Transitioning the cannabis business into a cashless one: A conversation with CannaTrac CEO Tom Gavin IV
Cannabis banking has been an increasingly hot-topic issue in the policy realm. Due to marijuana’s current classification as a federal Schedule I drug, entrepreneurs, as well as consumers, are required to use cash-in-hand for all cannabis transactions.
Having this amount of cash liquidity on-site can cause business owners to have serious concerns when it comes to their business’s finances, safety, and accounting accuracy. Most banks fear federal repercussions if they partner with marijuana businesses, leaving cannabis entrepreneurs to fend for their own financial security.
There have been several legislative attempts to deal with this issue. The SAFE Banking Act, which is currently making the legislative committee rounds at the federal level, would provide protection for banks providing services to legitimate marijuana businesses in states where marijuana is legalized for either medical or recreational purposes.
While waiting for federal approval to participate in regular business banking transactions, marijuana entrepreneurs and banks alike have to wonder how they can safely move away from a majority cash-only industry.
Enter CannaTrac. CannaTrac is a company that offers proprietary software to cannabis businesses and financial institutions to ensure full traceability of all cannabis cash-related transactions.
To get a better understanding of how proprietary software can be used to help transition the cannabis business into a cashless one, PotNetwork spoke with CannaTrac’s CEO, Tom Gavin IV, whose personal experiences helped him enter one of the most politically-charged banking arenas.
(Thomas E Gavin IV, Vice Chairman CannTrac/ CannaTrac Website)
Cannabis banking is a rather specialized field. How did you fall into it?
My background is in finance and sales. I was in the mortgage industry for 18.5 years, and obviously you’re in sales when you’re working with mortgages! When you’ve been in an industry for a certain amount of time, you start looking for a new challenge. I was getting bored. The regulations kept changing, and not necessarily for the better. At the same time, I had some younger cousins that got very sick and ended up passing away from cancer. They got into marijuana to ease symptoms and pain, and it really kind of threw me towards cannabis.
I got involved in CannaTrac on a whim, good karma, you can call it. I went to a restaurant, had a bad day, and I sent this guy a drink who was also having a bad day. This guy had a company, which would become CannaTrac, and when he was looking for employees, he came to me. The position he was looking for, I wasn’t ready for it at the time, but I wanted to help him. Originally, it was the position of CEO, which is what I’m doing now, but I wasn’t ready for it then. He was looking for someone with more of a regulatory background. So I helped him with the marketing, and got things moving, but I thought he needed someone who had more experience with regulations. I became the Marketing Director and then eventually moved to the CEO position.
From mortgages to marijuana! That must have been quite a change. What made you want to make the move to CannaTrac?
The business concept was amazing. When you think about the clients that marijuana dispensaries serve, there are a lot of elderly people that don’t have the ability to go to the bank and get cash, or if they do, there’s a lack of safety. This really turned my head, this can do way more than just make people money. There’s a human interest aspect to this, and I thought that the whole concept in general was brilliant and unlike anything that was out there. There were certain companies that they had brought on to work on promoting this, and the founder was so ahead of his time in terms of promoting this kind of banking. We’re still so far ahead of the ideas that are already out there.
What makes CannaTrac different?
We have a delivery component that is going to be announced soon which will be easily integrated into a dispensary’s current payment system. For example, we have Global API. I’m not sure of anyone else that has that. First Inc and CannaCards.
Let’s touch on that delivery component a bit later. How does CannaTrac work? How do you choose your clients?
We do a thorough vetting of any dispensary that comes on board, we make sure that we are above board in terms of compliance with regulations. Any bank that wants to partner with us can see that we are fully transparent. There is a true interest in safety for the banking institutions as well as dispensary clients.
What CannaTrac is doing is really showing both banks and the government: where did the dispensary’s money come from? CannaTrac ensures traceability from the consumer to the dispensary. We have a lot of fail safes. One of the big things we have is a subsidiary of CannaTrack which is First Inc. They do all of the background checks on the dispensary, including doing background research on the owners and managing employees of the dispensary. When a dispensary gets licensed, they disclose the individuals involved with the dispensary at that specific time. As the dispensary grows, they may add partners or beneficial owners. Just because they have the license doesn’t mean that they are operating above board.
We do a world search which is way past local/national searches, news media, and we do all of this through our main search company. We search their world compliance division. There are over 715,000 repositories that First Inc. searches.
Once all of that is done and downloaded, we take a piece of proprietary software to put together the pertinent information for banks so that they know the dispensary’s financial reports are above board. Weeding out what’s relevant in a financial report on your own can take a week! The manual labor of weeding this information down to specific and useable information can take a lot of time. Even the banks that aren’t short-staffed, they don’t want to have to put the whole compliance team on an individual dispensary.
