John Sullivan, CEO of Integrated Compliance Solutions, is essentially an ambassador to the traditional banking world. With over 25 years’ experience in banking that has included executive positions ranging from president/CEO to chairman of the board, he educates banks about how they can be in legal compliance with federal regulatory agencies in order to do business with the nascent medical marijuana industry. Of the industry, which he joined on a full-time basis a year ago, Sullivan says he is “driven by challenges and this has been a huge challenge.” Elevate asked him about what’s on the banking horizon for Nevada’s medical cannabis industry, Congress’s role, and how other states are banking medical cannabis businesses.
The biggest challenge I have had is getting a financial institution and its board of directors to thoroughly evaluate the risks and benefits of providing services to the marijuana industry. Most banks, when you mention it, the first thing they say is no, they don’t want to hear about it because marijuana is federally illegal. However, the U.S. Departments of Treasury (FinCEN) and Justice (DoJ) have advised financial institutions that they would rather have the industry banked and monitored, and, in turn, have issued guidance to banks on how to properly implement banking services. It is worth noting that the federal bank regulatory agencies have formally adopted the guidance issued by FinCEN on providing banking services and therefore are unlikely to object to a bank offering services as long as the bank implements an acceptable compliance program and as along as the bank is in good condition otherwise. But that new federal guidance is an enforcement policy position as opposed to a change of law, which only Congress can implement. This is why banks are fearful.
Yes. I’ve met bankers who understand the need for medical marijuana as well as the need to provide services to the industry out of public safety. These bankers have been open-minded and have evaluated the matters very closely and have even met with the bank regulatory agencies as a part of their decision to provide banking services to the industry. These bankers have worked closely with the bank regulatory agencies in these efforts. After all, the bank regulatory agencies are truly interested in seeing that a bank provide services to the industry but only in a fully compliant manner; they are invaluable in assisting banks in this and so many other areas. Candidly, the bank regulators are very smart people and they are just like the rest of us, as they do see the need for the medicines and the need for banking services.
This proposed legislation is intended to provide a safe harbor for banks and is nearly identical to the Senate proposed legislation referred to as CARERS Act of 2015. The CARERS Act goes further in rescheduling marijuana so as to break the logjam on research, exclude very low CBD medicines from the definition of marijuana, authorize the Veterans Administration physicians to prescribe the medicines and enhance state controls within their borders. The CARERS Act also requires that banks strictly follow the FinCEN and DoJ guidance.
Unfortunately, these bills have remained bottled up in committees since they were proposed. Congress simply needs to act in the interests of their citizens, who overwhelmingly approve medical marijuana. The failure of Congress to act to provide protection to banks is in direct conflict with the ongoing initiatives of the U.S. Departments of Treasury and Justice, and 23 state governments who want the industry banked. I think all of these governmental entities want the industry banked in a proper and transparent way.
I think there will be some marginal improvement in the banks providing services, and these will typically be smaller community banks. They will step in to the gray space and they will rely on the guidance issued by the Department of Treasury and Justice and the fact that all of the federal bank regulatory agencies have adopted this guidance. Until Congress acts, I don’t expect a lot of banks to provide services.
It is in the hands of Congress and I personally don’t believe we will see any movement until after the 2016 election. After the election, I am hopeful that those bills that have been languishing in Congress for years will result in a safe harbor for banks. I don’t think Congress can continue to be unresponsive to the will of the people in so many states, including California, New York, Florida, to mention the largest states, all of whom have legalized medical cannabis.
First, let me say that it is my opinion that Nevada is the “gold standard” for regulation of the industry. Uncommon leadership is evidenced everywhere you look, including Nevada state officials, members of the Nevada Legislature and our federal officials. I would be remiss if I didn’t mention the leadership and vision from Bruce Breslow, Director of Business and Industry, and George Burns, our Banking Commissioner. These two gentlemen understand the issues and the need for a delicate balance in developing a banking solution. Without their support, there will be no solution.
I didn’t actually start it. It was Joe Brezny who started it. He would probably say we started it together. But I am going to give credit where credit is due. It was his idea. He recognized the value of having an industry association help to establish a thoughtful, well-regulated industry because he has worked in that space before. I helped start it but it was really his idea. My initial role was to find a founding chairman because that was such an important role. I reached out to several key players and thought leaders in the industry and they all said, ‘I would be happy to be a part of the board and be one of the founding members but founding chairman? No, it’s too much of a lightening-rod role. I can’t take the optical risk or the social, political or business risk.’ After trying to find the founding chairman for three months, Joe turned me to me and, ‘Leslie, everybody else is chicken shit. Would you do it?’ And I have been very pleased to get that trade association up and running here in the state.
We have several client banks in two states — not Nevada — that are implementing our Seed to Bank solution. The banks in those states reviewed the compliance solution with their regulatory agencies before implementation. We are also in discussions with banks in several other states at this time.
The lack of a banking solution is a crisis and it is affecting state governments. For example, I attended a forum with state officials and industry members in California earlier this week. A representative of the state told us that they received a cash payment of $400,000 in sales taxes at a small office location that had neither the security nor staff to handle so large a cash payment. The California officials also told us that based on their research, less than 30 percent of dispensaries are remitting sales taxes, resulting in a loss of tax collection of well over $100 million a year. Finally, they discussed the public safety concerns and gave examples of violence occurring at business locations.
As a result, California officials are desperately searching for a solution to banking in the state, including creating a state bank for the industry, along with methodologies to protect the patients and public and finally, to assure that taxes are properly paid and in an electronic form.
The state of Illinois does not want to accept cash for payment of taxes. Illinois’s solution was to hire a bank which would agree to collect tax payments in cash from the businesses and to then remit the taxes in an electronic format. This works for the state of Illinois, but it doesn’t help get the industry banked.
I think community banks will be accepting marijuana-related business in five years, following a path similar to banking casinos in Nevada in the 1950s. Back then, casinos had the same problems in getting bank accounts because gambling was illegal federally and in most states. Gaming companies had a stigma that took years to go away, but eventually, banks did accept them as customers. As an aside, gambling remains illegal in a number of states and there are federal laws banning interstate gambling operations.
There are thousands of people in Nevada who deserve to be able to obtain medical marijuana, but have been unable to do so, as the industry was operating inefficiently and not reaching far enough. This is what I have been told by dozens of people, including physicians, parents and family members. For this reason, it was very good to finally see the dispensaries open. In addition, it was good because those owners have spent years and a huge amount of money and they deserve to move forward.