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Treichel: Hey everyone, this
is Mark Treichel with another

episode of With Flying Colors.

I've got a special guest here today
that I'm excited to chat with.

Today I am chatting with Chris
Call, the CEO of North Bay

Credit Union in California.

Chris, how you doing today?

I'm great,

Chris Call: Mark.

Treichel: How are you?

I'm doing well.

It's it's afternoon out here.

You still got a little
bit of morning out there.

And I, you and I have
chatted online a little bit.

I discovered you on LinkedIn.

I know you're very passionate
about your credit union.

You're very passionate.

About marijuana banking, and there was
some recent news that kind of triggered us

to say, hey, maybe it'd be a good time to
get on and talk about this for my podcast.

So I appreciate that.

But before we get into that, if for
my listeners, if you could give your

anything about your background relative
to the credit union and what it is you're

doing in this important area, go for it.

Chris Call: Sure.

North Bay Credit Union has
been banking cannabis operators

now for the past six years.

We got into it when California
legalized recreational cannabis in 2017.

And over the course of the next six
years, we've grown our portfolio rather

substantially and actually expanded
beyond California borders to nationwide.

services to any state where
cannabis is state legal.

We're very involved in the industry.

We've, we work with all different
kinds of operators from cultivators

to dispensaries to manufacturers
to ancillary accounts of all kinds.

So we're excited to see these developments
coming through on the regulatory side.

And we hope that's going to
bode well for the industry.

Treichel: Very good.

Very good.

And so back when I was still at N.

C.

U.

A.

I had a, a 10, 000 foot level.

There were, there was the coal memo.

I just always remember the coal memo
allows this, the coal memo doesn't allow

that, and there were always, whenever
I had, whenever I was part of meetings

where there might've been discussions
about this from the examining side of

things, there was this coal memo and
pivot to today and, again, the recent

news is the DEA made some announcements
about some things that are happening.

Could you speak a little bit to maybe
before we get into the The most recent

announcements that journey you've been on.

So 2017 sick, like you
said, six, seven years.

When you did it, being the pioneer of
doing something is not always easy.

And then in that journey, you
learn things the state learns

things and CUA learns things.

How much, what, how much easier is it
to do today than it was in 2017, 2018,

2019 based on where we're at today.

Chris Call: I would say that I don't
know that it's gotten easier, but

we've certainly learned a lot in
the course of the last six years.

And as you probably know, Mark,
we're technically still violating

federal law by banking the industry.

The issue that I've always had with
the Proposals for Safe Banking Act

is that there's no current threat of
federal prosecution anyway, and so

I don't know why there needs to be
a separate piece of legislation that

specifically prohibits that prosecution.

The banking for cannabis has grown
tremendously in the course of the last six

years that we've been involved with it.

There's a lot more competitors today
than there certainly was when we started.

We were one of the handful in the
entire nation at that time that were

willing to take on cannabis accounts.

And it was very difficult
initially, nobody on our team

had any experience with cannabis.

We didn't really fully understand
what the BSA requirements

were and the FinCEN filings.

So we had to learn all that.

It was a tremendous learning curve.

And over the course of several
years, we built out a team of people

that Became really experts in anti
money laundering detection and, B.

S.

A.

Requirements and all the cannabis
licensing issues that are involved.

And how to properly that transactions that
are coming through the financial system.

So like I say other institutions
have slowly begun to join that

bandwagon and we're seeing a lot of
competition throughout the country.

Nowadays, I would say banking for cannabis
operators is widely available currently,

even without the Safe Banking Act.

And I think that says a lot to
just the interest in the industry

by financial institutions and the
expectations that the industry is

going to eventually become fully legal.

Treichel: And as you're talking
through that, are there associations

for financial institutions that want
to do this or user groups or those

kinds of things where you share?

Or is everybody on an island trying
to learn this and wanting to learn

it for their own institution how
does that work on this topic?

Chris Call: Yeah, when there were just
a handful of us initially several years

ago, we all collaborated and shared
information, but it became evident after

too long that we were all competing
against each other and nobody wanted

to share proprietary information.

And so that kind of fell apart.

