Article24 The Cannabis Cash Crisis: Why Banking is a Big Deal - The High Ground f. Kirsten Trusko of EMC
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In March, police arrested a German man named Ruben Weigand, he was later charged with conspiracy to commit bank fraud. Prosecutors alleged Weigand ran a scheme to disguise credit card transactions from a California based cannabis delivery company Eaze. In the end, they say over a hundred million in cannabis sales were processed unwittingly by banks through 2019. Credit card companies and banks that operate federally, tend to refuse money from legal cannabis businesses, but clearly some businesses have found less than legal workarounds.
In this episode of The High Ground, Jesse Betend interviewed Kirsten Trusko, the co-founder and CEO of Emerging Markets Coalition. Along with her experience in payments, part of her organization's mission is to actually normalize and electronify cannabis payments, as well as facilitate collaboration between cannabis and banking. Kirsten talks about the history between cannabis and banking, as well as take a little look at the Eaze case. Jesse and Kirsten also dig into the options that exist currently for cannabis businesses, and talk about the multiple risks involved with handling that much cash.
Jesse: For TRICHOMES.com, I'm Jesse Betend and this is The High Ground. On this show we feature leaders of the cannabis industry. We talk to everyone from farmers to CEOs and public officials. Anyone making an impact on the cannabis community and beyond. In March, police arrested a German man named Ruben Weigand, he was later charged with conspiracy to commit bank fraud. Prosecutors alleged Weigand ran a scheme to disguise credit card transactions from a California based cannabis delivery company, Eaze. In the end, they say over a hundred million in cannabis sales were processed unwittingly by banks through 2019. Credit card companies and banks that operate federally, tend to refuse money from legal cannabis businesses but clearly some businesses have found less than legal workarounds. Kirsten Trusko is the co-founder and CEO of Emerging Markets Coalition, along with her experience in payments, part of her organization's mission is to actually help normalize and electronify cannabis payments, as well as facilitate collaboration between cannabis and banking. We will get into the history between the two, as well as take a little look at the Eaze case. We'll also dig into the options that exist currently for cannabis businesses and talk about the multiple risks involved with handling that much cash. Kirsten, thank you so much for joining me.
Kirsten: Delighted to be here.
Jesse: So let's just start actually with kind of the background and kind of how we got here. What's the disconnect between the banks in the Cannabis industry?
Kirsten: Well, it's been really interesting and one of the first meetings I was at that had Financial Services folks and cannabis-related Leadership, we're all at one big table and I was just kind of back in the corner listening but understanding enough about each to understand a bit about the compliance and the language, so over the course of this breakfast, it started off very polite and chit chat and then they started talking about their businesses and what their challenge was with the other side of the table because literally it was two sides of the table and as you listen to them both sides of the table were talking about compliance and transparency and customer experience and paying their taxes but they were using different language and so finally I stood up and said guys stop for just a minute here, please and repeated what the banker said and said, okay, that's the same thing as what the Cannabis folks are saying. You're just using different language and it was amazing how the whole table kind of sat back and then it went really really well but because for so many years those two sides of the table haven't really been talking to each other for whatever reason and then you throw in especially federal politics, which makes it challenging, usually they're super smart very chill people and as soon as I mentioned anything about being in banking or payments, they get decidedly, less chill and some of them being really angry with the banking and payments system saying look, we are legitimate businesses were highly compliant, yes, we happen to have a lot of cash but look at our books. We are clean, we want to do business with you. Why aren’t you putting us through? What's been, some of them described that they've been through three or four banks in the last several years or several payment platforms over the last several years and take any business and it would be very difficult to run a business when you have those kinds of fundamental changes, so their request and to answer your question is Kirsten can Emerging Markets Coalition helped to bridge this communication between cannabis related businesses and traditional financial services and bring fintech in and let's figure out a way to normalize financial services so that the Cannabis industry can have just normal banking and payments and insurance like everybody else does, just treat us fairly like everyone else. So the good guys are all trying to work together, they're just, we just need to communicate better and communicate out to those who influence and affect our businesses.
