Cannabis & Banking. Sundie Seefried, CEO Partner Colorado Credit Union

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1 Cannabis & Banking MJ Issues on the Horizon. Will the Justice Department go to war with the states that have legalized MJ or stand down? Across the country, credit unions and regulators continue to handle issues related to the banking of state licensed MJ businesses and their ancillary service providers. Whether your state has legalized or not, these issues confront everyone. Sundie Seefried, CEO Partner Colorado Credit Union

2 Our Motives Safety Philosophy Relevancy Business

3 Safety Aurora, CO. An ex-marine who served as a security guard was murdered at a Colorado dispensary. Denver Post, June 20, Newport Beach, CA. A MJ dispensary owner and his roommate s girlfriend were kidnapped and the owner tortured (burning the owner with a blowtorch and cutting off his penis) because the perpetrators believed that the owner was burying piles of cash in the desert. CBS News November 11, 2013, Los Angeles Times, November 13, Spokane Valley, WA. A licensed MJ retail shop was robbed and the employees tied up at gun point. Spokesman Review, August 6, San Bernardino, CA. A security guard of an illegally operated medical MJ dispensary was shot and killed. KTLA 5, February 18, Walnut Park, CA. Robbers armed with assault rifles were shot by the owner of a MJ dispensary. Los Angeles Times, June 8, Portland, OR. Armed robbery of a dispensary. Fox 12 Oregon, August 3, Tacoma, WA. Armed home invasion of dispensary owner. Komo News, November 18, Arapahoe County, CO. 4 armed men robbed dispensary. Denver Fox 31, August 14, City Heights, CA. Armed robbery of dispensary. San Diego Fox 5, January 25, Puyallup, WA An illegal grower killed 2 men defending his cannabis plants. Seattle Post Intelligencer, April 18, 2013.

4 The Industry + Black Market History = Under the Radar Growing Sophistication + Investment Funds = National Expansion Nothing EASY + Cash Intense/ MSB + Awaiting Entrants Federally Illegal 29 Legalized States 17 Ballot Initiatives

5 Industry Growth $1 IN CANNABIS = $3 IN OTHER ECONOMICAL BENEFIT TO COMMUNITY Permission Granted for Use by Marijuana Business Daily.

6 Sates - Presently Legal Permission Granted for Use by Marijuana Business Daily.

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8 Upcoming States Permission Granted for Use by Marijuana Business Daily.

9 Projected Market Size According to MJ Business Daily LOUISIANA: MARYLAND: MASSACHUSETTS: OHIO: PENNSYLVANIA: HAWAII: MAINE: FLORIDA: MONTANA: NORTH DAKOTA: ARKANSAS: CALIFORNIA: NEVADA: $15 - $30 million $125 - $175 million $650 - $750 million $200 - $400 million exceed $100 million $15 - $30 million $250 - $350 million $600 - $800 million $25 - $35 million $10 - $20 million $30 - $60 million $4.5 - $5 billion $450 - $550 million

10 2018 Ballot Initiatives Arizona Industrial Hemp Initiative Arizona Legalization of All Drugs Arizona MJ Legalization Initiative Arizona MJ Legalization and Regulations Ban Init. Arizona Medical MJ Expansion Initiative Florida Cannabis Act Florida Cannabis Rights Amendment Florida Recreational MJ Amendment Idaho Medical MJ Initiative Michigan MJ Legalization Initiative Mississippi Cannabis Freedom Act, Init. 52 Mississippi MJ Legalization Amendment, Init. 60 Nebraska MJ Decriminalization Initiative Nebraska Right to Cannabis Initiative Missouri Cannabis Legalization Initiative Missouri Cannabis and Cannabis Hemp Legalization Init Missouri MJ Legalization Initiative Missouri Medical MJ Initiative Missouri Right to Cannabis for Personal or Medical Use Missouri Right to Farm Cannabis Missouri Right to Medical MJ Oklahoma State Question 788, Medical MJ Legalization Init. South Dakota MJ Legalization Initiative South Dakota MJ Legalization and Changes to Laws Init. South Dakota Medical MJ Initiative Utah Medical MJ Initiative