But you know nowadays we still work with a
lot of other institutions on particularly

on lending situations because we've now
started lending to cannabis operators.

And a lot of the financing deals
that we're looking at exceed

our own internal lending limits.

And so we need to seek partners who
are willing to share that risk with us.

Treichel: That's interesting.

So the lending side when you 1st
sat down and said, okay we want

to do loans for these types of
businesses, the marijuana businesses.

And obviously what should the policies be?

What should the procedures be?

How does that work with the
laws, the rules and all that?

That must have been how long ago
were you able to start doing that

and what have you learned from from
that process that you could share?

Chris Call: We really only started
doing cannabis lending about a year

and a half ago, and that was after
several years of the banking side

where we were taking in deposits.

So we felt at that time we fully
understood all the licensing issues

and all the, operator needs and
requirements that we had to deal

with just from a banking side.

But there's a tremendous need for funding.

For financing and investment
in the cannabis space.

And we felt like there was an
opportunity for us to help out and

provide some financing and also
create some return on investment

for our own members in that process.

I think what we've learned in that, Mark,
is that a lot of cannabis operators are

not quite prepared for debt financing
because, as traditional lenders are

always going to want to look at,
financial statements, they're going to

want to look at sources of repayment and
collateral and those kinds of things.

a lot of cannabis companies have been
structured specifically to avoid the

tax issues involved with cannabis.

And as a result, they pushed a lot of
their collateral and a lot of their

earnings into ancillary entities.

Which not eligible for the
financing that they're looking for.

Treichel: Okay.

Chris Call: So now that they're wanting
debt financing there, they've had

to go back and rethink how they're
structured and and be able to produce,

traditional financial statements and
corporate documents that we look for

in any commercial lending situation.

Treichel: Sure.

That's, I guess, part of the.

The maturation of the industry
as they go through that march

of being allowed to get banking.

And then if you want to do that
other side of the operation, get

the loans, you're going to need to.

Be able to show how you can pay for those
loans and so that it's this evolution

to me is fascinating that it's getting
easier for them to get service so that

you can serve your entire membership,
but with each new, it's goes back to

what you said is it getting easier?

No, it's just developing right?

There's always a new challenge as you
take every step along that journey.

So we, the safe banking act and the DEA
announcement that, that has come out that,

that triggered us to get on the chat if
you could, for someone who's not familiar

with safe, the safe banking act, could
you give a 10, 000 foot level of what

that is, where it's, where that's at?

Yeah, in the process.

And then after that, maybe we
could talk about the specific D.

A issue.

Yeah.

Chris Call: So the safe Banking Act
has been introduced in Congress,

I think, 6 or 7 times now.

And it gets through the house.

It's been approved by the house a
couple of times, but then it gets

into the Senate and it gets blocked.

And even if we were to pass
the Senate, it would still have

to be signed by the president.

So they've tried numerous
ways of getting that passed by

attaching it to other bills.

And it's always been a difficult
challenge because it's been related

to the federal, status of marijuana,
which is of course illegal.

And it also impacts how cannabis
is viewed in international

treaties and things of that nature.

So there's really a lot of issues involved
in full de schedulization of cannabis.

So all the Baking Act does is ensure
that any financial institution banking

cannabis that is accepting cannabis
deposits will be immune from federal

prosecution of anti money laundering laws.

And as I said earlier, that
has never happened anyway.

There has never been a financial
institution that has been prosecuted

for taking cannabis funds.

So it's A political
paper tiger, if you will.

It's nice to wave around in front of
your constituents to say you're working

on behalf of the cannabis industry.

But it really doesn't do much to
change anything about banking.

Cannabis doesn't change all of the
compliance issues related to the banking.

It doesn't change the cost
involved with canvas banking,

which is oftentimes substantial.

I think it would just give some of
the larger financial institutions

perhaps more assurance or comfort
that they can represent to their

shareholders that they've now fallen
under the federal protection umbrella.

Got it.

And for those of us, institutions
that have been out on that

limb for many years anyway.

Sure.

We're looking at those larger institutions
thinking that they're, Johnny come

latelys and they're not, haven't been
willing to put their own neck on the line

like we have to help the industry out.

And now they want to jump into
the fray to make a quick buck.

