Insurance & Commerce- House & Senate
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17 documents
Bills discussed (6)
| Bill | Title | Sponsor | Status |
|---|---|---|---|
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HB1510
· 1 mention in agenda
Matched: “…r Medical and Hospital Benefits. [EXHIBIT D-2] 3. 2019-066 (HB1510) by Representative Lowery -- To Establish The “Any Willing…”
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TO ESTABLISH THE "ANY WILLING PARTNER LAW". | Lowery | Recommended for study in the Interim by Joint … |
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HB1525
· 1 mention in agenda
Matched: “…and Adoption of Interim Study Proposals (ISPs) 1. 2019-003 (HB1525) by Representative Boyd -- To Establish the Chiropractic Co…”
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TO ESTABLISH THE CHIROPRACTIC CORPORATION ACT. | Boyd | Recommended for study in the Interim by Joint … |
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HB1703
· 1 mention in agenda
Matched: “…h The “Any Willing Partner Law”. [EXHIBIT D-3] 4. 2019-080 (HB1703) by Representative Dotson -- To Create A Two-Year License O…”
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TO CREATE A TWO-YEAR LICENSE OPTION; AND TO REQUIRE FOUR HOURS OF CONTINUING EDUCATION PER … | Dotson | Recommended for study in the Interim by Joint … |
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SB257
· 1 mention in agenda
Matched: “…ends, And Real Estate Compliance. [EXHIBIT D-4] 5. 2019-89 (SB257) by Senator Hammer -- To Include Financial Institutions Ins…”
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TO INCLUDE FINANCIAL INSTITUTIONS INSURED BY THE NATIONAL CREDIT UNION ADMINISTRATION AS INSTITUTIONS ALLOWED TO … | K. Hammer | Sine Die adjournment |
|
SB473
· 1 mention in agenda
Matched: “…designating areas as 'Members and Staff Only'. 6. 2019-90 (SB473) by Senator Garner -- To Establish the “Arkansas Telephone…”
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TO ESTABLISH THE "ARKANSAS TELEPHONE PRIVACY PROTECTION ACT". | T. Garner | Sine Die adjournment |
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SB566
· 1 mention in agenda
Matched: “…he Chiropractic Corporation Act. [EXHIBIT D-1] 2. 2019-047 (SB566) by Senator Rapert -- Concerning an Insurer’s Right to Subr…”
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CONCERNING AN INSURER'S RIGHT TO SUBROGATION AND REIMBURSEMENT FOR MEDICAL AND HOSPITAL BENEFITS. | Rapert | Sine Die adjournment |
Machine transcript
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well thank everybody for being here today and we have a full agenda and before we get started I want to yield
Speaker 52
6:21
to see if my co-chairman representative Lowry would have any comments well
Speaker 5
6:28
thank you mr. chair uh one thing that i would uh i've been getting notices from house
members of the committee uh wanting uh authorization to attend the in coil meeting in july and so if you were planning on attending that meeting you'll need to send a letter to me for me to get authorization for reimbursement uh i would have said this at the end of the meeting but we may get real wrapped up and i didn't want to forget but i'm very pleased that a number of our members are planning on attending this the summer meeting in july for in coil thank you mr chair that's
great i appreciate you saying that members yesterday was a national call that was hosted by the national council of insurance legislators on flood insurance and i think obviously that flood is on the mind of everybody here in a way that it never has been and so i do urge you to reach out to chairman lower if you want to attend it's a great opportunity for you to educate yourself on issues that we just don't have the time and the ability to do here very often and so i hope that you'll be able to do that on that note it actually after the floods in 2015 and 2016 this
committee uh held joint hearings with the agriculture committee on the flooding events that we had that were going at that time that resulted in legislation that was promulgated and passed in a special session in 2017 which allowed the county judges in this state to reappoint members to defunct levy boards a large number of our levies in the state are private levies and many of them have no functioning boards because they've just simply gone through neglect.
This happened in a community out east of here. I believe it was last year when they had to take heroic measures to reconstruct a levy to protect a town, if I'm not mistaken. I may get this wrong, so I'm hesitant to do it, but it was somewhere out near the Stuttgart area out through there in a community. It wasn't Stuttgart, and I can't think of the name of that. but I wanted to mention Humnoak there it is Humnoak that was the community and so I wanted to mention that the committee I'm going to ask Chairman Lowry we will visit with the agriculture
committee to see if they would like to engage in another joint meeting on this but I want to direct staff for us to pull up the information all of the agenda items that we had in those hearings which were approximately two years ago pull up the legislation that we had and we'll reach out to interested parties and have a hearing on that in the coming weeks obviously this is a historic flood we're cresting at the toad suck community which is affecting Faulkner County and Perry County right now but it
is not yet fallen that much and I know that Little Rock and Pine Bluff are bracing and all points beyond with an estimated I was told 23 million dollars a day and potential economic hit to the state that was occurring when you calculate the economic impact that they have estimated with the probably the damage and the cleanup that is going to come from this it might be one of the most expensive natural disasters in our modern history if not
maybe ever and so I appreciate the hard work of many of you that served when we took up the legislation two years ago you worked hard on the issues you passed legislation to address it but it's time for us to address it again because we've now seen a 500 year event and so appreciate everyone that has been working on that issue I do have someone that wants to make a comment here so I'm going ahead and take that before we get into some of that but let me press that here Senator Irvin you're
Senator Missy Irvin
Unverified
10:22
recognized thank you Mr. Chair and just with your comments yesterday at
public health welfare labor committee we also have made some comments with the environmental issues and so it may be that we just authorize the members of public health many committees to also meet or just authorize them to attend that meeting because there's a lot of questions about public health and environmental issues that obviously are probably going to have
to be dealt with because of the flooding so I appreciate your comments and we'll be our committees will be interested in attending those absolutely we will
Speaker 52
10:58
coordinate that we we do know that we have got many
different meetings are coming up this summer so we're going to try to be respectful of some of those scheduled meetings so that we can have full participation let me see here get rid of this but I also want to mention again just because of the flood issue it's on people's minds Commissioner Kerr has actually been very very aggressive in seeking out alternatives. Many people have abandoned the usage of
the National Flood Insurance Program. For instance, probably a landmark in Conway that everybody's been seeing on the news is the Toad Suck one-stop store. This is a landmark area there because it was one of the highest areas. The people that own that are my neighbors and I talked with them. They no longer have flood insurance on that property. Why? When they purchased the property it $5,500 a year. Their annual premium now is $17,000 a year. Simply unsustainable for most people,
and you can imagine what that's doing to personal homeowners down through that area. Through the work of Commissioner Kerr and his advocacy, I believe we have two private flood insurers available here in the state of Arkansas. I think they're working even on a third because I I had those people reach out to me, and many times we're told that they have better rates than are available through others, and so there will be a lot to talk about on flood, but I wanted to make mention of this because it is a now topic. And so with that, we'll move on so that we can get through our agenda.
I'd like to take up now, I need a motion to approve the minutes from the December 10, 2018 meeting. I have a motion. I have a motion from Senator Bledsoe, a second from Senator Irvin. All those in favor say aye. Aye. All those opposed, no. Minutes are approved and also need a motion to authorize chairman to approve special expenses incurred by the Senate and House Insurance and Commerce Committees. You may have already looked at the exhibit. I would entertain a motion for that now. I have a motion from Senator Bledsoe. I have a second from Representative Lundstrom.
All those in favor say aye. All those opposed no. So that is approved. We do have five different interim study proposals that are here. In the pursuit of trying to get through the agenda today because we have a lot of people that are going to be speaking on the federal banking prohibition on marijuana, I would just like members to take a look there. If you have a particular question or there is a sponsor that would just like to make a comment i'd be happy for that but i
would like to just adopt all of these uh in one motion is there six okay it was on the other page i apologize so there's six of them and um is there anyone here that would like senator johnson if you would you push your mic sir so that we
Senator Mark Johnson
Unverified
14:05
can get you you. All right, Senator Johnson,
you're recognized. Thank you, Mr. Chairman. I would move that we approve these proposals in batch, all six of them.
Any questions at all before we vote on this? Seeing none, I have a motion from Senator Johnson to approve all six of the interim study proposals for study during the interim here. I have a second from Vice Chairman Representative Lowry. All those in favor say aye. Aye. All those opposed, no. Motion carries, and the interim study proposals are adopted. And that allows us to be put in a position to get into the hearing today, which is really most of the testimony today will occur on this issue.
I will make mention to you that we did invite several officials that represented different federal agencies that speak into this issue. We do have some letters that I believe have been provided, which we can refer to at a point and I think are on your, let's see here just a minute. We do have a couple of, we opened this up obviously to marijuana business owners that are active in the state.
We do have one person that has arrived here today that wants to speak on this issue from that perspective, and we'll keep that in front of me just a minute, that wants to speak on this issue, but we have been advised that we did invite specifically a dispenser, I believe, and a cultivator, and they decided they did not want to come and speak, and that was the Bold Team LLC cultivator, Mr. Drennan, and Green Springs Medical LLC dispensary, Mr. Vincentic, and so we do have
Mr. Rhoda here. So Mr. Rhoda, if you would like to come up and take your position at the table, if there are anyone else that actually would like to speak on the issue from the perspective of the industry itself, being the marijuana, quote unquote medical marijuana that has been approved here in Arkansas, if you want to speak on this, I want you to make yourself known and the committee will try to get your name so that we can allow you to speak so we will have I
believe it's a handout that you have here is it a two-pager okay this is a two-pager that I'm going to approve to be handed out to you I have not read through all of this but this is actually from mr. Rodin why don't you go ahead and introduce yourself to people while they're
Dan Rhoda
Unverified
16:45
handing this out and who you represent sure thank you mr. chairman and thank you all for your time my name is dan rhoda i am the co-founder and ceo of a company called abaca we are a financial technology
Senator Mark Johnson
Unverified
16:59
company that assists banks and credit unions chartered financial institutions in the regulatory obligations that are required of them in order to serve the medical marijuana industry we are currently working just a minute i just want you to introduce yourself i'm gonna let them
Speaker 52
17:15
get this in front of them for just a moment all right we'll have you proceed
with testimony in just a second members kind of signal
when you've got some of this information and then we'll start proceeding here with testimony I think
they're about to get it passed out I do want to prep members here that we do have Sabrina Bergen here from the American Bankers Association she's traveled in from Washington DC to speak on the issue today and obviously have Candace Franks the bank department. We have Rob Robinson the board chairman of the Arkansas Bankers Association Commissioner Kerr. We do have a written statement from Attorney General Rutledge and a written statement from the Commission itself
And then there's quite a bit of printed information that I hope you'll draw your attention to and so with that I do want to remind everyone including those presenting that this is being live streamed across our system and is being recorded and so with that I want to yield back to you Mr. Rhoda and I do appreciate you reaching out to me personally the past couple of days and I know we've met when you were in another industry and and so I'm anxious to hear your comments and we appreciate you for actually speaking up
the issue at hand obviously is the fact that we understand there is a federal prohibition frankly on any banks handling money related to the marijuana across the country and for that matter it's still illegal federally and so we do appreciate you contacting us and wanting to speak up with that we yield to you for your presentation then we'll have questions afterwards great well thank
Dan Rhoda
Unverified
19:01
you very much mr. chairman again I appreciate you allowing me to speak and
I appreciate everyone coming today
Senator Mark Johnson
Unverified
19:07
and taking time to hear about this issue because it is important and it is timely as the medical marijuana industry launches here in Arkansas irrespective of the obvious clear and very challenging conflict between state and federal law the reality is that the industry is here sales have begun and so it's important that we talk about the the actual facts when it comes to this industry and the availability of financial services for
this industry. And so as I said in my introduction, which can kind of run long, sorry about that, my company works with financial institutions to enable them to serve this industry. We are using some regulatory technology that we've developed right here in Arkansas. And the root of what we're doing, the core of all of this, the legal framework, is this 2014 FinCEN guidance for financial institutions providing financial services to what they deem marijuana-related businesses, MRB. And you'll hear this term used quite
frequently in that document, which was provided among the exhibits you guys received, and you'll hear that parlance used quite regularly in this industry. An MRB is a marijuana-related business that could be a grower, cultivator, a dispensary, or any number of businesses that are ancillary to the industry. And this 2014 guidance that came out, it's important to state first what it is not. It is not a safe harbor. This guidance does not provide any sort of safe harbor or legal protection for financial institutions to serve this industry.
