The cannabis industry is booming but faces a money problem – there isn’t anywhere to store it! Currently a cash-only business, there are several security issues that pose massive problems for a $6.7 billion dollar industry. From break-ins to the IRS being overwhelmed with tax payments of hundreds of thousands of dollars paid in cash, the industry needs help if businesses are going to continue to grow at the rate we’ve been seeing! Along comes Lamine Zarrad, and he brings with him a solution – Tokken. Maxwell Davis sits down with Lamine and learns how Tokken is going to change the face of cannabis banking.
Written by Maxwell Davis & Lamine Zarrad
Maxwell, GreenSea Distribution: Thank you for taking the time to sit with me, Lamine. For those who may not be familiar with you or your company, would you take a moment to introduce yourself?
Lamine Zarrad, CEO of Tokken: Hi there Maxwell. I am the founder and CEO of Tokken – a company that provides digital banking and payment processing to “high-risk” cash-intensive businesses, like those in the cannabis industry. I spent some time on Wall Street prior to the recession and I’m a former bank examiner with the U.S. Treasury – this is how became passionate about banking cannabis. I noticed a number of inefficiencies in the financial sector that prohibited this burgeoning new industry from having basic access to the necessary financial tools to run a business, which is so disappointing because most everyone I’ve encountered in the industry wants to operate in a legal, compliant, and transparent manner, and they’re contributing a great deal to creating a stronger economy. My interest in providing banking services for the unbanked and underbanked can also be attributed to my background as a former refugee and immigrant, and knowing what’s it’s like to be shut out of basic financial services. A few more tidbits about me… I’m a veteran of both the U.S. Marine Corps and Army, and I’m an unabashed nerd… When I’m not focusing on the “fascinating” topic of banking and financial regulations, I’m studying up on subjects like evolutionary biology, the history of the Mongol Empire, and Russian literature… and tormenting my friends and family with discussion on a number of esoteric topics.
Maxwell: Tell us a little about your work with the United States Treasury Department.
Lamine: I spent two years in the U.S. Treasury’s Office of the Comptroller of Currency (OCC) where I was assigned a number of banks in the western territory of the U.S.; my job was to ensure they were compliant with all federal regulations. The OCC is the first banking regulatory agency. It was established by President Lincoln to help fund the Civil War and combat injustice.
Maxwell: That’s a pretty big switch! We rarely see former federal employees working in this industry. What was your inspiration to get involved in the cannabis industry?
Lamine: Well, as far as a career path, it makes more sense than you would think. I have an educational background in both finance and public policy. Combine that with my experience in the OCC and my entrepreneurial spirit/desire to solve big problems, moving into the fintech/cannatech arena felt like a great choice because it’s so full of opportunities and I can capitalize on my education and expertise. It’s a way for me to make a real positive impact, which I never got the sense of when working in a large bureaucratic government entity (don’t get me wrong though, the OCC provided me with invaluable lessons and experience). My inspiration to get involved with cannabis came from my frustration of seeing the industry and people within it be ostracized for absolutely no valid reasons. Banking and risk management models in the financial sector are antiquated, irrational, and terribly inefficient, and reputable business people in cannabis are suffering the consequences of that. My hope is to dismantle the archaic, conventional methods of banking and help move the future of banking to a decentralized model that empowers people.
Maxwell: From your perspective, what are the biggest issues when it comes to cannabis and banking?
Lamine: Perhaps surprisingly, it’s not so much that cannabis is the problem, it’s the legacy of the failed “War on Drugs” here in the U.S. that has created the biggest problem for the current industry. The troublesome history of the Drug War forced cannabis culture and infrastructure into the black market for decades. Since banks are beholden to established federal frameworks (particularly when it comes to legacy cash flow), it’s caused a lot of roadblocks for the cannabis industry.
Maxwell: How could the situation be remedied between banks and cannabis businesses? Do you foresee any situation in which banks would allow cannabis businesses to work with them any time in the near future?