Jesse: In the case of the banks as an operator who operates federally suddenly there now that money is illegal to handle, is that roughly the issue on their side?
Kirsten: Yeah, if we had a lawyer on the phone, they would explain in great detail exactly what the challenges but at a high level if you're a cannabis business, legally operating licensed in a state where it's legal and you have a bank that complies with the state laws if you were just moving money within the state lines and that might be a wheelbarrow of cash from the dispensary to the bank, right? Then you're all compliant within a compliant state but as soon as you touch the federal banking system, so when you transfer money electronically, that's a federal network. If it's a Visa, Mastercard, an Amex, Discover, those are federal networks. So as soon as the money touches that because this is a schedule 1 drug, definitionally that's where the problem is and that's where so many Bank Boards say you know until it's federally legal, we're just not going to touch it.
Jesse: And in the case of Eaze, it looks like they were taking credit cards up until about a year ago and the way that they were doing that is they were using fraudulent companies to basically trick the banks into taking payments that they would otherwise be nervous or cautious or just say no to. What does something like this kind of do to the trust conversation that you just mentioned, you know, when a case like this comes up?
Kirsten: It depends on how that case is being explained, so this is an example of a bad player. If cannabis was federally legal and the normal banking system could be there, payment cards, the Visa, Mastercard, Amex, Discover, the ACH, Swift's wire, all of that, if this was legal federally we would have those normal controls in place and this would have been spotted immediately.
Kirsten: But we didn't do it and so you do have bad players and every industry has bad players but one of the quests of Emerging Markets Coalition and my co-founder and I've done this in past lives is once you normalize an industry for financial services, then you get the legislators, the regulators, the bank examiners, you get all the banking geeky neural network, fraud, prevention, cyber tools enacted on behalf of that industry and that's part of what we don't have and that's part of what enabled an actor like Eaze to get away with it as long as they did.
Jesse: And one of the really curious things about this particular case is that this whole thing kind of came up because one of Eaze’s competitors sort of tattled on them. Is that something that you've seen before?
Kirsten: That was really interesting and it was a topic of great discussion over happy hour at a big conference, a big of fintech conference that happened right after the case was released and it really was like have you ever seen this happen before where your competitors telling on you and getting you in trouble and then some of the other people at the same happy hour we're saying well, but it wasn't fair. They were growing and we were not because we were following the rules and they weren't, like why shouldn't we have turned him in? So it really went into a very interesting discussion and any law enforcement will tell you ignorance of the law is not a defense. So there's some real danger and this is you know, I'm a real party pooper at some of these cannabis conferences because somebody will say, oh I've been through all these payments solutions and they keep getting shut down and they'll get one up, it'll get shut down in 90 days. Another one gets shut down and so we'll talk about a stable payments platform is transparent, so one key thing to check is when your merchant statement comes, it should have your name on it not some other company you've never heard of or when your customers swipe their card at your business it should show up on statement as your business not some funky third-party that you've never heard of and one of the things that a lot of retail businesses may not realize if you haven't been in the payments industry for a long time, is you don't want to have a payment solution under your business name and then keep getting it shutdown, shutdown, shutdown over time it could impede your ability to ever be able to take payments. So you have to be really really careful that the payment platform you choose is legit, that it is transparent, there's a lot of bad things that can happen payments wise if you keep having a platform shut down.
Jesse: Do you have a sense in general how interested in the Cannabis industry in general law enforcement is? Like how carefully are they watching these transactions?
Kirsten: Well, it's interesting cause I've asked the same question, you know my past life included a lot of work in cybersecurity and anti-money laundering and anti-human trafficking, so have a lot of law enforcement friends and when I co-founded Emerging Markets Coalition they were like what are you doing? What is this? And so I sat down with them and said this is what we're doing. We are driving transparency and traceability in this industry and if you had that then you would have money trails to follow. If there really is a bad actor, money trails are the best way to convict. They don't lie, right and they don't back out from a grand jury testimony. So what law enforcement has said is okay, we agree. We'd like to be very supportive in your push to normalize banking which includes electronic find the payments right? Because that's how you follow the money and they said look we are concerned with the big cartels. The big drug dealer networks. We really don't care about local people and local dispensaries that are using this recreationally and for their health, so could we go after him? We could but that's not really what we're interested in.