It just doesn't do it. There is none. But what it does do is set out a framework that institutions are expected to follow if they want to serve this industry and do so consistent with their Bank Secrecy Act and anti-money laundering obligations. And so under this guidance, which came out in 2014, a number of institutions have, in fact, begun serving this industry. The latest data, which this fact sheet from FinCEN, the Financial Crimes Enforcement Network, was included in your handouts as well,
the latest data tells us now that over 5% of the chartered banks and credit unions in this country are in fact offering depository services to the cannabis industry, about 633 total. And these institutions have filed a sum total of over 61,000 marijuana-limited suspicious activity reports with FinCEN. What this report indicates is two things. Number one, that the bank that filed the report is, in fact, providing a financial service to a marijuana-related business.
And two, that that bank believes that the business to which it is providing that service is operating in compliance with state law. because what the guidance tells financial institutions they need to do if they're going to serve the space is observe and report. There is a tremendous customer due diligence obligation, and banks are required to monitor every dollar in and every dollar out of marijuana-related businesses' accounts to validate that every transaction that occurs in that account is, in fact, a compliant transaction, and that's a tall order.
Different institutions around the country are addressing this in a number of different ways. Again, we're addressing it with some locally developed technology. But there are a few ways that these banks are doing it. These sum total of 633 banks now that are filing reports that indicate that, in fact, to some degree, they're working with the industry. And so that's on the national level. Here in Arkansas, I thought it was especially important to get in front of you guys and let you know the reality on the ground. which is that our company has been working with a state chartered bank
to enable it to serve the space, which they have been doing since last summer. And I will say the bank we are working with is not the bank that was written about in this week's issue of Arkansas Business. If that was going to be a question later, I'll address that now with a no. But we are working with a five-star rated for safety and soundness state chartered bank with a clean regulatory history that has been serving this industry since the summer. In fact, using our technology, this bank has handled over $6.5 million in deposits
from locally owned cannabis businesses, and we've processed about $4.5 million in B2B transactions between these businesses and their vendors. And as you can see, this is an industry that has a pronounced economic effect on every state in which it enters, not just the direct transactions, but the transactions of companies that support these businesses as well. And so if you had concerns that perhaps cannabis businesses in Arkansas were unbanked and were having to do these transactions in cash, having to use cash when they pay their electric bill,
having to use cash when they go over here to the revenue office and pay their state sales taxes, some may still elect to do so. But the vast majority, in fact, are banked through my company or through a couple of other financial institutions in the state that, in fact, are also relatively quietly providing services to the industry. And I wanted you all to be aware that, you know, that cash was off the streets. It's not driving around the state in vans right now. It's, you know, in other states, especially at the beginning of the cannabis industry starting in the U.S., you did see some public safety consequences.
You saw reports of crime, robbery. You know, the criminal element isn't so much looking for the marijuana. In fact, what they're looking for is the large volumes of cash, whether they are real or perceived. And so, for public safety reasons especially, I think it's very important to correct the perception that this industry is largely unbanked. The data at the national level says it's about 75% banked. Here in Arkansas, I believe that number to be even higher. And so, you know, it is my prerogative to come here before you all and, in fact, go everywhere I can to shout it from the rooftops.
The cannabis industry is banked. The money is in the bank. It's not running around the state in a bunch of vans. and, you know, take your criminal enterprise ideas elsewhere is, you know, the message that I would like to get out there because that is reality. Finally, on the subject of, you know, clearing up the obvious and challenging conflict between our state law and the federal law, my opinion is that the Safe Banking Act, which is proposed, really wouldn't go far enough to fully open up
the realm of all financial institutions to this industry. I think the federal government needs to come in and fully de-schedule and reschedule marijuana if it wants to do that. In the interim, in the absence of that, you are left with an industry that requires a very high level of compliance and a very high level of due diligence in order to be able to provide financial services. It's challenging, and it does cost the industry money, which is why the industry is so strongly supporting things like the safe banking act but at the end of the day the reality that i want you
all to be aware of is that the industry is in fact largely banked and if a marijuana business in the state is out there saying that they are forced to operate cash only that is not correct that is their choice and with that i will take any questions you guys have members please ring
in and we do have members starting to ring in on this i will i there's a lot i do want to ask one thing before we get started you had mentioned that uh there were six and a half million if i'm not
mistaken of money that has already been transacted since last summer that's in relation to the state chartered bank that you mentioned that you're working with
Speaker 29
27:10
is that correct uh six and a half million in deposits about four and a half million in b2b
transactions business to business okay and And so that obviously
Speaker 29
27:21
is before the commencement of sales. The vast majority of that transaction activity took
prior to the commencement of sales. That is correct. And are the marijuana-related businesses opening these deposits directly,
or are they utilizing you, and you can clarify this to make sure, because it is important that we're very technical about what's happening, are they using you as a moderator or a middleman, so to speak, where you are actually the one that is opening an account and you are transacting it on the other side between you and
Dan Rhoda
Unverified
27:55
those businesses? That's a great question, Mr. Chairman. We view ourselves and our technology as the bridge
Senator Mark Johnson
Unverified
28:00
between these businesses and the institutions which want to provide financial services to them.
Speaker 29
28:06
And as you pointed out, it is a very important distinction. The businesses we're working with here in Arkansas, they hold their accounts directly. These are bank accounts held by the charter bank we work with that are titled directly to these licensed businesses. In every case, the account is in fact titled to the very same entity that was awarded a license by the Arkansas Medical Marijuana Commission. And so the company's depository relationship is in fact directly with that institution, but the institution utilizes our technology to do a few things.
Number one, to monitor all of the transaction activity and to assist the institution in its compliance burdens. And two, we replace the typical web banking interface with something we've developed that is a limited functionality. Think of it as web banking with more rules that is designed to help force the business owners to place themselves in compliance with the guidance. From an anti-money laundering perspective, the biggest thing we're looking out for is to make sure that these marijuana businesses that have been licensed in the state are not really pretexts for money laundering or other organized crime.
And so by heavily vetting the business owners and the places where they are sending money, we can give some level of assurance to our bank partner that these are legitimate transactions funded by real duly licensed Arkansans and they're not actually masquerading as a front for the criminal element. Boy, you said
a lot there. I have a habit of that. I apologize, Mr. Chairman. So what you did clarify is that the businesses directly have an account with this bank.
That's correct. You also mentioned in your opening statement, you acknowledge that current law says that's illegal.
Dan Rhoda
Unverified
29:53
Correct? That is indeed the difficult gray area in which we live
Speaker 29
29:57
in, although I'm hopeful you'll hear some testimony from our state bank department later that there is no valid reason under state law why these institutions can't provide financial services to this state law-authorized industry. It just happens to
be with that old adage of the supremacy of federal law that that becomes problematic.
I'm not going to wade too deep right now, but boy, I could. but it's very clear that this is illegal under federal law but you're proceeding anyway and and I will say that the for instance the FinCEN position that you mentioned the SARS that are having to be reported the only thing that has opened latitude in that arena would be the basis of memos such as for instance the Cole memo was that correct and in fact the Cole memo as you
Speaker 29
30:51
know has been retracted, but the principles that it sets forth in terms of compliance for the industry, discouraging fronts for criminal organizations, transfer of product across state lines or to minors, those enforcement priorities are still in fact enshrined in this FinCEN guidance that remains in effect. And to
make sure that we both know, because you and I have had a conversation, regardless of people's opinions whether they believe marijuana usage is good or not. Today, this hearing is more
about federal law and state law and the guidance for the rule of law in our state and the country. And so what I wanted to make clear there is that regardless of that, because if all of us are not careful, we quickly get into whether we like it or we do not. And my interest is on what is the standard by which we move forward in a civilized way in society in a nation that is supposed to be based upon the rule of law. And so what I want to clarify in stating all that is that really
there has been no congressional law passed that has changed the standard which marijuana is a Schedule I and that it is illegal to possess, to distribute, to grow, to cultivate, to handle money, et cetera. That's correct, right? That's still illegal. Absolutely correct. Okay. And so what we need and what we want really is the federal government needs to make a change. There needs to be congressional action, which was the SAFE Act, which the latest information that we
have from NCSL, which is provided in the packets for the members, is that it may falter, that it actually may not be passed. Is that correct? I could bend your
Dan Rhoda
Unverified
32:38
ear about the SAFE Act all day and whether or not it goes far enough, I think we could agree it would be a step in the
Speaker 29
32:45
right direction of clearing up a mess that the federal government has created and has left us here at the state level to deal with. Okay. I'm going
to yield for now so that we can get some of these questions, but I appreciate you answering a few there.
Representative Murdoch, if that is Representative Murdoch, where are you, sir? I have you, sir, if you still want to
Speaker 41
33:09
ask a question. Thank you, Chairman. and you really, to some degree, you at least addressed a lot of what my general concerns were, what the law, federal law still is, and how we still operate, and how, what, what, are you, under what authority are you operating in Arkansas?
Dan Rhoda
Unverified
33:30
So primarily, we follow the FinCEN guidance. I guess under what authority we operate would be that
Senator Mark Johnson
Unverified
33:36
the bank we partner with is a chartered financial institution, a state chartered financial institution. The regulatory framework under which we operate primarily is the FinCEN guidance from 2014 that remains in effect, doesn't provide a safe harbor, does not clear up the conflict between state and federal law regarding the legality or illegality of marijuana. But what it has done is set forth a playbook that institutions have begun to follow.
Speaker 29
34:04
And we began to study this here in Arkansas, found a handful of institutions in Colorado and elsewhere that were doing it. I was surprised by the latest data to hear that, in fact, over 600 financial institutions in the country were filing reports that indicated they were also operating under this guidance. It's more than I would have expected. But what's really interesting about this is that despite the lack of clarity from the federal government, financial institutions that are operating, serving the marijuana industry in accordance with this guidance, among those institutions, there's no known example, no known instance of a financial institution losing its charter or losing its depository insurance solely for providing financial services to the marijuana industry in a manner that is consistent with the guidance.
Speaker 27
34:53
And so, you know, that guidance is our Magna Carta, to answer your question,
Speaker 41
34:59
sir. Are there any protections for the, you know, as we deposit money in the, you know, we're protected by the federal government through various means with our monies and banks and financial institutions. Is there any, so there's no safe harbor, and you may be answering my question about that. So for these people that are
Speaker 45
35:20
utilizing you or the businesses that are utilizing you, do they have protections against?
Senator Mark Johnson
Unverified
35:26
They do. When I say there's no safe harbor,
I'm talking about the institution. There is no safe harbor from prosecution or regulatory action against the institution. For the consumer, for the licensed marijuana businesses
Speaker 29
35:39
that hold accounts at our bank, they directly hold those accounts. And that's why Mr. Chairman's question was so important earlier. Because the account is directly titled to this licensed marijuana business, they are, of course, the beneficiary of the bank's FDIC insurance policy as well.
