This document discusses banking regulations and compliance considerations for cannabis businesses. It summarizes the Cole Memorandum which provided guidelines for federal and state marijuana enforcement priorities. It also outlines FinCEN guidance for how banks can legally service state-legal marijuana businesses by following best practices like verifying licenses, ongoing monitoring, and SAR reporting. While the Cole Memo was rescinded in 2018, federal regulators are still applying FinCEN's rules and not taking enforcement actions, so banks can currently service the marijuana industry following these guidelines.

1. Cannabis-BusinessBanking:
The Cole Memorandum & Compliance Considerations
©2018HYPUR | CONFIDENTIAL
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October 3,2018

2. ©2018HYPUR | CONFIDENTIAL 2
Presented by:
John Vardaman
EVP/General Counsel, Hypur Inc.
Andre Herrera
EVP Banking and Compliance, Hypur Inc.

3. John Vardaman
EVP–General Counsel
• Attorney with extensive AML/BSA experience
• 15yearscombined at the U.S. Departments of Treasuryand Justice
• Formerhead of Department of Justice AML/BSA policy office
©2018HYPUR | CONFIDENTIAL 3

4. • At the State Level:
• 31 states andWashington, D.C.haveauthorized usage ofmarijuana for
medical purposes.
• Colorado,Washington, Oregon, Alaska, California,Massachusetts, Nevada,
Vermont, MaineandWashington, D.C.havealso authorizedrecreational
use.
• At the Federal Level:
• Marijuanaremains illegal as aSchedule 1 drug
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State-legalized MarijuanaLandscape

5. • DOJ issued guidance in 2009and 2011regardingmedical marijuana
• Game Changer- Colorado legalization of recreationalmarijuana
• 2013:DOJ issues Cole Memorandum
• Lays out enforcement ofControlled Substances Act
• Rationale:
• Limited Federal Resources
• Deference toStates
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2013 DOJ Cole Memo

6. • Eight priority factors
• Distribution tominors
• Proceeds going tocriminal gangs, cartels
• Diversion across state lines
• Pretext for criminal activity
• Violence oruse offirearms
• Druggeddriving/public health
• Use ofpublic lands
• Use on federal property
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2013 DOJ Cole Memo (con’t.)

7. • Green light for MRB industrywith nationwide standards
• Problem: Did not address moneyand banking
• Considered “criminal proceeds” under ML/BSAlaws
• Colorado MRBs – NoAccess to Banking
• No place for marijuana-generated cash
• Enables MRBs to Function as RegularBusinesses
• Benefits ofa bank account
• Gives States Visibility into MRBs
• Audit trailandtaxes
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Effect of 2013 Cole Memo

8. • Addressed DOJ enforcementof money launderingand BSAlaws
• Same eight enforcement priorities as 2013Memo
• Message: Federal law should not bea barrier to banking MRBs
• Limitations:
• Did not change federal law
• Savings clause
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2014 Cole Memorandum

9. • How banks “can” service MRBs consistent with BSA
• Coordination with Cole Memo – same priority factors
• Best practices for due diligence
• Verify business is duly licensed
• Understanding ofnormal business activity
• Ongoing monitoring for adverse information
• Periodically refresh CDDinformation
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FINCEN Guidance:
BSAExpectations For BankingMRBS

10. • SARreporting for MRBs:
• MarijuanaLimited: No violation of Cole memo/state law
• MarijuanaPriority:Reasonable belief of violation
• MarijuanaTermination: Account terminated
• Timing: At accountopening and every90days thereafter
• Red flags for suspicious activity
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FINCEN GUIDANCE:
SAR Structure

11. • Problem with 2014Cole: Failureto get regulators on board
• Not bound byCole/FinCEN memos
• Regulators: X Factor of MarijuanaBanking
• Views varyamong/within agency
• NCUAonly regulatorybody to publicly address marijuanabanking
• Bank regulators now recognizeand follow FinCENguidance
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What About the Regulators?

12. • Not defined inCole or FinCENguidance
• No distinction between medical andrecreational
• FinCENreferences funds “derived from” illegal activity
• What is the magic number?
• Distinguishes between FI’s providing “direct” and “indirect” services
• Couldaffect SARfiling obligations
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What is an“MRB”?

13. • Tier One: Direct/Plant touching
• Producers, processors, sellers
• Tier Two: Directly support/Non-plant touching
• Packaging, advertising, consulting, training,technology
• Tier Three: Incidental/Not“in” marijuanabusiness
• Attorneys, accountants
• Some FIs using a percentage threshold for Tiers 2 and3
• Could affect risk-mitigation and pricing
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ACAMS: Three Tiered Approach

14. • Service to the community
• Sophisticated client base
• Entryinto a new and expanding market
• Significant revenue
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Why BanksService MRBs

15. • Reviewall federal and state laws and policies
• Communicatewith your regulators
• Covenants
• Ongoing monitoring
• Establish risk parameters
• Trackingand accounting for cash
• Embrace technology
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Best Practices

16. • Legacy cash
• Credit cards
• Questionable payment“solutions”
• Manual processes
• Less than full transparencyfrom MRB
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Pitfalls To Avoid

17. • January4,2018– Sessions rescinds Cole Memo
• Did NOTorder full enforcement offederal marijuanaand banking laws
• Enforcement left to“prosecutorial discretion” of U.S. Attorneys
• DOJ has “finite resources”
• No coordination with other Federal agencies
• FinCEN guidance still in effect
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Rescission of the Cole Memo

18. • Sessions decision looking moresymbolic than substantive
• Cole memo -gone but not forgotten
• U.S.Attorneys still following
• Regulators: Applying FinCEN guidance
• No enforcementactions against financial institutions
• Banks can permissibly service the marijuanaindustryto benefit themselves and the community
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Where ThingsStand

19. Corporateoffice
7812E. Acoma Dr.,Suite#7
Scottsdale,AZ85260
Hypur.com
John Vardaman
EVP &General Counsel
o. (480)409-4599
m. (202)531-5515
jvardaman@hypur.com
©2018HYPUR | CONFIDENTIAL 19