Treichel: No, I get that.

That's interesting.

So the de schedule, the de schedulization,
hopefully I said that right, de

schedulization of marijuana that's linked
to this recent DEA announcement I'm

presuming that they're looking at that or
could let's venture into the those waters.

What is the DEA doing and how
does that impact all of this?

Chris Call: So what's been happening
in just the last couple of weeks,

Mark, is that The Justice Department
has proposed rescheduling.

That's, rescheduling is
different than descheduling.

As cannabis has been a Schedule 1
drug, which is in the same category

as heroin and cocaine and other
hard drugs with no medical benefit.

And there, there's a proposal to
reschedule it to a Schedule 3 drug.

which falls more into the area of
drugs like codeine or ketamine that

have some sort of medical benefit and
are available through prescription.

So that's a huge step forward
towards ultimate de schedulization

and full legalization.

I wouldn't say that it's going to happen
anytime soon, but just making it a

Schedule 3 drug will open up all kinds of
opportunities and pave the way for further

acceptance of cannabis as a adult use
product with a lot of medical benefits.

Treichel: No that's, it's fascinating.

You're right.

It's like NCUA, if the NCUA board,
their process would be a notice of an

ANPR, they can say, hey, we're thinking
about doing this regulation, right?

Give us your comments.

The next step up from that is a
proposed rule, and there's a final rule.

Now, there are rules that, that
have, that were proposed by

NCUA that never were finalized.

But if you don't start that first step of
the ANPR to say, hey, let's talk about it.

You're never going to get to
the regulation because you can't

just jump to the regulation.

So

Chris Call: yeah, and so the actual
change mark is not going to happen

for many months because there's got
to be public hearing public comment.

It's got to be approved
by several agencies.

So it's not something that's
going to happen overnight.

And ultimately, when it does happen,
there'll be some, Rather immediate

benefits for the cannabis operators
in the form of no longer be burdened

by the tax issue of 280 E, which
is a IRS requirement or I guess

restriction that a cannabis operator,
anybody dealing in a federal illegal

product cannot deduct operating
expenses from their tax return.

So that goes away and that makes
immediately a lot of operators

profitable that may have been struggling.

And I think one of the biggest
impacts of that will be also to

encourage Operators in the illicit
market to become legitimate.

The thing that has prevented a lot
of operators from becoming licensed

and regulated is having to pay taxes.

And so if that situation goes away,
then they might see the benefits

of, getting their license, getting
regulated and coming into the the

sunshine of the legalized world.

Treichel: Okay.

Yeah.

Yeah.

So when I hear the taxation issue, it's
the whole, I think of the cash society and

not necessarily paying your fair share.

But this goes beyond that.

This is if, and correct me, this might be
a little rough justice, but if it's not.

Legal to do this under federal law.

It's not legal to deduct
the expenses for doing it.

Chris Call: Right.

Treichel: Okay.

Chris Call: Yeah,

Treichel: That's logical.

But that's a huge burden that I
could see how that can cause so

many issues for these organizations.

Yeah, real.

Chris Call: Yeah, the other real benefit,
Mark, besides the 2 80 issue is I think

having a schedule three drug opens
up a lot of research opportunities.

And one of the things that's really
prevented cannabis from being

more widely accepted is the lack
of critical research to show that

it does have medical benefits.

And as a schedule three drug, there's
a lot more research opportunities that

will hopefully, prove and document the
medical benefits and that again lead paves

the way for further de schedulization.

So it's going to attract
additional investment.

I think as investors look at the
situation now with more research

becoming available to cannabis.

Industry and the profitability
of the industry is going to

go up with the tax situation.

It's going to attract investment dollars.

And the whole industry is going to
it's going to be the rising the ship

on the rising tides, so to speak.

Treichel: Yeah.

Fascinating.

Yeah.

I pulled up a Bloomberg article trying to
remind myself of some of the issues here.

And in it, there's a quote
from president Biden.

It says far too many lives
have been upended because of a

failed approach to marijuana.

And I'm committed to
righting those wrongs.

Sounds like if it can get through the
journey and if Biden wins a second term

that there may ultimately be a relief

Chris Call: at

Treichel: some

Chris Call: soon juncture.