So they are real FDIC-insured accounts, and this is happening at most of those several hundred financial institutions that are filing these suspicious activity reports. And again, no known instance of a bank losing its depository insurance simply for providing these services. so it's it's a gray area and it's a a frustrating gray area but that is the reality
Senator Mark Johnson
Unverified
36:19
in which we operate wow okay i mean that
Speaker 41
36:22
didn't really clear up anything but it just redefines i guess what the murkiness is so uh but
Speaker 52
36:31
representative murdoch i just want to
add on here as i listen to your
exchange uh the scenario to help us understand here locally this would be much like uh candace franks at the bank department deciding that she is going to allow activities to occur which the arkansas legislature signed into law that prevented her from doing so and we've sat through any number of hearings in this very room where we've pulled in leaders of
dhs leaders of agencies and they're grilled overtaking actions that are not authorized by the legislature. And what's happening, that's what's happening at the federal level, is that you have bureaucracies, bureaucrats, and we don't want to politicize this, but let's give the framework. This clearance that came up from the memos occurred under the Obama administration. That's when the memos came forth that opened the door, which has allowed all of this to
promulgate in the different states. And so now the current administration is dealing with guidance that was given by the former administration and you're wrestling with the guidance from the memos is absolutely contradictory to the federal law right and now I noticed a lot of members perked up when we start thinking about DHS we've had these conversations locally but what's happening is that the federal level that is the conflict and that's where we're left with this situation we're basically we're all supposed to have a wink and a
nod that everything's okay and we're going to wait for the federal law to catch
Speaker 41
38:12
up to what's happening out here. Yeah, and that's a great point you make, and I agree at the federal level is where it started, but of course, as you well know, and again, not to politicize it, but the current president hasn't had any problem so-called fixing anything that President Obama did. He had no problem undoing those things so hopefully this will catch up as soon as well as he's done in
some other that is a valid point and i actually agree with the point and with that i'm gonna move to the next question here seat 83 is that senator hammer you're
Senator Kim Hammer
Unverified
38:49
recognized sir thank you mr chair who is it that regulates your
Senator Mark Johnson
Unverified
38:55
industry and what you do Uh, so a few different, uh, government agencies, I would suppose have regulatory purview over financial technology, uh, which in general as an emerging industry, uh, also sometimes falls into some regulatory gray areas, but there is a regulatory component at the federal level under, under FinCEN.
There is also a regulatory component at the state level, not just at the state banking department, which regulates our partner bank, but in fact the state securities department, which regulates, among other things, money transmitters. They may even have regulatory purview over certain aspects of our operations. So a handful of different agencies at both the state and federal level. Okay, and I want to make a statement, and don't take
Senator Kim Hammer
Unverified
39:37
offense yet, but I'm just trying to get my mind around this. So is your industry a legalized loophole to get around the federal laws that limit the banks
but allow the medical marijuana industry to have a place to deposit the funds? No, sir, we're not
Senator Mark Johnson
Unverified
39:55
a loophole. All we do is enable the banks we work with to serve the industry consistent with
the existing guidance. So we don't create any new loophole. We are, to elaborate, what the first banks and credit unions that began serving the cannabis industry consistent with this guidance did to meet the regulatory burden was primarily hire many numbers of human compliance officers and do a whole lot of manual compliance and reconciliation.
All we do is use technology to reduce that workload. So we've not created any new loophole or method. We're merely facilitating a bank in its quest to meet this guidance. Okay, and are you the, did you
Senator Kim Hammer
Unverified
40:38
produce this handout that we have? So I gave you two,
Senator Mark Johnson
Unverified
40:43
one from me, the Cannabis Banking Facts, and then I believe the one you held
up came from the Arkansas Cannabis Industry Association, of which I am on the board. I just thought there were some good general economic statistics in that figure
regarding the predictions for the industry nationally and here in the state. So the one I produced is the one I'm holding
Speaker 36
41:06
up that says Cannabis Banking Facts on it.
Mr. Rhoda, if I might, Senator Hammer, really, because I know people are wondering your technology, what you're doing, are you basically a merchant services provider with some added extras specific to the industry, much because what you're doing is you're providing online technology for the transfer of cash in
these transactions and monitoring and reporting that's typically what merchant services companies will do for the shell station down the street is that so is that is that really kind of the basis of what your service is providing
Speaker 36
41:44
so that is absolutely a component of our business and when
Speaker 29
41:48
we originally started this business we thought that was the entirety of our business as we got into this FinCEN guidance and studying financial institutions that are operating under it, we came to develop, and in fact the man who actually wrote the technology came here with
me, one of my colleagues, and as a lawyer I can't take any credit for any of the software writing or any code. I've never written a line of code in my life. Thankfully
Senator Mark Johnson
Unverified
42:16
I have partners that know how to do that, and I can tell you what our technology is designed to do is use machine learning to reduce the number
Speaker 29
42:25
of human labor hours required for a bank to comply with this guidance so merchant services is absolutely a component to it the other component is what they call regulatory
Speaker 36
42:35
technology or reg tech to use tech parlance okay
senator hammer do you have anything further i'll wait and listen thank you okay senator johnson you're recognized sir thank
Senator Mark Johnson
Unverified
42:48
thank you mr chairman uh mr
rota first of all thank you for coming today and help us clarify some of these issues to follow up on senator hammer's question would it be fair to maybe draw an analogy and and i wouldn't use the word loophole you've already dealt with that but are you is your company a little more analogous to paypal or apple pay uh as opposed to some of
other ideas that people might have. Again,
that's a portion of it, just like Mr. Chairman said with merchant services, that is absolutely
Speaker 29
43:20
a component of our business, is facilitating these transactions electronically, which keeps the cash off the streets, but the other component of equal importance is the one that enables our bank to meet this regulatory burden that was created by this guidance. Right. And you mentioned
Senator Mark Johnson
Unverified
43:36
your partner bank, is there only one bank that you're partnering with? a state chartered bank. Is it proprietary? Can you name that bank or not? I cannot. What I can
Speaker 29
43:48
tell you is this, to answer your first question, yes, we are only working with one depository bank here in Arkansas. We are working with banks in talks with banks in other states and in the industry there is a bit of a profile for a financial institution that sees this FinCEN guidance and actually elects to serve the industry consistent with it. These are generally but not always going to be state chartered institutions, banks or credit unions, and they're generally going to be privately held. And the key there, of course, comes back to the overarching issue here,
which is still the federal prohibition on the manufacture or distribution of marijuana as a controlled substance. A publicly traded financial institution certainly can't look at that guidance and say, well, it really makes sense for us to follow this and serve this industry. They'll have shareholder suit on their hands in no time but a privately held institution could make the same risk-weighted decision that a private person makes when they elect to pursue a cannabis cultivation license or a cannabis dispensary license here in Arkansas or elsewhere so that's where we get the
Speaker 36
44:54
profile of these institutions that are serving this industry so would
Senator Mark Johnson
Unverified
44:59
it be fair to say that there's this model has been replicated across the country in states that have adopted similar, including even recreational marijuana laws? Yes, in some form
Speaker 29
45:13
it has. In just about every state where there is some form of legal, medical, or recreational marijuana, it is my understanding that there is at least one financial institution, in most cases more than one, providing financial services to the industry.
I'll give the example of our neighbor to the west, Oklahoma, which passed a medical marijuana program after us, and to be very clear to everybody here, I believe our program in Arkansas is much better regulated and is far superior, especially from the perspective of somebody who does bank compliance, but I will tell you that in Oklahoma already, where they have issued a large number of business licenses already, there are at least three chartered financial institutions in the state that are offering depository banking services right now. I couldn't speak to how well they are complying with this guidance, but that is, you know,
would be their prerogative in doing so okay thank you
mr. Rota thank you mr. chair thank you senator Johnson you've made some excellent points I want to direct members to exhibit F3 and follow up tonight when they when they maybe go home and take a look at this but page three of that which the pages are not numbered you just have to count them but it does state there in the second paragraph marijuana businesses currently can access limited banking services thanks to guidance issued by the justice and Treasury departments during the
Obama administration in 2014 that's really when that that got started it this says in the fourth paragraph but cannabis companies can't qualify for traditional bank loans or process credit card transactions for dispensaries handling cash transactions is the norm and so I want to ask on that is your company processing credit
Speaker 36
46:57
card transactions related to this yet no sir Visa and MasterCard don't
Speaker 29
47:03
allow it although of note Visa and MasterCard
were in fact allowing credit card transactions for cannabis to be processed on the rails in Canada the very first day of recreational sales in Canada which was last year there are a number of other solutions which work in the industry and generally require having your own proprietary payment rail including what we've developed on the payment side in Arkansas and so what we're launching this summer is a payment application that a patient will link to their medical marijuana card so it only works if you are a licensed duly licensed
Arkansas medical marijuana payment and you can link that with your bank account and take that to purchase at any dispensary that is participating in our program across the state. Depository banking is an issue for this space but as you pointed out lending is also an issue and and merchant processing also continues to be an issue as well but that's really where the the merchant and the PayPal or Apple pay kind of analog component of our business comes in I've
Speaker 52
48:08
got two more people ready to ask questions of you I
do want to ask just to keep keep everybody tracking it's not just banking there is a prohibition of you actually having insurance many insurance companies will not insure any of the assets in which these companies have invested in. They won't even insure them for fire insurance.
Dan Rhoda
Unverified
48:31
Is that true? I believe that's correct, that most insurance companies have
Speaker 29
48:36
an exception to coverage relating to use of the property for federally illegal activities,
which this would certainly qualify under. However, there are a couple of small underwriting agencies that are, in fact, writing policies to marijuana businesses. I don't know quite as much about the insurance side of the business, but my information is that there are a few specialty underwriters doing this, that the bulk of businesses in the space are insured. But I would believe that those insurance companies also have an obligation under that FinCEN guidance, and so there's absolutely going to be an increased price paid as a result of that.
One of the reasons that in the securities industry, and I see at least one person with the Arkansas Securities Department in here today, Many, many years ago, cash was prohibited from even deposits at any securities office. The reason for that was money laundering. And what would happen is that you would have people involved in these illegal activities that might come in and put a million dollars into an annuity. And then suddenly within 12 months or maybe 16 months, 18 months, they come in and suddenly say, oh, things have changed.
I've got to cash this in. They put in their request to cash in. And they say, well, sir, don't you realize you've got a 10% penalty? Oh, I know, it's a bad deal, it's a really bad deal, but I've just got to take the money out. And so they've washed that money because now they've got a check from the insurance company for the annuity. And so these are why many of these laws have been put in place, and you are actually in an area which is absolutely blowing apart what was known to us and how we would actually handle that issue.
And so with that, Representative Ferguson, number 56, if you're still there. Allen. I'm sorry, it's
Speaker 52
50:28
not Representative Ferguson. So go ahead, Mr. Allen. Thank you, Mr. Chairman.
Representative Fred Allen
Unverified
50:34
Thank you, Mr. Roto, for coming. Is your company the only company that's providing this kind of service in the state of Arkansas? TO
Dan Rhoda
Unverified
50:44
MY KNOWLEDGE, YES, WITH AN EXCEPTION THAT I BELIEVE THAT THERE MAY BE ONE OR TWO OTHER
Senator Mark Johnson
Unverified
50:51
DEPOSITORY BANKS THAT ARE PROVIDING ONLY DEPOSITORY SERVICES ON A VERY LIMITED BASIS TO ONE OR TWO MARIJUANA-RELATED BUSINESSES IN THE STATE. WE'RE CERTAINLY THE ONLY ONE DOING IT TO ANY LARGE DEGREE AND PUBLICLY STATING THAT IT IS WHAT WE'RE DOING. SO
Representative Fred Allen
Unverified
51:05
NO OTHER COMPANY OUT THERE POSSESSED THE KIND OF SOFTWARE THAT YOU POSSESS? I mean,
Dan Rhoda
Unverified
51:12
certainly I like to think that it's pretty special, it's proprietary to us, but I will tell you that in
Senator Mark Johnson
Unverified
51:18
other states there are companies that do various forms or fashions of what we do,
work with banks to allow them to serve marijuana-related businesses in those states. Thank
Speaker 52
51:31
you. All right. I don't know, is it Representative Love? Is he in 83? Who's 83? That's me. So back to you,
Senator Kim Hammer
Unverified
51:39
Senator Hammer, you're recognized. Thank you. On your handout, you cite a figure that's on
the Arkansas Cannabis Industry handout, and that is the $67 million that's anticipated by 2025. Is that number strictly for medical marijuana,
or are you throwing recreational marijuana in there
Senator Mark Johnson
Unverified
52:01
in order to get up to that $67 million
Speaker 54
52:03
annually? That, to my knowledge, is a projection based on medical
Senator Kim Hammer
Unverified
52:08
marijuana only. And do you know how that number tracks to what was presented to the public and to the legislature as far as is that the number that was projected when this whole debate started several years ago? I would
Senator Mark Johnson
Unverified
52:22
doubt it because these are industry projections. They came from Marijuana Business Daily, a pretty well-respected publication that puts out a pretty heavy set of industry data every year and projections that go along with it.
