much yeah but we've got we do have dispensaries on there we have we actually have a partnership with the Emerald Cup coming up. Cool. For booth payments and we also have a few distributors manufacturers who are on the platform and have some partnerships actually with some distributors Valtors that's some of the vaulting partners that we're actually working with so okay so I apologize for not giving you exact data but we're doing really well State of California is where we're primarily located and primarily operating but we have some more things that are coming online soon and we also have done quite a few integrations with point-of-sale systems and online menu systems so that should be coming down the pipe and actually increase the volume pretty pretty substantially fairly soon okay okay and then what kind of programming is this all made in? Is this all written in? What kind of programming language is this all written in? Oh so at this point we're using blockchain that's an ERC-20 token. We don't know that we will stay with that forever. There are less expensive more efficient mechanisms for transfer but this was a really good way to get the proof of concept out there and the important part is that it works. It works legally it works transparently and it does the things that all the stakeholders in this industry actually needed to do. It reports, it records transaction, it has that transparency built into it and you know it does not implicate any of the things that you're not allowed to do for this industry yet. And then does it seem like the does it seem like what's happening with the rise of cryptocurrency blockchain decentralization technology does it feel like that's going to get it's hard because it's also a brand new emerging market along cannabis but does that feel like that's going to get stacked right into the payments of cannabis for cannabis? I think it depends. I think when you're talking about international companies there can be some benefit to using cryptocurrency rather than going through the traditional financial institutions because when you're talking about a settlement time of t plus two days that's a pretty long time to wait for your currency to come back into whatever currency you want it to be in to repatriate your money. Now when you're talking about a US based transaction cryptocurrency doesn't make a whole lot of sense. You have a lot of volatility engaged in it and it does not it doesn't really matter how quickly you move in and out of those currencies. Anything that's exchange traded even if it's a tokenized version that has a set value you still have some volatility to it. That's why our system is closed loop is to take all of the volatility out of it. It is dollar for dollar exactly what you put in. It's more like a smart contracting system where these are contracts to underlying dollars that we're holding in our basically in our in our accounts on behalf of the customers and that way you end up avoiding any of the the currency risk that you could take on if you decide to operate in cryptocurrency rather than dealing with traditional financial institutions or cash and that's the thing cash is cash it has a very specific value and we did not want to take that value and have that potentially disappear or you know when fall sure maybe it will but likelihood not really it's much more likely not to retain its value when you're talking about a non a non variable transfer so if you want it to be dollar to dollar you throw a cryptocurrency in the middle and there's automatically volatility rather than those dollars being worth exactly what they were worth a minute ago so that's the reason that we moved away from that it doesn't mean that cryptocurrency doesn't have a lot of interesting use cases it's just when you're talking about a domestic industry that doesn't make a lot of sense what is the size of the team right now so our team has about five people on it we may be expanding very soon we have been working on some very cool projects with some people and I think that they're going to be a very good fit for our team but the you know the lead people are myself and my my chief technology officer which is Phil Glazer he is an old-school IBMer who developed you know anti-money laundering systems for the Department of Defense and the FBI back in the 80s and developed transaction systems for Wells Fargo and Bank of America in the 90s and 2000s and really knows his way around fintech and just done projects like this before and then of course you know I was with Bessemer venture partners doing legal and operations for them and Sidley Austin doing financial regulatory work prior to that and both of us have fintech experience so you know it's a really well-rounded team in that way and almost everybody on the team is actually coming from financial institutions and just feels very passionate about this problem and about trying to provide an equitable solution for the people who have been just blocked out of the financial system yeah yeah yeah that's kind of like this big picture yeah macro level perspective as people being locked out of the financial system that are trying to bring forth an emerging market and so you're trying to legally yeah they're operating legally that's all there is to this I mean it's a the problem here has more to do with concerns over institutional risk than it does over legality and that's something that that doesn't really get fixed through legislation it can really only be fixed through changes in attitudes changes in and perceived risk so so actually operationally needs to be banked legally totally okay to get banked but regulatory frameworks in place for that are not there yet there is some uncertainty surrounding the regulations I don't think there is that much uncertainty surrounding the regulations it's just I think that the uncertainty has been more about do we believe what the regulators have said to us will the next administration come in and flip the script on it and go back to the previous ways of doing business and try to put the gabbash on this industry I think that without without true legalization at the federal level you know there's always the risk that a new administration could come in and start the demonization process all over again but I think that risk is very low very low and I think that we've already derived social benefit in a lot of different ways there is the the benefit to patience there is the benefit for justice reform and there's a lot of talk around that and will continue to be because we are not even close to done with that yet there is a lot of benefit to access reform in general not just with financial institutions but patient care justice and there's a lot of a lot of positive things economic benefits that have also occurred as a result of opening up this this industry and you know getting rid of this this prohibition that created a black market and it really did if you take a look at the economics of it you don't change behavior by slapping a no-no label on it that doesn't happen so the prohibition created the black market it's really interesting hearing about your perspective on doing things like making immutable digital ledgers for an emerging market and what that looks like for every single part of the supply chain I think that's yeah this is really cool I think that without people that are caring about doing stuff like this it keeps it more like a question mark rather than having something that at least guides people in a general direction towards I'm figuring out how to financially handle it yeah so it's really cool seeing your creative take on financially executing it through artery I like that a lot yeah we're still a lot more to unpack you know on future on future visits into this because there's like as it emerges artery pay you know changes a lot and it's gonna be really interesting to see how it ends up yeah working out that way is there's a question that we usually ask at the end of our show I'm interested to hear what you think what do you think is the most beautiful thing in the world oh boy should I show him to you yeah I think you guys have probably heard him a little bit and it's not just him I actually think that I think that animals are absolutely beautiful I think that the ocean is beautiful I think that nature is beautiful and this is Keanu Keanu he's Keanu the Howley he is my buddy and he has helped me with a lot of things and dogs in general have helped me get through some dark times of my own I'm actually pertaining to my injury helped me relearn relearn to walk and the love and relationship that people have with their animals I think is just the one of the most beautiful special things in the world I know he's a lovebug he does everybody he says you're delicious he says you had something really tasty for lunch yeah this guy yeah this is my little beautiful man wow thank you so much for coming on to our show and teaching yes I'm very very happy very happy to be on the show thank you so much for having me this is really a fun conversation thank you yeah thanks for all the great work yeah this is gonna be very interesting to continue watching what you guys do in the space so keep it up keep it up thank you we'll do our best thanks everyone for tuning in and greatly appreciate it love to hear your thoughts on the comments below in the episode let us know what you're thinking check out the links in the bio below to actually check out the links in the bio below to artery pay as well also to the new West Summit support the organizations the entrepreneurs the artists the leaders in your communities and around the world that you believe in you can find our links below to our show as well and go and build the future everyone manifest your dreams into the world thank you very much for tuning in and we will see you soon it's a wrap yay thank you good job