11 International Legalization Jamaica Argentina Senate votes to legalize medical MJ Germany to begin cultivating medical MJ 19 South Africa may legalize medical cannabis production New Zealand recently updated cannabis laws Denmark embarks on MMJ program Turkey to allows limited MMJ production Cayman Islands clears way for Medical Cannabis oil UK to legalize CBD-Based product Guam medical MJ sales begin this summer Peruvian gov t. to legalize medical cannabis Brazil allows sale of cannabis MS drug Ireland may legalize medical MJ Uruguay kicks off recreational MJ sales Puerto Rico enacts new medical cannabis law Greece legalizes MJ for medical purposes Mexico signs medical MJ legalization Australia ramping up medical MJ sales Israel launches cannabis research center

12 Adult Use one way or another Permission Granted for Use by Marijuana Business Daily.

13 Economic Impact: Jobs Permission Granted for Use by Marijuana Business Daily.

14 Facts That Might Interest You! Use among senior citizens is at an all-time high ( aged 50 to 64 increased 57.8% aged 65 and older skyrocketed 250% Opiate-related deaths decreased by approximately 33 percent in 13 states ( ) 27% of beer drinkers said they have already substituted cannabis for beer Tax Foundation found nationwide legalization of MJ could generate up to $28 billion in tax revenues ( )

15 The Present State of Banking

16 Safe Harbor Private Banking Eyes on the Owner, Eyes on the Business and Eyes on the Money 11 FT Staff Positions OWNERS: 130 MJ Licensed, 142 Ancillary (302) BUSINESS: Dispensaries, Cultivations, Manufacturers MONEY: $80 Million Per Month Mantra: Every Dollar is a Cartel Dollar UNLESS We Can Prove Otherwise

17 Licensed Entities

18 RISK: Cash Flow 5 per month 3 per month

19 Regulatory Guidance - FinCEN What Does FinCEN State?

20 FinCEN Guidelines-Interpretation REPORTING MJ Limited MJ Priority MJ Termination BSA /AML COMPLIANCE Due Diligence Customer Identification Patriot Act, OFAC Training RED FLAGS Comparative analysis Transaction consistency National activities State Licensing Issues CONCERNS The COLE Memo Ancillary Accounts The Ramifications Fines, etc

21 RISK: BSA Reporting

22 The Cole Memo CONTROL? 1. Distribution to minors 2. Proceeds going to criminal element NO NO Diversion across state lines Pretext for criminal activity Violence or use of firearms Drugged driving/public health Use of public lands Use of federal property SOME SOME SOME NO YES Don t Serve YES Don t Serve

23 What Did COLE Mean? The area that concerns me the most going forward is the topic of my third memo, which is banking... That s why both FinCEN and I issued memos together saying, Banks, go ahead and do this, we want the banking to go forward. MJ Business Daily, By John Schroyer

24 RISK: Accounts & Validation TYPE / RISK 17% 6% # ACCOUNTS 7% MJ LICENSED Ø 54% of Accounts Ø 76% of Balances BSA Accounts 5 54% Service Accounts 4 16% $2.745 BALANCES $2.951 $0.256 Investment Accts 3 $2.190 Licensed Accounts 2 Ancillary Accounts 1 $ MJ LICENSED SERVICE ANCILLARY INVESTMENT OTHER

25 Licensed Everyone is banking these until you find them. Not so easy.. The industry has learned! CONCENTRATIONS Ancillary Everyone is Banking these no way to avoid. Do these count?

26 RISK: Liquidity Licensed Exit Risk! Ancillary Exit Risk? How much cash do you need to implement an exit strategy AND how does one exit? How much will an exit strategy impact ancillary balances/ cash flow? YR 1 & 2 LIQUID YR 1 & 2 LIQUID YR 3 - Treated as core deposits YR 3 50% LIQUID

27 More Risks 3RD PARTY INSURANCE LEGAL Ø Corporate Ø Federal Reserve Ø FHLB Ø Bond Ø Deposit Ø BSA Ø RICO STAFFING Ø Training Ø Complacency Ø Check Box Mentality SAFETY & SOUNDNESS Ø Opinion Audit Ø Examination Risk Ø Good Faith Defense

28 The Challenges Fear of the Unknown Liquidity Education Access to Capital Vague Guidelines Staffing Legal Counsel Evolving Program

29 The Future Legalization Continues Market Growth IRS 280E Relief Safe Harbor Legislation Reclassification Continued Banking Issues OPPORTUNITY?

30 Thank You