But I would think as a general rule, projections that come from the industry might be a little more optimistic and projections that come from a state revenue agency might be a bit pessimistic. So my recollection personally at the time when hearing the state revenue agency's initial projections for the industry was that I thought they had shot it a bit low. And they might say that Marijuana Business Daily has shot it a bit high here. That's, of course, the beauty of projections. But to answer your question, no, I think that's probably a bit higher than what was reported, you know,
in any prior conversations in this room or
Senator Kim Hammer
Unverified
53:07
elsewhere at the Capitol. All right, so 67, what I just heard you say is $67 million is a high
Speaker 46
53:15
estimate. Reasonably achievable, but high estimate, yes. Okay, thank you. All right,
I have no further questions in queue. Mr. Rhoda, would you like to make any closing remarks to us? I will say to you, thank you for coming. I do appreciate you reaching out because it's important for us to hear, you know, what's happening from within this burgeoning industry.
And I will say also, and I even told you, I said, you know, you may or may not really want to speak because, you know, you put yourself in a pretty bold position, a very courageous position from your perspective because it's very unusual. I don't think that I've ever been in a hearing in which we have identified that actually there is illegal activity under federal law occurring. And we're just here discussing it as if it's a normal thing for our state.
Speaker 62
54:10
Yeah, thank you, Mr. Chairman. I will certainly agree that's an unusual
Speaker 29
54:14
circumstance. But at the end of the day, I felt I had an obligation to come here and set the record straight. So I appreciate your time. I appreciate you all hearing from me. One thing I do want to clarify, going back to a prior thing you said, the current presidential administration inherited this mess. They did not create it. And the new attorney general, when Jeff Sessions came into the Justice Department, he immediately dispensed with the coal memo, immediately.
At the same time, Steven Mnuchin, Secretary of the Treasury, was quoted as saying that he had no intention of retracting the FinCEN guidance. you know he was handed that and maybe he didn't love it but the quote and i'm paraphrasing at the time was that he didn't want to see all of that marijuana cash back out in the streets and and frankly we don't either and so what we all acknowledge that we're existing in a gray area that we didn't create uh you know we're doing our best to help clean it up help keep things above board and again our prerogative from day one has been to keep that cash off the streets and so
that's that's what we're here to do well i do appreciate that i also will point out to you and i know that you you were asked the question of the name of the bank i think it's very interesting also that you have activity occurring in our state in which you refuse before a legislative committee to reveal the name of a bank that you say is operating within the law it's so i'll leave that for now but i do appreciate you coming and thank you for presenting it is helpful to all of us
with that members i do want to interject one person that is not on the agenda that does have relevant information for us as we then begin to hear from all of the other departments that are affected or have a voice and that is doralee chandler is here i spoke with dfna earlier today and doralee has agreed to come and actually give us an update i think it's been reported in the news that Arkansas sold about twice as much medical marijuana in just the opening days as has other
states that also did the same thing and so I think Doralee Chandler is going to present and just for the sake of repetition would you please go ahead and state your full name and your position and who you represent for the
Speaker 82
56:33
record this morning. Thank you chairman Doralee Chandler I'm the
Speaker 83
56:39
director of alcohol beverage control. Okay and you're recognized. So we ran the figures this morning the cultivators have accumulated sales between the two cultivation units that are up in and currently harvesting approximately seven hundred eighty six thousand dollars at
this point for the month of May the two we have currently two dispensaries that are open in operation the combine total for
Speaker 84
57:02
the two of those dispensaries are eight hundred and sixty thousand dollars okay
Speaker 52
57:09
I'll make sure I heard that right was the combined total so that was the cultivators and the
Speaker 82
57:15
dispensaries that I combined the two cultivators together so for seven hundred seventy six thousand eight hundred
Speaker 84
57:21
forty eight dollars the dispensaries between the two of them
together have raised eight eight hundred fifty six thousand okay so you're you're
quick figure there but members any questions for Ms. Chandler about the actual activity that's occurred, the numbers. Senator Hammer. Thank you. Let me
Speaker 57
57:48
ask you that you heard the maybe you've seen
Senator Kim Hammer
Unverified
57:53
the handouts got 67 million on there. Is it too early for you to
make a judgment call as to whether the reason they've got 67 million based on the previous testimony that was just given is if the only way they could get there is if they throw the recreational marijuana in there in order to get to that 67 million projected by 2025 it is a
Speaker 83
58:16
little early for me to make an estimation on that this is two cultivators two dispensaries up in operations for one month is where these figures come from so they would have to continue at this right over those years to
Speaker 5
58:35
thank you, Mr. Chair. Since you are answering questions about the actual industry, not just the financial aspects of it, a question has been presented to me by a constituent. I know the law specifically states that the dispensaries can only sell marijuana that is cultivated in the state of Arkansas, correct? Correct. Is the ABC and DFA responsible for the enforcement of the the issue that's been presented to me is
that you know marijuana doesn't just grow in a vacuum it has to start from seed where would that seed have come from if it were not already legal in the state
Speaker 83
59:22
of Arkansas we don't not have knowledge of where the actual plants where seeds come from once they enter that cultivator or that dispensary is when ABC enforcement actually interjects and starts monitoring through our seed to sell software.
Speaker 5
59:37
And the dispensary has no obligation to the
state of Arkansas to inform you of where their plants or seed came from? The dispensaries as far
Speaker 83
59:46
as those that are cultivating would fall under the same rules as the cultivating only facilities and so we do not have knowledge of where those seeds. I know that several of them are actually purchasing those seeds and plants from the existing cultivators within the state. Okay. But there had to have been
Speaker 5
1:00:04
a genesis somewhere. For the initial cultivators to start. Yes, okay.
Speaker 52
1:00:11
Or you had the immaculate marijuana conception. Well, yeah, it could be.
It has been called that, yes. Well, I think that Chairman Lowry is definitely pointing out the fact that obviously uh federal law on the interstate uh trafficking of marijuana and the seeds has occurred at some point uh at least to allow this to begin and so i appreciate the question senator
Senator Missy Irvin
Unverified
1:00:46
miss chandler how are you um you what the how do they report that financial
information to you is that something that we have legislatively or are you calling them and asking them or is there a reporting mechanism
Speaker 83
1:01:00
this is actually coming from our seed to sell purchasing our their pos system is interlinked with arkansas stems a program that we use to track all sales inventory from the time that it enters those facilities and exits so every time they ring that transaction up we have a almost a live view of what has been sold so this is the cultivator
Speaker 105
1:01:24
sales are through the month of may the dispensary sales are actually uh through today when i ran
Senator Missy Irvin
Unverified
1:01:30
the report and those are sales that's not gross profit correct okay so that's just we're just so okay that sells for tax purposes for purposes okay and um the system that you're talking about Was that something that we had purchased through
Speaker 83
1:01:49
alcohol beverage control? It was actually purchased through the health department and set up through them. But our ABC is administrating and tracking between administration and enforcement.
Senator Missy Irvin
Unverified
1:01:59
Okay, okay. That's good to know. And as far as those are the sales, so do we know, is there any follow-up as to, or have you had conversations with them about regarding banking and the different presentation that we heard earlier? We have not had any conversations regarding the banking
Speaker 93
1:02:16
aspect. And I'm assuming that enforcement and security
Senator Missy Irvin
Unverified
1:02:19
is a big issue for each of them. Correct. Okay. Thank you. Appreciate your testimony.
Speaker 52
1:02:32
Representative Love, I believe you're in the queue again. I'm sorry, Alan. I keep trying to get Fred Love to say something. Oh, that's okay. Thank you, Mr.
Representative Fred Allen
Unverified
1:02:44
Chairman. If it's illegal for the
feds, according to the feds, to sell marijuana, are we collecting taxes illegally? Well, that's actually
Speaker 82
1:02:55
going to be a question better addressed to the tax, because we
Speaker 83
1:02:58
just simply monitor to make sure that they are selling it within the parameters of the constitutional amendment.
So I believe the Constitution had in it provisions for tax, and we have statutes in place for that tax
very well be in violation of federal law Okay, thank you Representative Allen, you hit a very critical point If it's illegal for banks, credit unions, financial institutions to deal with cash I have actually made some aware I've asked and made the point that it also would be the same for anybody
handling cash whatsoever in any other realm and absolutely if you're strict have a strict reading it's illegal for anyone to handle cash and anyone to have anything to do with the financial transactions and that absolutely frankly includes the state of Arkansas but yet we have this situation and I thank you for bringing up the question because now I won't be blamed for it but but thank you any other questions here I do see Senator Chesterfield's come back here so Senator Chesterfield thank
Senator Linda Chesterfield
Unverified
1:04:13
you mr. chair you I had all of my questions were
answered so I got out of the queue and then I came back how many states currently have medical marijuana that is legal
Speaker 83
1:04:24
I don't have the exact figures in front of me I know there's at least seven but I don't have the
Speaker 52
1:04:32
exact number of states with me senator chesterfield 28 the exhibit
it may very well be i'm sorry i was trying to give you an answer the exhibit f3 from ncsl does state that today 10 states allow adults to possess small amounts of marijuana and more than 30 states allow adults to use marijuana if
they have a quote unquote prescription and so that does give you your
Senator Linda Chesterfield
Unverified
1:04:55
answer all right thank you that does give me an answer because those seven states you're referring to are for recreational use
Speaker 52
1:05:03
is that correct uh it didn't say seven
Senator Linda Chesterfield
Unverified
1:05:05
ten ten states for recreational use and then the majority of the states have it uh for medical purposes is that correct so the federal government would be running around trying to arrest everybody in 30 states is that about it since we're having this intellectual
conversation as to the feds versus the states and then we talk about article 10 also our power is not given to the federal government nor denied to the states belong to the state so we're dealing with that issue as well is that correct correct oh reluctant to answer are we well this is outside of the field
Speaker 83
1:05:41
of what abc administration deals with we deal with just the regulation of dispensaries and cultivators and so you're regulating and how
Senator Linda Chesterfield
Unverified
1:05:47
many folks have been arrested do you know as a result of this by the federal government i'm unaware of
Senator Linda Chesterfield
Unverified
1:05:56
you aware of any in the other state as you look at
this area because i i've not heard of it i suspect i see mr kerr over there shaking his head is that a nobody's
been arrested yet actually you're asking a question that there's a person not here to be able to answer and that would be the federal authorities i can tell you that in this state just a few weeks ago actually Well, it may be months now, but they did intercept a shipment of plants that were coming into the state, and they made an arrest, federal arrest, on those plants being shipped in via UPS or FedEx.
Senator Linda Chesterfield
Unverified
1:06:29
That would be interstate commerce, though, wouldn't it?
It's also the federal law. To answer your question, right now every one of these states are in violation of federal law, and that's been
Senator Linda Chesterfield
Unverified
1:06:40
made clear. Well, I understand that part, Mr. Chair. I understand that the federal government has chosen to say that we are not going to change the law to accommodate the majority of the states. I get that part. I'm trying to ascertain, though, as we talk about it, I do know that the previous administration said we would not be prosecuting.