Jesse: Hmm, so when you talk about normalizing payments, what exactly do you mean?
Kirsten: Well if you think about it, kind of like a coffee shop or liquor store, right you go in and you expect that I'm going to make a purchase of whatever the prices there and I'm going to pay the way that I'm used to paying and if you look at how at least American consumers are used to paying for everything with their credit or debit card. Huge, not only are they used to it, but the growth trajectory is huge. So we're all used to that even at the liquor store, which is also highly highly regulated business. We can go in and use our card. So so many folks at these conferences, the ones that aren't chill anymore when we start talking about payments, like why can't I just take a card, everybody else takes a card. I follow every rule. I'm fully licensed. I pay my taxes. Why is it so difficult? Go fix it! I’ll get right on that. So it's if we can get at the federal level, senate banking, house financial services, those are the committee's and then the members of Congress to see this as it is. It's a highly regulated legal business but it could really address budget holes in community and federal. It could really save some of the community and regional banks. There's all kinds of good that can come from this, if you do it right?
Jesse: So do you see a solution that would allow the Cannabis industry to have traditional banking services without Federal legalization or is that part of the mission?
Kirsten: It might get incrementally better, but it won't be really normal.
Jesse: Hmm. What is the path forward?
Kirsten: So the Emerging Markets Coalition was just formed late last year and it was a co-founder and I catching up on stuff and talking about these industries that were emerging Industries at the time and didn't have normalized banking and it had a lot of money laundering and you know bad players when you can't follow the money, you track a lot of bad players. So there's several other Industries we each worked in to normalize banking and financial services for them and we said hey, it looks like the Cannabis industry is about where some of these others were when we got involved. Could we take that same approach, those same colleagues on Capitol Hill and in law enforcement and media and at the consumer advocacy groups, could we go back to them and say hey remember that the last industries that were not normalized, we want to normalize this one and it's going to take the financial services industry, the Cannabis industry, we're all going to need to come together and be able to take facts and studies and primary research to really educate those who don't yet understand it. In this industry there is a flood of information but a desert of facts and with there's a void of facts, fiction fills in so spending time on Capitol Hill or with the states or law enforcement or banks and bank boards and what have you and they'll say okay, here she comes. She's got a hot topic for us here and kind of tittering like we're talking about cannabis so like they're laughing about it and I say well, what is it that you don't like about this? And if you heard some of the not fact-based statements that are made, like where on Earth did you hear that? Well, I read it on the internet. Oh really? So that's where you get your facts? One of the things that that we've really been pushing towards as the Coalition is to help foster and fund facts, surveys, statistics, things that the financial institutions and the policymakers can rely on to say here's why I'm basing my decision to support this because of all of these things.
Jesse: So let's talk a little bit about your personal history. What are some of those other markets that you've worked to normalize and what kind of led you to this point?
Kirsten: So the one that probably listeners would be most familiar with is prepaid. So prepaid cards so back when they first started they were phone cards and then in the early 2000s there were gift cards and what we found pretty quickly because a lot of my past life, has been pro bono work helping the underbanked and underserved in single moms and on the financial services side getting strong bank accounts and establishing credit and all that. So in the U.S. depending on which study you believe there's between 50 and 80 million people that do not have bank accounts and when prepaid first came up I was at KPMG Consulting. We had like thirty five thousand people at the consultancy, we went to some of the largest financial services organizations in the world and said look, you got 80 million people here and there's multiples of that globally that need a bank account. Let's create an electronic bank account. So when prepaid started nobody knew about it, they thought it was for money launderers and whatever so I got hired into NBPCA which was the trade association and we said look, we're going to have to go straight to the hill with facts and stories and day in the life of and help get proper legislation and regulation and bank examination and it was it was really tough. The industry was almost shut down several times but flash forward now, we all have prepaid cards. Your flexible spending account is a prepaid card, if you have a health savings account, your payroll might be, your social security. Nobody thinks of it, right? It's just normal. It's like ATM's, at one time where revolutionary now they're just pedestrian. So that's the goal with cannabis banking is it just becomes pedestrian. Same thing as walking into your liquor store as another highly regulated business but you can use your card there.