How does politics come into play?
In Illinois, we have a lot going on on the heels of our new Governor. On both sides, we’re very involved in terms of concepts of what’s going on in financial regulations. We are happy in terms of what is happening politically, but we need to be regulated. By that, I mean, without regulations for banks or the government, it will be like the wild west. Certain regulations are necessary, but if we’re too restrictive, we can’t move forward.
For us, there’s a lot of searching that we have to do to help the client do banking. This is for the safety of the community, the business, and the government. This is huge, and it will open up businesses all the way.
When developing this software, what sort of policies did you have to take into account? With cannabis still being a Schedule I drug, how are you able to develop a software which protects both cannabis entrepreneurs and banks?
There were a lot of little odds and ends that may not have been regulatory but were just good common sense. We’ve looked at the Bank Secrecy Act which encompasses anti-money laundering guidelines. HIPPA, not in terms of banking, but in protecting the consumer: what can we look for and collect in terms of data collection? Then we had to look state-by-state to see how the laws vary. And then add all of the little things that we had to take into consideration, in terms of making the software more secure.
You need to be able to protect the consumer, and we felt it wouldn’t deter anyone from using our system. It may be safer to adhere to stricter guidelines up front without waiting for those guidelines to be formalized.
You teased that CannaTrac is releasing a new piece of software. Can you tell me a bit more about that?
[Writer’s Note: On April 30, CannaTrac with their partners at NEXGO announced the integration of the CannaCardⓇ platform with the NEXGO N5 Mobile Point-of-Sale terminal. CannaTrac debuted this handheld POS system at the TRANSACT Conference in Las Vegas earlier this week. The interview took place on Monday, April 29, prior to the formal announcement of the AIO POS system.]
We have a new software coming out on April 30, which allows dispensaries or other merchants to use the CannaCard software without a full integration into their software system. It will help them enter into a POS system that can integrate with a third party system. It’s a huge benefit to the consumer – it gives them more ability to use the CannaCard itself.
The mobile unit will be key for dispensaries or delivery companies to take payments with CannaCard. It’s able to run on wifi, cellular data – it even works with two cellular companies. If one network is too weak, then the other will pick up the slack. So this is good for delivery where you may have more cellular coverage. You can take photographs of identifications. All of that will be available at the point of sale for dispensaries using the CannaCard.
So it’s like a debit card, but for cannabis?
The way that the money flows with the CannaCard is not on a federal rail. It still follows on a private rail – what we call the CannaCard rail. With apps like Apple and Google pay, they’re using a federal rail still, which is why they don’t want to deal with the cannabis industry. The CannaCard has to be accepted at the retailer that they go to. If they are integrated at the POS, we can automatically turn on that option for them. Alternative payment option through one of our terminals, that is an option as well. They’ll have enough information to track what they’re doing.
Does it track consumers?
Consumers are verified at the POS if the dispensary uses CannaTrac. We do collect some information to establish a Unique Identifier. This is to prevent looping – when a person has multiple accounts, they can go in and buy multiple products, thereby bypassing regulations on how much product a single consumer can buy.
You’re taking the CannaCard to the TRANSACT Conference. As someone who has never been to this conference, what can attendees expect to see from CannaTrac?
I’ve never gotten to attend this conference either! In terms of what we are showing, we will have a booth, and we’ll be in NEXGO’s booth. They brought us on. We just joined the ETA, the sponsors of the conference – it’s Electronics Transaction Association. We’ve been working on this product for over a year. I think it’s just good karma, everything worked out that we got everything dialed in for the launch and it timed perfectly with the conference. Booth 33 if you want to stop by, and people will be able to see a demo of the equipment.
Do you have any advice for people who are hoping to work in the legalized cannabis industry – either as a banker, lawyer, producer, or retailer?
The term that you have to be familiar with is due diligence. It covers everything that you have to do with this industry. Know who you’re dealing with, know your competition, who your employees are, who you’re banking with, who your clients are. Do your research. Do your due diligence. That’s the best advice that I could give.
This was an emotional decision, joining the cannabis banking industry, but then it became a well thought out decision. This is an amazing and interesting industry, and new things are constantly happening because it’s a new industry. Everyone has a connection to this industry, whether it’s personal, say a friend or family member who has needed cannabis, or not. It’s an industry that has had a positive impact on someone in their life. If you do your due diligence – if you’re starting your own company – know all the bells and whistles and all of the regulations that come along with that, because there are a lot of them! Make sure you’re well-funded, because it’s not cheap!