But with the current administration, I would be interested to know if anybody, since their position seems to have changed from the previous administration, if anybody had been arrested. That was my concern. I understand what federal law says about it, but when you've got 30 states that are engaged in it, it would be interesting to know, since there supposedly has been a change in policy, if that change in policy has resulted in federal arrest. Interstate commerce is a totally different thing, but those of us who know this state realize that you don't have to go anywhere to any other state to have what is needed
to grow marijuana because it's been grown here illegally for years. So that's what I was trying to find out.
but thank you so very very much thank you sir Chesterfield senator Johnson you're recognized
Senator Mark Johnson
Unverified
1:07:51
with the last question for Miss Chandler thank you mr. chairman Miss Chandler this
is a little bit of a follow-up on co-chairman Lowry's question your agency monitors the three tiers of the alcohol
industry pretty carefully so you know how much beer is shipped therefore no one is becoming a sending in something that's untaxed or whatever you monitor that at all three tiers correct and his question had to do with seeds which you know we can laugh about the chairman's remark about immaculate conception but still that seed had to come from somewhere and it's not so much the sources it is the volume for and what i could see a potential for abuse where a legal licensed
cultivator could be you know they've got the sort of on the books seed and on the books plant and your agency modifies or regulates that but if there's also back in the corner the the off the books seed and the off the books plants which would yield the off the books inventory which might go out the back door and you see where I'm headed on this and I'm curious if you don't know
the source of the seed and therefore is there not a big disconnect here on the ability of your agency to keep up with exactly what's since you know what's going out at least the front door But is there a problem with maybe seeing where the it's going out the back
Speaker 83
1:09:28
door? And we actually know what's what could potentially be going out the back door once the those plants or seeds arrived on the cultivators facility There was actually an enforcement agent present They were inspecting before any plants arrived and they inspected and were present on the days of delivery those cultivators are now
Now, creating their own plants through the cultivation process, each plant has a barcode on that plant that goes through the system. So if they're going to destroy it or harvest it, it goes through the tracking system. If it is a seed, there are batches, and so each tray that has the seeds in them, each one of those seeds has a barcode associated with it. So when the enforcement agents go in to do their inspections, they can check to see and make sure the plant numbers that we have on record match what's in that facility,
Speaker 137
1:10:19
and they have open access to the entire
Senator Mark Johnson
Unverified
1:10:23
facility to do checks. Well, and I appreciate that, and I could see how that would work. But, again, we're not dealing with something as simple as, say, nuts and bolts for a car part distributorship. We're dealing with something that actually reproduces, and I'm wondering if there's a loophole here where it could be just a small amount, 3%, 5%, whatever, goes into someone's pocket
and then goes home to the little flower pot on the back porch. I'm concerned about the – since you said that you're – and correct me if I misunderstood your testimony, that your agency does not monitor the source of the seeds. You couldn't tell us they buy it from Burpee or whoever sells marijuana seed. Is that correct? We don't monitor
Speaker 83
1:11:19
on how it entered the state.
They do have shipping records that indicate how many plants or seeds were purchased from an outside entity, and once it arrives, they have to match that shipping number with the number of plants or seeds that came
Senator Mark Johnson
Unverified
1:11:36
into their facility. Okay I'm just seeing this there's an operation over near Lone Oak that if anyone's gone to Home Depot or Lowe's you bought little containers of a company called Bonnie Plants you can buy your your tomato plants and all that from it well they they take the seed and start
them over at a little place near Lone Oak and they you know obviously it's a huge place it's a greenhouse and they start it but it still has to start somewhere with the seed and I'm just curious and seriously not just curious but seriously concerned that if we're not monitoring it on the the front end you don't know on the back end I know in in the wine country of northern California there's someone from the federal level that ATF I presume that's actually monitors the the grapes as they come in from the field and test them for sugar content so they'll know the
potential alcohol that comes through it so from literally from the field to where it hits the liquor store in Arkansas that is monitored and I'm worried that on the back end that we're missing something here. Well we have
Speaker 83
1:12:43
in place every possible check safety check that we can humanly put in place to monitor this I mean we know from the invoice shipping invoice how many plants have come into the state we don't regulate how they get here but we do know how many have entered the state into that facility and like I said ABC enforcement is there when those plants arrive
they continuously are checking and monitoring those plants to make sure that we keep as tight of rain on and follow these plants all the way from the cultivators to the dispensaries doors and to the patient's hands yes ma'am and
Senator Mark Johnson
Unverified
1:13:19
i appreciate that i'm gonna wrap this up but i'm from a plant standpoint like i said use the bonnie plant analogy that's the little container you get at home depot and there's green stuff coming out the top and you know in a few weeks that's going to be have tomatoes yielding but but the initial seed that that plant was started from
before it shipped to that cultivator that's where i'm concerned about it in fact that you're not Monitoring that I'm I'm seeing perhaps that we need to maybe look at that in the future But I do appreciate you being candid with us about how the process
Speaker 93
1:13:54
works. We are monitoring it And because we have they have a shipping voice
Speaker 83
1:13:59
that they've ordered from another state X number of seeds And when they it enters that facility door We match that shipping invoice to the number of seeds or to the number of plants to assure that what was shipped into the state
number-wise matches what came through the cultivator's door. And that's the
Senator Mark Johnson
Unverified
1:14:16
part where we have the potential violation that the chairman was referring to about. I believe it was over in East Central Arkansas where that arrest took place, didn't it, Mr. Chairman? But I'm hoping we don't have a loophole here. We're going to have to look at filling. But I appreciate it. I didn't mean to take so much of your time. Thank you so much,
Ms. Chandler. Thank you, Senator Johnson. Members, there's no further questions here. I do appreciate you for coming and giving the update there was a question just texted to me and that is have you collected any taxes at all are
Speaker 52
1:14:48
you aware of if the state is actually taking in any tax revenue on this yet so
Speaker 83
1:14:53
the first set of sales tax would not be due until June 20th on any sales because the sales took place
Speaker 82
1:14:59
in May and I believe the sales tax due date would be June 20th okay
so I guess they have until that time to decide whether or not they're going to break the federal law as well you don't have to answer that question we do appreciate you coming and i will just say after hearing all this i think all of us know that many people have been placed almost in an untenable situation because they know that the
federal law prohibits this but yet here we are so thank you dora lee for coming and i'm sorry we're acquainted so miss chandler thank you for coming and being here today members we have four presenters here and the next one up is actually the one that has traveled the furthest distance today we have miss sabrina bergen if she is available and ready i don't know if anybody will be joining you miss bergen but they're welcome to if you want them to and we you'll be recognized we do appreciate you making the journey
and i appreciate your staff for corresponding with me you all have been a staple at the national Council of Insurance legislators over the years presenting on behalf of the Banking Association across the country and we thank you all for making an attempt to come and enlighten us on what you see I think it's probably very interesting for you to hear some of the testimony that come in so if you would both please state your name and who you represent for the record you'll be recognized. Sabrina
Speaker 150
1:16:23
Bergen Vice President and Senior Counsel for the American
Speaker 151
1:16:26
Bankers Association. All right. Robert L.
Speaker 153
1:16:32
Robinson, the fourth chairman of the Arkansas Bankers Association. All right. Ms. Bergen, you're recognized. Thank you.
Speaker 156
1:16:41
Just my microphone. Chairs Rapert and Lowry, Vice Chairs Bledsoe and Lundstrom, esteemed members of the committee. The American Bankers Association appreciates the opportunity to testify regarding the federal prohibition preventing banks from handling money related to marijuana businesses.
ABA is the voice of the nation's $17 trillion banking industry, which is composed of small, midsize, regional, and large banks that together employ more than 2 million people, safeguard $13 trillion in deposits, and extend nearly $10 trillion in loans. ABA is not a stakeholder in the debate over marijuana legalization. However, our member banks find themselves in a difficult situation due to the conflict between state and federal law, with local communities encouraging them to bank marijuana businesses,
and federal law banning it. Since 1996, voters across the country have determined that it is appropriate to allow their citizens to use marijuana for various purposes. Currently, 33 states, including Arkansas, have legalized marijuana in some form, and that number is only expected to grow. Despite that, federal law prevents banks from banking marijuana businesses, as well as the ancillary businesses that provide them with goods and services. Any person or business that derives revenue from a marijuana firm, including real estate owners,
security firms, utilities, vendors and employees of marijuana businesses, as well as investors, are violating federal law and consequently putting their own access to banking services at risk. As the legal state marijuana industry continues to grow, the indirect connections to marijuana revenues will also continue to expand. Without congressional action and clearer guidance from banking regulatory agencies, that entire portion of economic activity in legal marijuana states will continue to be marginalized from the banking system. In addition to the unintended consequences
for ancillary businesses, states are also struggling to address the significant challenges to public safety, regulatory compliance, and tax compliance that go hand in hand with cash-reliant businesses. Providing a mechanism for the marijuana industry to access the regulated banking system would help those communities reduce cash-motivated crimes, increase the efficiency of tax collections, and improve the financial transparency of the marijuana industry. It would also subject marijuana businesses to increased oversight of their financial activities since bank accounts are monitored in accordance with existing anti-money laundering
and Bank Secrecy Act requirements, which help law enforcement to identify and address suspicious transactions, an opportunity that is not available in an all-cash environment. Because Congress has banned marijuana, whether for medicinal or adult use, it will require action by Congress to allow banks to serve this industry. The Controlled Substances Act classifies marijuana as an illegal drug and prohibits its use for any purpose. For banks, that means that all proceeds generated by a marijuana-related business, even when it's operating in compliance with state law, are unlawful under federal law, and so any
attempt to conduct a financial transaction with that money, including simply accepting a deposit, is considered money laundering. All banks, whether state or federally chartered, are subject to federal anti-money laundering laws. And all banks must have access to the federal payment system to operate, which is under the purview of federal authority. Currently, the only direction available to financial institutions in connection with marijuana-related accounts comes from the guidance issued by the Financial Crimes Enforcement Network, FinCEN, in 2014. That guidance, which references a now-rescinded memorandum from
the U.S. Department of Justice, the Cole Memo, describes how financial institutions can report marijuana-related business activity consistent with our Bank Secrecy Act obligations. It does not create a safe harbor or otherwise modify federal law to protect banks from criminal and civil liability for money laundering. It merely creates a system for reporting activity that is illegal under federal law, but otherwise legal under state law. Although a small number of financial institutions have weighed the prevailing climate of non-enforcement and have decided to shoulder the risk
in order to serve the needs of their communities, the majority of financial institutions will not accept the legal regulatory or reputational risk associated with banking marijuana related businesses absent congressional permission to do so. There are two bipartisan pieces of legislation in Congress that would address the banking piece of the marijuana problem. The first is the Safe Banking Act which specifies that proceeds from a state licensed marijuana business would not be considered unlawful under federal money laundering statutes or any other federal law and And it would direct FinCEN and the federal banking regulators to issue guidance and exam procedures for banks doing business with marijuana-related legitimate businesses.
The second bill is the States Act, which exempts any person acting in compliance with state marijuana laws from the penalties and provisions of the Controlled Substances Act. And it specifies that proceeds from marijuana businesses operating in compliance with state law would not be considered unlawful under federal money laundering statutes or any other federal law. Although neither of these bills cure all of the marijuana-related banking challenges, they will help the 33 states that have legalized cannabis in some form to make their community safer, to collect their taxes, and to regulate their marijuana markets effectively,
while Congress continues to grapple with the broader questions implicit in the decisions about national drug policy. Thank you for your efforts to address this important issue that's become a challenge for many communities in our country and the banks that serve them. I'm happy to answer any
questions that you might have. Thank you. Thank you very much Mr. Robinson, you're you're on next so what I'm gonna do is take some questions and then we'll we'll have you go ahead
Speaker 52
1:22:18
Since you're at the table Senator Hammer, you're recognized sir. Thank you, Mr. Chair Do you know
Senator Kim Hammer
Unverified
1:22:23
of any banks that are being currently investigated by the federal government for breaking the law as far as receiving money as
deposits that are directly attributed to the marijuana?
Speaker 149
1:22:34
No, I don't know of any banks that are being currently prosecuted for violating federal law
Senator Kim Hammer
Unverified
1:22:40
you heard the testimony i think you've been in the room in the previous testimony uh referred to a bank here in arkansas that is participating in the receiving of the funds do you see that as a conflict of interest with your organization and how do you resolve that in the interim until congress makes a decision about how to move forward
Speaker 149
1:23:02
with this each bank needs to make its own risk analysis of whether or
not they're going to step into the space and serve marijuana related businesses as I noted there are I think about 400 banks at this point who are providing some limited services to marijuana related businesses and that's a risk that they have evaluated and decided to take ABA doesn't take a position on whether or not banks step into that space we're just trying to
Speaker 165
1:23:23
resolve that conflict so that banks don't have to put themselves in that position. So you don't give any
Senator Kim Hammer
Unverified
1:23:30
legal guidance to them as an organization if they're a member of your organization about how to do this you're just kind of letting each individual bank you know be out there on their own in the decisions
they make? Yes sir. Okay and I'm just curious as far as how do you how do you resolve the moral obligation of not breaking federal law yet having the opportunity to receive millions of dollars that you'll be able to turn around and loan back out to the general public what's your association's position about that balancing of the scale or just I'd just be curious as to what
Speaker 163
1:24:05
your thoughts are on that question. As I mentioned ABA doesn't take any position on
Speaker 165
1:24:09
the legalization of marijuana generally. We do want to see banks being able to serve the needs of their local communities the small businesses in
their communities without the risk of federal criminal and
Senator Kim Hammer
Unverified
1:24:21
civil prosecution. And you represent the banking association no other lending associations credit unions or any other financial institutions you're just the banking association correct correct all right thank
Senator Linda Chesterfield
Unverified
1:24:37
you thank you mr. chair senator chesterfield thank you mr. chair and good afternoon how are y'all have there been institutions established that do not necessarily call themselves sells banks, but that do operate as institutions to provide a safe harbor for those individuals
who engage in the selling of medical marijuana?
