Last week, on June 24-25, Denver’s Cannabis Business Summit let “ganjapreneurs” pitch cannabis-related goods and services to investors, cultivators and dispensaries. Some ideas on display were more industrial than others, but one idea in particular had dispensaries and banks in mind so they may “see forever” with a system that tracks cannabis purchases and related financial transactions.
Some of the industrial machines looked like they could have been used as the backdrop for a mad scientist laboratory in a retro horror film. There were machines with coiled copper tubes connecting steel chambers capped with pressure gauges, machines that invoked images of Wile E. Coyote’s Acme devices.
In the midst of machines that processed the cannabis itself, there was a much sleeker looking machine made to deal with another crucial piece of the cannabis industry: money.C4EverSystems has developed a kiosk that resembles an ATM that will handle orders and payments for dispensaries. What’s more, Mark Goldfogel, CEO of theC4EverSystems, has solved the issue preventing banks from accepting money from marijuana-related businesses.
How are banks able to work with cannabis businesses? It started on August 29, 2013, when U.S. Deputy Attorney General James Cole sent out a memo to all U.S. attorneys with guidelines suggesting that the priority for enforcement efforts be placed on activities that are still illegal under the marijuana-legalizing state laws. Then, on February 14, 2014, theFinancial Crimes Enforcement Network sent a memo with guidelines that would allow banks to deal with cannabis businesses.
While the stringent guidelines of the FinCEN memo didn’t quite pave a straight path from dispensary to teller, it did post the route. Guidelines include banks performing “customer due diligence” to ensure the business is legitimately run, and that the account holder is an upstanding citizen.
Perhaps the most stringent of the guidelines says that businesses must demonstrate their revenue is totally compliant with state law; i.e. no money came from black market transactions. How could a dispensary account for the source of every dollar it makes? According to Goldfogel, who spoke to MJI News at the Cannabis Business Summit, the C4EverSystems kiosk will allow dispensaries to comply with the FinCEN memo.
The kiosk itself resembles a standalone ATM. It has a touch screen, a credit card reader, and it accepts bills and makes change. Also, as with an ATM, right above the screen is a little camera to capture the image of the person making the transaction. The money fed to the machine is locked into a cartridge, and taken off the premises by a third-party cash company that will count the money.
“[The C4EverSystems kiosk creates] a set of reports that validates every dollar that is in the cartridge to a unique picture, to a unique sale to validate they are an adult, that they are over 21, that they’re not [conducting] a wholesale transaction, this wasn’t a $4,000 transaction, this wasn’t something that went under the table,” Goldfogel said.
“And because we’re validating the cash to that granular level, I have managed to convince banks in both Nevada and Colorado, and Washington, hopefully, that they can accept that sack of smelly $20 bills as being from a legitimate transaction, ergo, meeting the [FinCEN memo] guidelines,” Goldfogel added.
Goldfogel says his kiosk system works better than any other point-of-sale system, because a POS can be too easily manipulated. For instance, with a regular POS system, a dispensary could sell a pound of marijuana, an amount that’s still illegal to sell in Colorado, and enter it into the POS as 16 separate one-ounce transactions.
With the C4EverSystem kiosk, that would require 16 different people lining up to make those purchases, since each transaction would be stored in a database, along with an image of the person making the transaction. Goldfogel, who said he’s been building code since he was 17, guarantees the banks that if there are any changes to regulations, he will work in real time to make sure his hardware and software complies.
“Whatever is required,” Goldfogel said, “I’ve built big systems in my career; I know how to do this.” According to Goldfogel, he has gotten multiple banks in Nevada, Colorado and Washington State to agree to work with dispensaries that use his kiosks. The only bank Goldfogel said they are announcing is the First Security Bank of Nevada. MJI news has reached out to this bank, but has yet to hear back.
While the kiosks give dispensaries an opportunity to work with banks, Goldfogel said that having a kiosk does not guarantee a bank account. Still, dispensaries are going to want the kiosks, Goldfogel said, because it offers cash security against things like employee theft and robbery. If a dispensary uses a kiosk, the owner gets a key to the cash cartridge until they have a bank account, Goldfogel said. Upon receiving an account, the cash handling and counting must be performed by a third party. “Banking is the icing on the cake, but it’s a significant coat of icing,” Goldfogel said.
Goldfogel explained how he made it his mission to “legitimize the industry” after he contracted peritonitis six years ago, and found relief in medicinal marijuana. “My large intestine sprung a leak. I nearly died,” Goldfogel said. “In the course of the last four years I built three systems, all designed to legitimize this industry. I built the first ever seed-to-sale tracking system in this industry. That meant government compliance. I was done, ready to walk away from that company to be a ski bum, when I went to a convention and saw this technology,” he said.
“Before the February 14 [FinCEN] memo, this technology meant nothing,” Goldfogel said as he talked about the vision that lead him to develop these kiosks. He started checking with the “powers that be in the industry” about when they’d see a “hole in the wall for banking.” The answers he got pointed to this year, so he began developing these machines in anticipation of the guidelines handed out by FinCEN. Goldfogel said if no guidelines had been handed out yet, he’d still be developing the kiosk for when guidelines were eventually established.
“The banks are just coming forward now with guidelines,” Goldfogel said, “and our commitment is no matter what those guidelines are, hardware, software, or otherwise, we will build the technology to do that. We will be the rails on which the cannabis financial industry runs.” To lay these rails, Goldfogel said the kiosks will be installed in dispensaries with no money upfront, and the only charge is 1.75 percent of the sales made through the kiosk. Goldfogel also said C4EverSystems is still in Beta testing, but currently has orders for 600 units to be placed in dispensaries over the next two years.
In this new industry, safety and security are important to everybody involved. Goldfogel said the cannabis industry is a $2.4 billion industry. “You can’t have $2.4 billion in a mattress, because someone is going to die.” Given the explosive financial growth of the cannabis industry, banks need to start working with the dispensaries, and the industry needs to keep pushing for legitimacy. The C4EverSystems kiosk looks like it is helping banks and the industry take a giant step towards these ends.