Yeah, it is encouraging, but I would
say, I don't want to temper anybody's

expectation that that's gonna happen soon.

I think there's going
to be some opposition.

I think you'll find that the
public comment period on this

reschedulation reschedule proposal.

All of the opposing parties will come
out of the woodwork and do their best

to try to prevent this from happening.

Treichel: So

thinking out loud, the opposing parties.

In your mind, who might the
distillers not want it done?

Because it's competition for
alcohol or is it religious groups?

I'm just, yeah,

Chris Call: it's more
the religious people.

It's the reefer madness crowd who believe
that, cannabis is a gateway drug to bigger

problems and that kind of perception.

Treichel: It's our hits.

That's got it.

Got it.

Chris Call: And one thing I just want to
mention, Mark, and make sure your audience

is fully aware that any reschedulization
that happens with cannabis is not going

to affect the status of cannabis banking.

I think there's going to still be the
same requirements, the same rigorous

due diligence that's required.

And, if people are expecting the cost
of cannabis accounts to come down as a

result of this, I think they're going
to be disappointed because really

nothing changes between the conflict
between the state, legalization and

the federal illegal status of cannabis.

That's still a bridge that has to be
crossed and there's still a number of,

money laundering issues that have to be,
all the boxes have to be checked for any

activity in a cannabis related account.

So until cannabis is fully legal
banking is going to be still a pretty

a pretty difficult task for any bank
or credit union wanting to do this.

Treichel: So rescheduling it.

Versus fully legal if we get out 2
years and everything tied to this,

it's rescheduled and research can
be done on it and it's reclassified.

It still doesn't tackle that.

It's not legal in.

Via the right what I guess as a former.

Regulator.

It's almost as if this step needs
to happen before that next step.

Is that a logical statement?

Or is there any reason there
couldn't be a bill that also just

makes it legal at this stage?

In your book.

Chris Call: Yeah, there could be.

But I think there has to be baby
steps, and I think this is certainly

the highest hurdle to be crossed.

And any successive hurdles will
be increasingly lower to get over.

Treichel: That makes sense.

Chris Call: Okay,

Treichel: very good.

I learned a lot today.

I think the listeners, this is a really
kind of good summary of where we've been.

where we're at, where we might be
going short term and long term.

Is there anything, Chris, that I should
have asked you related to this this

business, what you're doing with it and
how this could impact credit unions who

are trying to serve their members best.

Chris Call: I just want to make
another comment about the impact

of this reschedule situation.

I think there's been some talk or
buzz I've seen online about the

potential for credit cards to be
accepted now for cannabis purchases.

And that is not going to be the case
until the credit card brands, specifically

Visa and MasterCard change their policies
related to cannabis transactions.

And I don't think that's going to happen
until cannabis is fully legalized.

So for anybody who's expecting the
credit card situation to change in

cannabis industry I would say that's
not going to happen for a while.

Treichel: That makes sense until it's
fully legal They're not gonna they're

not gonna go out on that limb if you
will Very good clarification and same

Chris Call: with with interstate commerce.

I think there was some hope that
cannabis operators would be to you

know, market their products across state
lines because of schedule three status.

And I don't think that's
going to be the case either.

I think every state is going to
restrict their own activities regardless

of the federal Scheduling status.

So we're still a ways away, I
would say, from really a normalized

economy for the cannabis industry.

But it's a big step forward to
get to the point where it's now

no longer a schedule one drug.

Treichel: That's all I had.

I

Chris Call: really appreciate
your taking my input and my time.

And it's been a great
to talk to you today.

Treichel: Yeah, thank you.

This has been educational for me.

for having me.

And you've made some very excellent
points, saying, hey this is what it is.

This is what it isn't.

And it's a long road, but it's progress.

And it's, I think it's pioneers
like you that are out there making

people realize that this is needed
that is helping make the progress.

So thank you for what you're doing for
your members and what you're doing for

this whole important arena of banking.

Chris Call: You bet.

You

Treichel: got it.

And listeners, I want to thank
you for listening as always.

I hope you'll listen again soon.

This is Mark Treichel signing
off with flying colors.

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