Speaker 156
1:25:03
There is no institution that moves money or accepts deposits that isn't subject to federal anti-money laundering statutes. So no matter what they call
Senator Linda Chesterfield
Unverified
1:25:11
themselves, they're still subject to that? Yes. And in those 33 states, there are institutions that have chosen to participate. Do you know if there's a state that is an exception to that? No, there are no
Speaker 156
1:25:27
states that are an exception to federal anti-money law.
Senator Linda Chesterfield
Unverified
1:25:30
No, no, I'm not talking about exceptions to state law, I mean to federal law. I get that part. I understand that particular part. I'm asking you, is there a state in which no bank will accept
Speaker 164
1:25:47
that money? I don't know, to be honest with you. I don't have a list of
Senator Linda Chesterfield
Unverified
1:25:53
banks. Because you've got 33 states. It's a lot of money that's flowing in those states. So I was just wondering, because of the federal guidelines,
is there one in particular that said, well, we just won't accept your money, and so you'll have to find a way to just keep it in your pocket or bury it
Speaker 156
1:26:13
in the backyard or something of that sort. Yeah, I think all 33 states are struggling to varying degrees with getting the cash off the streets and into financial institutions or into their tax coffers. I don't know if there are particular states that are struggling more than others. Are
Senator Linda Chesterfield
Unverified
1:26:29
there any states that you know of that are refusing to accept tax dollars
as a result of the sales of medical marijuana no thank
you thank you senator Chesterfield that's some great points if there's any other questions from his Bergen please chime in we're going to keep her there during mr. Robinson's testimony senator Chesterfield you make some important points I think it's very interesting we have people that have been prosecuted and are sitting in federal prisons now for transactions that many of which result may have only been hundreds of dollars and they've been sentenced to
years in prisons but now the states are now trafficking in these same dollars without any consequences. With that Mr. Robinson you're recognized if you would state your name again for the record and who you represent
Speaker 153
1:27:19
we'll hear your testimony. Thank you Mr. Chairman again my name is Robert L. Robinson IV. I'm the chairman of the Arkansas Bankers Association. First off I'd like to thank Thank you, Mr. Chairman, and Chairman Lowry, as well as Senator Bledsoe, Vice Chair, and Senator Representative Lundstrom for having us today.
Appreciate this opportunity. We've heard a lot of the same over and over, so I'm going to try not to go that deep into the minutiae and repeat what others have said, but I will state this. The Arkansas Bankers Association takes no position on the legalization of marijuana. As we pointed out, Arkansas is one of 33 states that have enacted legislation that allows for the production and sale of medical cannabis for adult use, and the Arkansas bankers respect
that decision. But as has been mentioned, the Controlled Substances Act classifies marijuana as an a legal drug, and banks are subject to federal law, as has been stated over and over today. This prohibits banks from legally conducting business with any MRB, and we've heard that term today before, marijuana-related business, and I will want you to hold on to that thought for a minute because I want to touch on something that Mr. Chairman pointed out on a question
that Representative Allen brought up a minute ago. So where does that leave the banks? I think we've outlined that today on several occasions, but it leaves us trapped between the mission to serve the financial needs of our communities and the threat of federal enforcement action. A violation of federal law could subject a bank to loss of its charter, thus banks are forced to make a decision to refuse the banking services to a significant legal sector of
their local economies, these medical related businesses. And the biggest issue is there's no safe harbor that catches us should we choose to do so. Complicating this matter even further is the DOJ issued guidance in 2013, the cold memo, which basically softened its stance on the enforcement of the federal laws relating to the medical marijuana and
its illegality. But this was, as we pointed out today, summarily rescinded by Attorney General Sessions just last year. As has been mentioned many times already today is the current guidance for bankers on how to handle cannabis-related businesses was issued by FinCEN in 2014. However, following the guidance does not create the protection from prosecution by federal authorities.
Additionally, and I asked you a minute ago to hold that one point, that question, and point that Senator Rappert made about ancillary businesses. Anybody that conducts any type of business with an MRB, That means a payroll, that means a local plumber that has to do work at the cultivation site or the dispensary. That means anybody that comes in, it means the local municipality that maybe provides water.
We've talked about the legality of paying taxes. We're talking now about paying municipalities with proceeds from a marijuana-related business. There is no safe harbor for those individuals. The same rules and regs that apply to a direct cultivator or a dispensary relating to the Bank Secrecy Act or anti-money laundering, we talked about SARS, we haven't mentioned CTRs, but that falls under the same thing.
those individuals will be subject to the exact same enforcement and oversight, if you will. So I did want to raise that, and that may beg a lot of questions. I hope it does, because that's the quandary that we pointed out today that we're all in. You as legislators, we as bankers, entrepreneurs as entrepreneurs and business people. Perhaps the main thing that we're concerned about is the safety that surrounds the activity of these businesses in our communities,
because they are in just not every county in this state, but they cover a lot of the counties. As you all know, and I hope you feel, that banks are one of the safest places to keep your money, and banks want to keep their communities and small business men and women safe. Small businesses without access to banking services are forced to hold large amounts of cash, which puts the business and its surrounding community at risk for cash-motivated crimes.
Providing cannabis-related businesses with bank accounts allows them to operate in a safer and more secure way. As you know, banks play a very critical role in helping law enforcement combat money laundering, terrorist financing, human trafficking, and more. Since bank accounts are monitored, including cannabis-related businesses in the banking system, subjects that business to increased oversight of financial activities. Suspicious activity reports filed by banks actively assist law enforcement in
identifying suspicious transactions, as we pointed out, or several people pointed out today. Finally, I'll leave it with this, and I think it's what it's the summation that everybody's come to. This is a federal issue, plain and simple. Until something happens in Washington, we're not going to be able to have a clear picture on what's happening here. I will tell you that our advocacy efforts in Washington with our delegation have been very positive. We were in D.C. in early April this year and brought up the SAFE Act, which has been
mentioned a couple of times this year today and the States Act. So our delegation is open to to learning about the issue, to learning about the challenges, and that's all we can hope for at this point
in time. Thank you, Senator Reverend. Thank you. Senator Irvin, you're
Senator Missy Irvin
Unverified
1:33:57
recognized for questions. Thank you, and both can answer this, but you know from this article I'm not sure Who or how? That's NCSL. NCSL, okay. So what's the opposition at the federal level for passing
legislation to allow banks to participate in changing the legislation? Where's the opposition coming from?
I think it comes from a variety of
Speaker 156
1:34:24
standpoints, but I think at this stage, most people recognize that 33 states with medical, 10 states with recreational, 11 now almost, Illinois just passed recreational, I think it's awaiting the governor's signature, that this issue isn't going away, that it's going to need to be addressed one way or the
other. I think the disagreement is can we address just the banking piece and put kind of the larger questions about national drug policy and the medical use of marijuana and social justice issues to the side and fix the cash problem, or should we wait and solve all of that together? I see. From ABA's perspective. It's not gonna happen, but yeah. Yeah, the wait to get to a point where everybody's comfortable enough with the whole picture of this issue to solve that problem is probably several years away.
We can solve the banking piece of it now. It's a common sense solution, and it's a public safety issue, it's a tax collection issue, as we've mentioned, and there is a much broader level of agreement around the cash piece of it. It helps regulate the industry as well. As we mentioned, there's Bank Secrecy Act and account monitoring benefits that come with putting this money through a regulated banking system, provides an audit trail for law enforcement to follow
when they're trying to identify a legal activity in the market, those benefits can come now and it's not going to limit Congress's ability to address those broader questions, which do need to
Senator Missy Irvin
Unverified
1:36:01
be addressed in the long term. So according to the letter by Attorney General Leslie Rutledge, it looks like she has combined with other attorney generals across the country to support the Safe Banking Act the Safe Banking Act, and so what's stopping that,
it's not a disagreement between credit unions and banks and financial institutions, it's more of what you're saying, the bigger, do we just attack this portion of it, or there are people probably in outside pressures wanting to have this be a more comprehensive bill bill that addresses every aspect of of marijuana not necessarily even medical yes is that correct okay i understand that that'll never happen i don't think you'll ever
get full agreement on that i mean but i can understand trying to get the banking seems like a smart approach have there been any states that have passed legislation despite the federal law that have just said we don't really care what the federal law says and we're going to pass legislation to allow banks. I don't know if you could do that. I mean,
Speaker 187
1:37:19
you can do anything. So a lot of states have passed laws, or
Speaker 156
1:37:24
not a lot, but several states have passed laws clarifying that banks can serve marijuana-related businesses
and it wouldn't be considered a violation of state law. So, you know, from Arkansas's perspective that the Department of Banking in Arkansas couldn't bring an enforcement action against a bank for serving a marijuana-related business. Unfortunately, that doesn't get you very far because all of your state chartered institutions are also regulated at the federal level. They're federally insured, and so it's not really your state association that they're worried about. Can't really do anything about it. Okay,
thank you. Thank you, Senator Irvin. You pointed out again by your questions that this is a mass charade that's occurring.
So we do need federal action. Senator Hammer, you're recognized, sir. Thank
Senator Kim Hammer
Unverified
1:38:06
you What's the what's the furthest back that a bank has been receiving funds that are derived from marijuana is it the 2013 when that went into effect or do you know what the furthest back
Speaker 149
1:38:21
a bank's been receiving anywhere in the nation? So Medical marijuana was first legalized in California in 1996 So
Speaker 165
1:38:28
I would say that probably there were banks that were not realizing it,
that were deriving revenue or receiving accounts that were somehow connected to marijuana ever since that first law
Senator Kim Hammer
Unverified
1:38:43
was passed in 1996. And since 1996, do you know of a time
that the federal government has prosecuted any bank anywhere in the nation for receiving deposits derived from marijuana sales? not to my knowledge okay so I mean the reason I'm saying that is because if
they were going to do something you think they would have done something by now if they were going to do it but if they could do something what would they be able to do as the feds what would they be able to do as far as would it be arrest actions or would it be penalties against the bank or what would be
Senator Missy Irvin
Unverified
1:39:29
the severity that would be weight weight against the bank so there are criminal and civil liability that that go with Controlled Substances Act violations so
fines prison time loss of charter
Speaker 165
1:39:39
and insurance all of those things are possible as you've noted they have not happened to date and I think that's why we're talking about the FinCEN reports that show how many financial institutions are serving marijuana related businesses and they put out a quarterly report about institutions that are relying on the FinCEN guidance and filing SARS in connection with the accounts that they are servicing and that that number of institutions has has slowly but steadily creeped up over the
years and I think that's a reflection of you know the extended period of this divide between
Speaker 168
1:40:13
state and federal law and inaction of prosecution. Okay give me a quick education
Senator Kim Hammer
Unverified
1:40:19
aren't there state chartered banks is that right and then there's federal banks is that right or give it quick okay so if a if we were to do something legislatively as a state what we would do would only apply to the state chartered banks or because the feds have a jurisdiction that it would apply
to no matter how a bank
Speaker 165
1:40:42
is chartered is that correct that's right state and federally chartered banks are both regulated by the federal government They have insurance through the FDIC,
Speaker 168
1:40:51
and they're regulated by, or they have access to the payment system through
Senator Kim Hammer
Unverified
1:40:57
the Federal Reserve. Same thing with credit unions or any other lending institution, right? Yes. That blanket throws over everybody. Yes. Okay. And what is your organization's position? Are you lobbying at the federal level for the, whatever it's called, Safe Banking Act?