Lamine: Absolutely! In fact, here at Tokken we’re forging those relationships between our banking partners and cannabusiness partners. At the end of the day, banks want in on economic opportunities, but often don’t have the infrastructure, staffing and resources to carry out the robust compliance required by the federal government to ensure that terrorist financing and money laundering isn’t taking place. That’s why some of my first hires at Tokken come from the intelligence community – we were able to put our heads together and build our proprietary compliance platform, we call Gestalt, that efficiently and continuously performs all of the AML/KYC functions of the Bank Secrecy Act.
Maxwell: So, how does Tokken, or your app tokkenPay, help cannabis entrepreneurs avoid these issues?
Image Courtesy: Tokken
Lamine: So, on the surface, tokkenPay operates in a very easy, user-friendly fashion that’s similar to PayPal. The front-end technology is simple for customers to use the app and for budtenders to use our web portal to track Tokken transactions. Where things get complex is what our customers don’t see… Our robust compliance analytics can identify sources of funds and assess risk in real-time – something banks haven’t been able to do. With our compliance program, we are solving two major hurdles for cannabuisnesses: access to banking and cost of banking, since we can accurately determine risk. Finally, our software can be easily integrated with ancillary businesses and other verticals so cannabusinesses can pay their employees and vendors, and even remit taxes.
Maxwell: Do consumers and shops both need to download and use the app, or is the app used only by the business?
Lamine: The consumer downloads the app, quickly creates an account, and connects a credit/debit card to make purchases. The businesses have a web-based portal to track all transactions and run closing reports for each day.
Maxwell: Where has tokkenPay been introduced thus far?
Lamine: We just finished our pilot run in 5 Colorado locations, and we’re looking to expand everywhere cannabis is legal.
Maxwell: What are your thoughts on federal legalization of cannabis? Once the federal government decides to legalize the plant entirely, banks would presumably begin working with cannabis businesses. Do you think this will affect tokkenPay users in any fashion?
Lamine: Legalization will certainly alter some of our strategy, but it’s not something we fear would adversely impact Tokken. Even if/when cannabis is legalized, banks will still have to contend with legacy systems and infrastructure externalities – the cannabis sector will still be seen as “high-risk.” As an example, we can look to alcohol – even though alcohol prohibition ended over eighty years ago, it’s an industry still highly-regulated and treated as high-risk by banks. Our job at Tokken is to help banks service cannabis in a compliant, safe, and efficient manner. We expect that banks will continue to rely on risk management platforms like ours, even once cannabis is legalized.
Maxwell: The staff of Tokken is made up by a large number of veterans, including yourself. As a former budtender, I’ve directly seen the powerful role cannabis plays in the life of veteran. What role has cannabis played in your life?
Lamine: That’s a very interesting question. Actually, not all of the vets on our team are cannabis users, but everyone on the team unequivocally supports the right to responsibly use cannabis where it is legal, and acknowledges the medicinal benefits – especially for combat veterans and others suffering from PTSD. I am a combat veteran who served in Iraq. While I don’t think of my condition as PTSD, I often suffer from not being able to sleep well at night and feeling very anxious (of course building and leading a start-up also contributes to stressful sleeplessness). I’ve found that cannabis can help me have a quality restful night that allows me to wake up energized and eager to be productive… Kind of funny since “energized” and “productive” aren’t words that we don’t stereotypically associate with cannabis, but I have certainly experienced these benefits first-hand.
Maxwell: Did you choose to employ veterans on purpose? How did your very diverse, very experienced team originally come together?
Lamine: No, it wasn’t intentional. In fact, my first hire was our Chief Compliance Officer, Rita Crague, who I managed to poach from the CIA. I was looking for a team with deep knowledge of best practices in banking and intelligence sectors… But it was also important to find a team of people who aren’t so acclimated to large corporate and bureaucratic structures, as start-up life is fast and furious and one must be able to adapt to change quickly, contend with uncertainty, and be creative. Coincidentally, the other vets on the executive team are former enlisted Marines like myself who have experience being deployed in challenging situations – this may have developed the grit they have and that I like to recruit for Tokken.
Maxwell: Thank you for the time, Lamine. I very much appreciate your willingness to speak with us. Best of luck with Tokken. If this conversation is any hint, your company seems well on its way to becoming a staple of the cannabis industry. Thanks again!
Lamine: It’s been a pleasure, Maxwell! We can’t wait to launch in Oregon!