Jesse: So we talked a lot about dirty money in the sort of like a legal sense but, you know a little bit about quite literally dirty money like the germs on cash, so dispensaries that are being forced to to use cash during a pandemic, what are some of the concerns there?
Kirsten: One of the most dramatic and kind of upsetting calls came in right as the states were shutting things down but the dispensaries were deemed essential and got calls like early Sunday morning from friends saying look, we have a lot of our customers our medical patients, we can only do either curbside or delivery and we don't want to use cash. I mean, there's studies that show that the virus stays on cash for two days.
Kirsten: They said what are we, what electronic payment platform could we be using and it does take a little bit of time to set those up right? So I said, well there's nothing you can use on Sunday morning at 8:30 but Jesse, I'll send you the link if you'd like but we just did this last week, a webinar with a bunch of payments geeks talking exactly about what might work within the dispensaries and what to look for. What are the top 10 tips to be able to tell if this is a sustainable payment platform but going all electronic and hearing from some of these dispensary owners that were so concerned about their employees but also about their medical use customers who are at high risk anyway and then you're being forced to use cash and I think I shared with you at one point, my family lived near Mayo Clinic, my husband's a medical school Professor there and there was actually studying how dirty money is like germy gross stuff on money and as if I wouldn't use a card anyway, I really only use cards especially now.
Jesse: That's interesting. So there really is like, not only is it putting legal companies into this strange complicated situation but it is potentially putting customers at risk.
Kirsten: Yes and at an increased risk and the dispensary owners were so upset and this was part of taking that and going back to my banking colleagues and saying look guys, can more if you step up? Like we need more financial institutions that will actively bank. There's a study that came out from FINCEN, which is a financial crimes network, enforcement network and it says I think the most recent one said that there were five hundred and twelve banks that filed these SAR's, suspicious activity report, so then some are saying oh well, then there's 500 banks. No, there's not. There's a little over a hundred banks. The fact that a bank filed that report does not mean they are actively banking cannabis. It just means they think they might have had a cannabis transaction.
Jesse: I love your metaphor that you know, what was it? A desert of facts?
Kirsten: A flood of information and a desert of facts and that's really harmful.
Jesse: And it's one of those things when you're dealing with this many unknowns. I mean, even the convenience of say, offering an ATM in your dispensary is something that you can't necessarily do safely, right? Like my understanding is in that case the ATM owner might potentially have some problems if they are federal operators, is that correct?
Kirsten: Yeah, there's been a lot of workarounds and you have to hand it to folks for creativity but there's just the safety aspect of it. One of the things in going to Capitol Hill and speaking to some of these members of Congress who had not had a banker talk to them about this, they have had cannabis related businesses but not a banker and I shared with them some of the stories, just the safety stories of people having to haul cash around and have ATMs in there businesses and some of the physical things that have happened and their jaws just dropped. And they said but we didn't know that was happening. Well people consume news from sources that they trust or sources that they always look to and back to the desert of facts, we aren't getting enough of the kinds of facts that we need in front of the people who are influencing policy in my opinion.
Jesse: Kirsten Trusko is the co-founder and CEO of Emerging Markets Coalition. Kirsten, thank you so much for taking the time to talk to me today.
Kirsten: I'll thank you Jessie. It's been wonderful.
Jesse: You can find more cannabis industry reporting at TRICHOMES.com as well as more great shows like this one. If you're a member of the Cannabis community and you have a story you want to share with us, reach out. You can reach the show at High Ground at TRICHOMES.com. Please take a second to subscribe to the podcast and write a review. It really helps others find the show. You can also join the discussion with industry insiders and get your voice heard by joining the community at TRICHOMES.com or following us on all social media The High Ground is produced by David Fortin. I'm Jesse Betend. Thank you for listening.