It's y'all's position that you're actually lobbying for it? Yes. Okay. I'll just make this observation, and I'm not trying to trip you up or anything, but it would seem like it, you know, and it's discussion in the room on this side, too, where if you've got convictions or you don't want to get dragged into the political arena of should marijuana be legalized or not, because the recreational marijuana debate is coming down the line, too. We're talking about medical. When you advocate that you are supportive of something that's going to allow you to receive those funds,
it's the same thing in my opinion as lobbying supporting the legalization of marijuana and when the recreational marijuana discussion gets down the line that's gonna open up a whole new realm of money so I don't know maybe that's just what I'm hearing from this side and we talk privately about it afterwards but to argue for it also means you're arguing for the recognition that something is legal even though the federal government is saying no it's not that's just a perception but thank you senator hammer thank you you make great
points I think frankly that you would have to be a willful idiot to not understand that medical marijuana the whole concept of it was meant to normalize marijuana across the nation to enter into full legalization very cunning approach and they've been very successful at it and I do want to ask before we leave we've got Commissioner Franks and Kerr that are going to come up to close us today the concept in many different arenas of what we call mandated reporting that there is an onus upon reporting when you know that there
is an illegal activity or breaking of federal law in the arena of banking what is the onus upon Arkansas banks and from your knowledge banks in general that if they know proceeds have come from illegal activity under the federal law, what is their mandate to report that to authorities? It is absolute. Absolute. So in that, and obviously we've had testimony earlier that there is a state bank that is currently taking deposits.
So, what you've just stated is that they are in willful violation
Speaker 153
1:43:42
of federal law. If they are following the guidance of Finson,
Speaker 183
1:43:48
which was what was represented in the testimony of Mr. Roda, which complies with the tracking, the oversight, then they're following the
Actually, they're not following the letter of the law. There's been no law passed that authorized them to allow that latitude in the first place. And again, this is not, you're not the one that's responsible for answering for that. but I'm just you you've pulled out information that there's an absolute onus upon or burden upon the bank to report funds that have come into accounts that are related to marijuana business
and so obviously then we refer to the FinCEN memo or the coal memo or etc I know about all of that but you know and this is a statement in general it's not directed at you we're a nation of laws we're not a nation of memos and so this is the part this is the reason for this discussion today is that it's time for everybody to lay aside the charade and actually get back to the business of ruling the country by law because the rule of law is broken down because if you really want to see things light up in
this committee room then let's ask why that around the state since we've passed multiple laws to do away with abortion in our state, but yet the federal courthouse strikes down our laws, but yet we just sit here on that issue, but boy, marijuana, let's go for it. So if you're gonna apply the same standard that we're seeing now on the banking industry and marijuana across the country, then we
should get a truck from Lowe's and go over and board up the abortion clinic in Arkansas this afternoon and we have just as much a right to do that as we do for this state to be trafficking marijuana because both are supposed to be inferior to the federal law. So regardless of our opinions for or against either of those issues we see an absolute disengagement from the enforcement of federal law when it comes to this issue and that has been started really under the previous presidential administration and again these comments
aren't to you sir at all this is a this is absolutely just clarifying that if we want to get real on this issue then absolutely by rights we have a right to pull up the Arkansas Constitution where more people voted that life was to be protected from conception in this Arkansas and shut down every aspect of abortion in this state and be done with it and say we can do it because we've decided to do it and we have the protection that you've given under the federal law to say that states can just promulgate marijuana business we can do
the same for abortion this is the part that frustrates me and everybody on this issue it's absolutely and we are willful have willful ignorance of the law and And we're just deciding it's a double standard. We'll choose which laws we're going to enforce and others we will just ignore So it's sad for everybody concerned. And again, this is not directed at you It was just a good opportunity for me to say that and make that clear Senator hammer do you have anything else?
Senator Kim Hammer
Unverified
1:47:17
Question mr. Chair, so we haven't seen any cases of federal prosecution since 1996 and that would be the record of when banks started receiving money and And so I guess what I'm wondering, what signals are you getting out of Washington under the current administration that would force the necessity of dealing with this until Congress deals with the bigger issue, and that is the legalization of marijuana? Because if they legalize marijuana, then aren't the laws in place to take care of you as far as banks to be recipients?
And so what signals are you getting out of Washington that promotes your involvement to
Speaker 196
1:48:03
push this through? I don't know if it's necessarily signals, Senator.
Speaker 153
1:48:08
Speaking as a banker, every day we're in the business of risk management, whether that be interest rate risk management, whether that be credit risk that we undertake, or regulatory risk is what we're talking about right now if if you're willing to
subject your bank's charter your ultimate your ability to operate as a bank if you're willing to take that risk and and want to accept deposits of an MRB following the guidance of FinCEN reporting following the law reporting that that you're managing these funds taking them in if you're willing to take that risk Center hammer you can you you could go about your
business some banks have decided not to until there has been some clarification or it's been cleaned up at the federal level could you get
Senator Kim Hammer
Unverified
1:49:10
me a breakout of how many banks by state are receiving deposits directly affiliated with
with marijuana do y'all track that no sir you probably can find that information from FinCEN because they are reporting
Speaker 52
1:49:25
those quarterly reports you'll be able to at least because they know the numbers you'll know the number of banks that's
that's what well numbers fine okay I'll go up there thank you all right would you like any closing statement before we
Speaker 149
1:49:42
move on to the commissioners I would just take the opportunity the opportunity to reiterate that it does need to be a federal solution
Speaker 165
1:49:50
and that it is an issue that's not contained to marijuana dispensaries and growers. I think one of the main reasons that the ABA got involved in this issue, I can tell you I never expected to be sitting here testifying to you all about marijuana, but it is an issue that
spreads through the economy generally. It's small businesses, it's service providers, accountants, lawyers, people who do light bulbs and fertilizer. This issue is not contained to the marijuana businesses. So it does have a broader impact and it does need an immediate solution. And although there has not been federal enforcement actions, it's not fair to those otherwise legal businesses that are service providers and it's not fair to banks to put them at risk of federal criminal and civil liability in order to serve their customers on
everyday basis you've you've said it well that's the part that frustrates me the most is that this is why we have rule of law and what's happening now is that there is a facade there is a charade that's occurring which everybody has to just ignore the law well if you want to change the law change the law so we appreciate you for being here and we appreciate Kevin McKechnie for coming so often to end cool as well mr. Robinson do you have anything further no I
Speaker 153
1:51:10
just want to thank the committee and chairman for having us here today
to talk about this very murky issue. And we're here to do it any
Speaker 151
1:51:19
time you need us to come visit about it. I appreciate it, and I
appreciate the trouble that you all find yourselves in. And I will say, you know, I'm getting to where I'm ready for things to be clear. It's not murky. It's not even gray. It's federally illegal. but we've just chosen to just ignore that and I can say that and that's my
statement it's this not murky the fact is the federal law needs to be changed and we have a lack of backbone in the federal government to actually stand up and restore the rule of law on this issue and some others but we do thank you for being here appreciate the Arkansas banking industry for sure I want to recognize and have them actually come together because the questions may go back and forth between their areas of coverage the Commissioner Franks Commissioner Kerr, if you would come, and you will be closing us out today on our testimony.
Senator Irvin pointed out Attorney General Rutledge. She actually wanted to be here but was unavailable. And please make reference to her memo because she does clarify, though they've signed on in support with the 38 Attorney Generals, that does not mean in any way that she's taken a position for recreational marijuana or anything else. And that's clearly stated in her comments and her letters. So, Commissioner Franks, Commissioner Kerr, you are recognized if you would please state your name and who you represent for the record.
We're going to let you both give your full comments, and then we'll open it up for
Speaker 201
1:52:51
questions between the two of you when you're finished. Thank you. I'm Commissioner Candace
Speaker 203
1:52:56
Franks of the Arkansas State Bank Department. And I'm
Speaker 52
1:53:01
Alan Kerr, Commissioner of Arkansas Insurance Department. You're recognized. Commissioner Franks, you were first on the
Speaker 201
1:53:06
list, so we'll let you start. Okay. Actually, most of my presentation has already been stated, so I won't run over that again with you. You've heard it, I think, several times about it.
My main statement is exactly what you said, Senator, earlier, is this is an issue that needs to be clarified, and it needs to be clarified at the federal level. Banks need a safe harbor if they're going to bank this industry. It is, a cash industry is a draw for criminals. It is not a safety, it is a real safety issue for our communities. And that is the purpose that we would like to see if we're going to have this industry,
then we need to have this industry be able to participate through correct and legal channels in an appropriate manner. So that's why we are certainly hoping that at the federal level they will do something in order to provide the kind of guidance that we need, and not just fence-in guidance, but real legislative guidance that we need if we are going to have this industry in this country. Yeah. Commissioner Franks,
the state of Arkansas, when it takes in tax money, what does it do with that tax money, typically?
Do they deposit that money in banks? They deposit that money, yes, sir. Yeah. So in that scenario, then, in a strict reading of the current situation, then a bank, if they knew that that money was tax revenue derived from marijuana
Speaker 201
1:54:48
business, they could refuse the state of Arkansas to deposit that money. Is that correct? That's exactly correct. In like manner, you may have some person in your community that you've banked for 20 years. She may have been a secretary at the local energy company or the local water
company. She may get a job at one of the grower facilities. You wouldn't necessarily know that as an institution but she comes in and deposits her payroll check every month but you don't know that that's where her payroll checks coming from so there you are as an institution you are actually doing business with a marijuana related businesses completely unknowingly so that's that's the risk that you have in not just institutions that are voluntarily participating in the industry
but banks that have no intention of participating in the industry but are unknowingly just because you have these relationships because you're banking your community. That's what our state banks do. Thank you. Any further
Speaker 52
1:55:55
comments? No, sir. We're going to have Commissioner Kerr present his remarks and then questions for the
committee to close the day. Okay.
Speaker 203
1:56:03
Thank you, Mr. Chairman. First off, as mentioned before, the department takes no position on legalized marijuana.
Speaker 206
1:56:10
We also do not intend to promote or advance cannabis-based businesses in Arkansas. All that being said, our position is that a legally licensed business in Arkansas should have the same access to insurance products as any other lawful business, and we are therefore supportive of H.R. 1595, the proposed bill to allow banks to handle funds from cannabis-based businesses without current money laundering restrictions. That all being said, these are businesses in Arkansas. We promote business in Arkansas.
These businesses deserve to have their investments insured, their buildings, their trucks, their equipment, all these things that they make a conscious investment into and trying to run an honest business. They deserve to have insurance on those businesses. Again, just like as Commissioner Franks mentioned, if they are able to get insurance, Some of them are through non-admitted carriers, and non-admitted carriers are basically insurance companies that deal in very, very high-risk type industries, which is this one.
An admitted carrier would be somebody like State Farm or Farmers or Allstate, somebody that's a preferred company. But these companies deal in high-risk situations. There are a few companies that are selling or providing insurance in Arkansas to those entities. that premium goes to those companies in which probably some of the premium is going to be have tax premium tax collected on it the auto insurance for instance the trucks and things
like that are going to have auto insurance premiums paid and we collect premium tax on those premiums again your tax situation and those premiums are collected by the insurance department which are turned into the Department of Finance for their distribution. So we've got that same pathway you were talking about before. One of the ways that an insurance or an entity like this can solve a lot of their problems, their risk problems, is by forming a captive insurance company.
