Hashish Banking and Arizona: Interview with Business Skilled Paula Durham, CFE

Anyone who works in the cannabis industry probably knows that banking is a problem. However, the nuances are varied and few have an expertise like Paula Durham. Paula is an Associate Director at JS Held and focuses part of her practice on the cannabis industry (CLICK here for more information on Paula). Paula wrote an excellent article on banking issues in the cannabis industry, entitled “Banking Trends for Businesses related to Cannabis”. The article was published in the March 2020 issue of AZ Attorney Magazine, a monthly magazine published by the Arizona State Bar (CLICK here to download a copy of Paula’s article).

Paula’s background is very unique. Paula started working with Simon Consulting in 2013, which recently merged with JS Held. Paula worked for Simon for cannabis customers. In 2016, Paula accepted a position in the cannabis industry as Director of Operations and Compliance at a vertically integrated company that had retail locations, growth activities and product manufacturing. Paula had worked for the client while her Arizona store was being picked up. In 2019 Paula returned to Simon Consulting to continue serving the cannabis industry. She is currently supporting a receiving center for a pharmacy with growth processes and product manufacture. Aside from cannabis, Paula has worked with the Federal Trade Commission and the Securities and Exchange Commission on federal receptions. Paula also has extensive experience with federal treaty compliance, including advising on the Foreign Corrupt Practices Act and the Federal Acquisition Regulations.

Paula’s article describes various banking problems facing the cannabis industry. One of the hurdles Paula discussed is money laundering and how this affects relationships with cannabis banks. Paula noted, “Money laundering is the process of hiding the existence, illegal source or use of funds. In 1986, Congress passed the Money Laundering Control Act (“MCLA”), which makes it a federal crime to conduct certain financial and monetary transactions with proceeds from “certain illegal activities.” “While Paula’s guidelines are very clear, she notes that some operators are” trying to bypass the system by giving them bank accounts on behalf of management companies or other companies one step away from the real thing “. This is illegal and can be a lot of headache for operators trying to move the proceeds of cannabis to another affiliate.

Paula also discusses certain efforts to pass the law of Congress to address cannabis banking issues. In addition to what is discussed in Paula’s article, she recently noted that the Marijuana Opportunity Reinvestment and Expungement Act of 2019 or the MORE Act of 2019 cleared the house and are on their way to the Senate. Under the MORE Act, cannabis would no longer be a planned drug by the DEA and thus the federal ban on cannabis would be abolished. Paula believes the chances of marijuana reform are higher with the new administration.

Another update from a topic in the article deals with digital currency or cryptocurrency. Paula noted, “In July 2019, Arizona approved cryptocurrency startup ALTA to provide services to the state’s medical cannabis operators.” Unfortunately, the use of digital currency in Arizona has stalled. In fact, Paula are not aware of any pharmacies that currently use digital currencies.

Paula and I also had the chance to discuss some interesting topics that she saw in the industry. One problem Paula noticed is that there is a lot of secrecy in the industry. While one would assume that operators would not disclose proprietary information (e.g. edible formulations), confidentiality goes beyond proprietary information. For example, even regulatory problems that operators are faced with are not openly discussed in the industry. Lastly, there is no strong pressure from Arizona regulators for operators to work with the Arizona Department of Health on regulatory issues. Paula said there is much more dialogue with regulators and industry participants when dealing with various federal issues (e.g., the Federal Acquisition Regulations) like the interpretation of regulations.

Paula also noted that Arizona has had a major problem with supplies since recreational marijuana was legalized (CLICK here for more information on supply issues in Arizona). As Paula further noted, operators cannot buy and sell across state lines as there is still a federal ban on marijuana. Although California and Nevada have also legalized the use of marijuana, and both states are directly adjacent to Arizona, marijuana cannot be bought and sold with the operators of those states.

We hope to sit down with Paula again in the coming months to learn more about developments in the cannabis industry in Arizona. Stay tuned!

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