Now, the difference between a captive insurance company and a self-insured company is a self-insured company usually has a third-party administrating insurance company like Delta Dental or Blue Cross or somebody to actually administer the claims and things like that. A captive insurance company, by definition, is I'm going to literally form my own insurance company and invest my money in it. I'm going to put reserves in that company, and I'm going to be
the only customer of that insurance company. Therefore, I'm captive, okay? Hence that term. So this is a way that some of these companies can get around some of that. And we can license those captives and get those set up probably about 30, 45 days for them. And as our code sits right now, there's no reason why they can't do that. um but i mean at the end of the day you're uh uh you're faced with the same situation not to
belabor the the point that that you're you're running a federally illegal business that we're kind of
Speaker 207
1:59:35
uh overlooking and some companies are willing to take on that risk
Speaker 52
1:59:41
and some are not okay thank you for your comments senator johnson you
Senator Mark Johnson
Unverified
1:59:48
are the first one recognized sir Thank you, Mr. Chairman, and thank both the commissioners for coming today and trying to help us sort this out. Commissioner Franks, you may have heard my question to Mr. Rhoda about the identity of the state chartered bank that he or his company does business with,
and I asked if he was at liberty to share that, and he was not, and I appreciate the attorney-client privilege of that. Is the bank department similarly constricted on being able to identify the financial institution that's chartered by the state of Arkansas that
Speaker 201
2:00:27
is providing this service? I will tell you that if they are doing business with a MRB, we are not required to be notified of that because it would be a regular banking product that they would be offering.
It wouldn't be a new type of service. So it would be a checking account or a savings account or something like that. So they are not required to report that to us. So if we know that they are, or if we discover that they are doing business with a marijuana-related business, then we would discover that through our examination
Senator Mark Johnson
Unverified
2:01:05
process, which is confidential. So the examiner would note that, not from an analysis of either federal or state law unrelated to banking,
but simply, for example, as a risk situation to be analyzed as opposed to, my words, the moral aspect of it, but whether or not it would be risky to, for example, the banking system. Is that more or less correct? Yes, sir, that's correct. So to your knowledge, you don't
know who's doing it, in other words. Right. Right, okay. Thank you very much, Commissioner. Thank you, Mr. Chairman.
Speaker 52
2:01:43
Senator Hammer, you are recognized for a question. Thank you, Mr. Chair. On that one-way, Commissioner
Senator Kim Hammer
Unverified
2:01:50
Kerr, you mentioned about they could set up a captive. Is that the phrase you used? Yes, sir. Okay. So do you regulate those under your duties as
Speaker 212
2:02:02
the insurance commissioner? we regulate those as normal insurance
Speaker 206
2:02:06
entities and we do give them a certificate of operation yes sir
Senator Kim Hammer
Unverified
2:02:12
and I'm wondering on the inch on the medical
marijuana side as far as insuring those dispensaries are they required to ensure what happens if somebody breaks in and steals the illegal product that the federally illegal product that they're holding, and how do you go about establishing the criteria to make sure that those captive insurance companies have enough reserves to cover all aspects of what they're supposed to be insured for?
Speaker 206
2:02:42
Well, first of all, Senator, each captive is set up under specific charter. In other words, is it for general liability? Is it for workers'
comp? Is it for theft of product? They kind of have to set those up specifically for that. And once they do that, they generally hire a captive manager, which is an entity that is kind of a third-party administrator or actuary that they use. Between our office and that captive manager, they come up with a risk valuation and set the reserves accordingly. And what I hear in the discussion
Senator Kim Hammer
Unverified
2:03:22
today is you and the insurance world are in the same dilemma that the bankers and the banking world are in, and that is you need some clarity so that you don't have to be in anything that's in federal violation.
Speaker 206
2:03:42
That's absolutely correct, Senator. I mean, in fact, the National Association of Insurance Commissioners, which is our national organization, along with NCOIL, they've put together a task force on this particular subject all by itself and have come up with a white paper that they've exposed. But, again, it's an ongoing discussion. It's kind of the unwin scenario. I mean, you've got states that want to do something and want the ability to do things on their own,
yet the federal government has got that pressure out there or that law out there that says it's illegal. Usually when the federal government doesn't want a state to do something, they remove funding to that state for whatever the or send federal troops or send federal troops right um they have not done that and uh there's not even been any threat to that so you know it's kind of hard to decide is this something that that they're that they're for or have they just
put it on the back burner because they don't have time or what is the issue so you know we're all kind of up in limbo um you know obviously with 30 states uh passing this law the majority of the population is is not against it let's put it that way um so you know at some point that's got to reach critical mass and and pressure one way or the other but yes to answer your question the insurance industry would absolutely love to have this thing resolved so that we like the banking
Speaker 216
2:05:20
industry would actually know what to do. We all want to do things legally. We all want to do business legally, but we all have
Senator Kim Hammer
Unverified
2:05:30
to serve our constituents too. In the meantime, as it is right now where we sit today, you're duty bound just like the banking industry I presume is duty bound that if you recognize any illegal activities that are breaking the federal law, who do you report those illegal activities to such as a business operating uh you know and and being insured by
a company who's not supposed to be insuring them because they're not supposed to do that based on what i heard testimony earlier today so who
Speaker 216
2:06:01
do who do you pass it up the line to well sir i mean we are a state agency
Speaker 206
2:06:08
and we operate within the state uh confines of our state laws we don't The insurance industry hasn't got a federal oversight, so therefore we're kind of unique that way in that the NEIC is basically as close as we come to as a national entity.
So each state still regulates its own insurance industry. So in that respect, we don't report that up to anyone. As long as they're doing business within state laws and state insurance laws, they're
Senator Kim Hammer
Unverified
2:06:38
okay. So your hands really, I mean, based on what you just said, your hands currently are really not tied as far as these dispensaries or anybody else affiliated with the medical marijuana field from being able to get insurance as it currently is.
So there should be no big push from the insurance side to
Speaker 206
2:07:00
do anything about this. There's not a huge push, no, sir. But everybody, like I said, if they're going to be in business, they deserve to have the same access to insurance anyone else does. Now, that being said, insurance companies, when they write their contracts, will quite often have in those contracts that we're going to pay this claim as long
as it doesn't violate federal or state law. I appreciate you for clarifying that because there is a burden. There is no activity or transactions that violate federal law.
And so I know that your department has made referrals in the past that would involve federal criminal authorities. Yes, sir. And in this case, if you happen to know all of this was going on, you would be in the same position as the banks would be to report that you know
Speaker 214
2:07:48
a crime is occurring, correct? That is correct. We would report that up to the federal authorities, to
the FBI. Okay. Anything further, Senator? I'm done. All right. Anything further? I don't see any other questions.
I think we have rung out of this just about all we can today. Do you have anything that you would like to say in closing on your statements? This is your opportunity. If perhaps President Trump and Vice President Pence
Speaker 201
2:08:19
watches this live stream, you've got the mic, Commissioner Franks. Well, I can say that as your bank commissioner, I certainly appreciate the opportunity to have this visit about this issue because it is truly a dilemma for the industry.
and I think that it deserves clarification for our state, for our banking industry, and for our communities because it is a true safety issue, and I would certainly like to see it remedied. Thank you. Mr. Kerr? Mr. Chairman, yes, thank you. We
Speaker 206
2:08:50
need this change on the federal level, if nothing else, so that the people of Arkansas are protected. In other words, you're going to have folks working in these industries that really aren't running in industries.
They're looking for a job. And when they're in that job, they need workers' comp insurance, and they need to feel protected as well as that and benefits and anything along those lines that a normal worker would be allowed. So it's really important
Speaker 214
2:09:19
that the federal government put this on the top burner rather than on the back and take a closer look at it sooner than later. Well, I do
appreciate everyone that's been here and testified today, all of the parties that's come in.
I actually sat down and drafted my comments on this before I heard all this testimony, and I'm going to close with my own perspective on this today, but I will tell you that I don't know what might be occurring in the minds of those that are serving us in Washington, D.C., but at least here in this hearing today, we absolutely have had a reminder on the rule of law and it is causing great turmoil for us to allow this to go forth. I don't like the idea of some
bureaucrat having the power to just decide to issue a memo and it changes the face of the country one way or another. That's not what the country was set up to do. So I will state to you what my perspective on this is because this really is time that the country begin to clear up the issue and begin to get back to the rule of law and I am I'm offended and I'm embarrassed really that the federal government has put us in this position because you have very good
people that have been made criminals basically out of this so-called gray area and it's wrong in fact members will remember I carried a bill two years ago on this issue when we begin to promulgate rules and regulations as it related to the Arkansas Medical Marijuana Amendment, and it was very simple. It said, as soon as the federal government says this is lawful, then we are in business. But unfortunately, I took an oath, just like everybody else in this room and everybody that serves that takes an oath
in state government that says that we uphold the U.S. Constitution, the Arkansas Constitution, and the laws of the state of Arkansas and the United States of America. But yet here we are. So my comments are this. I do appreciate all of you for coming here today, and the bottom line is this. Marijuana is still federally illegal in all respects. It's illegal to possess it, plant it, grow it, distribute it, sell it, profit from it, or transfer cash related to any marijuana transactions. Today we've highlighted the
absolute mess that the federal government, starting back with the Obama administration, has made of the issue in the country. And it's obvious that the desire for marijuana drug usage to spread throughout the states has been successful. The administration, previous administration, and bureaucrats within that administration were complicit with a plan to normalize marijuana usage in our country by refusing to enforce the federal law and the issuance of memos meant to quash the enforcement of drug laws and open the door for states to be
easy targets for marijuana interests. They have been successful. The marijuana industry realized that changing the narrative on marijuana would help them achieve their goal of ultimate full legalization. They are cunning. They realized that proclaiming marijuana as medicine would help them change the attitudes of the American people. Regardless of the fact that there are zero peer-reviewed articles proving marijuana has any healing qualities or genuine medical benefits, the marijuana industry, formerly known as drug dealers under the old law, spent
millions of dollars on marketing concepts that changed the perspective of people in our state and around the nation based basically on lies and puffery. Now we are left with Arkansas and other states in the middle of an absolute mess. The federal law prohibits marijuana in all forms, but some states allow medicinal marijuana and a few even apparently allow recreational marijuana. It's relevant to point out, and I hinted at this earlier because it was wrong point, It's relevant to point out that there are other issues where the federal law has exerted their authority
and refused to allow states to enforce laws that their electorate has passed and the vast majority of people want. Pro-life laws are a clear example. Arkansas has passed numerous laws to restrict and prohibit abortion in our state, but the federal government always steps in and strikes down our laws, even though the vast majority of Arkansas people want abortion to stop. But there is a different standard when it comes to marijuana. Though the Arkansas people voted on a constitutional amendment to protect all life from the moment of conception,
which would have effectively outlawed abortion in our state, that law is not given any credit whatsoever and is not respected. But when it comes to marijuana, oh yes, the federal government ignores their own law on the issue and the charade moves forward. Whether one is against marijuana or not it's proper to point out that the rule of law is being ignored on the issue of marijuana and this has caused terrible breakdown in the rule of law in our nation. Congress must either change the law or the federal law must be enforced. We're not a nation based upon memos from
bureaucrats. Our Republic and our state is based upon the rule of law. I urge elected officials and government employees to restore order to the rule of law on this issue and all other issues. We either have the rule of law or we do not. If marijuana is going to be allowed to move forward, then Arkansas has every right to also shut down the abortion clinic in West Little Rock here in our state. And that's where we find ourselves, is that we have laid out very clearly here today an area where we've just all decided
to play. It's a charade. And it's upsetting to me because it undermines the ability of the nation to rule by law. And so again, I thank all of you for coming here. We've had a very good discussion on this issue. I appreciate all the contributions. And we are adjourned. Thank you.
Agenda
A. Call to Order
B. Consideration to Approve December 10, 2018, Meeting Minutes [EXHIBIT B]
C. Consideration of a Motion to Authorize Chairmen to Approve Special Expenses Incurred by the Senate and House Insurance and Commerce Committees [EXHIBIT C]
D. Consideration and Adoption of Interim Study Proposals (ISPs)
E. HEARING ON THE FEDERAL PROHIBITION OF BANKS FROM HANDLING MONEY RELATED TO THE MARIJUANA BUSINESS AND ALSO IMPACTS ON INSURANCE AND FINANCIAL SERVICES
F. Additional Printed Information
G. Other Business
H. Adjournment
Documents
Speakers
Senator Jason Rapert Chair
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Speaker 52
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Senator Missy Irvin
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Senator Mark Johnson
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Dan Rhoda
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Senator Kim Hammer
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Representative Fred Allen
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Senator Linda Chesterfield
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