[0:58] – What is PayQwick
[1:20] – Ken’s background
[3:06] – Headaches in the cannabis space regarding cash
[5:30] – How does PayQwick work
[6:26] – PayQwick’s ease of use
[8:23] – Ken talks about the Cole Memo
[11:45] – Cost to use PayQwick
[15:38] – Common compliance mistakes
[20:58] – Ken talks about cryptocurrency
[27:54] – Personal development questions
[32:12] – Contact details for PayQwick
Kenneth Berke is the co-founder and President of PayQwick. He is helping cannabis consumers, dispensaries, processors, and cultivators pay and receive payments digitally with their electronic wallet.
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While Canada enjoys full legal banking for cannabis businesses, US cannabis businesses are not so lucky. Business owners struggle to run all cash businesses in the absence of clear banking guidelines. To help us understand how cannabis business owners are using technology to circumvent this issue is Ken Burke of PayQwick. Ken, welcome to CannaInsider.
Ken: Thank you so much. I appreciate it.
Matthew: Give us a sense of geography. Where are you in the world today?
Ken: Los Angeles. So, north LA County.
Matthew: Okay great, and I’m in the San Miguel de Allende, Mexico today.
Ken: Oh lovely.
Matthew: And what is PayQwick on a very high level?
Ken: Sure, well, PayQwick is a compliance based electronic payment hub. Is that enables state legal cannabis transactions to occur cashlessly through the entire marijuana supply chain.
Matthew: What’s your background, and what caused you to start PayQwick? What was the need you saw?
Ken: Well, the need we saw was the tremendous amounts of cash changing hands both at the dispensary level, from the dispensary to the consumer, and also from the cultivator or manufacturer to the dispensary. You have people driving around making their deliveries, getting paid in cash, heading back to their manufacturing facility or farm with $100,000 to $200,000 in cash in their car, and we thought that was just insane from a public safety standpoint, as well as a normal business practices standpoint.
Matthew: Yeah, there’s huge amounts of cash going on and even having to pay taxes in cash is a real problem and you get charged a penalty for paying in cash, taxes. I think it’s Colorado anyway that requires when you pay in cash you pay a penalty. So, there’s all kinds of reasons you want to do it. Security, inconvenience, penalties. I can see what you mean. It almost feels like that show Miami Vice from the 80s where people are lugging around masses amounts of cash everywhere here and there.
Ken: Yeah. That is exactly it. It’s insane. It’s just insane. Then in Washington State you’ve got people driving hundreds of miles across the state to pay their excise taxes, or you used to have that before we got going in Washington and assisted with the banking situation.
Matthew: Let’s frame this a little bit more so people understand the extent of the problem. Can you talk about what life is like day-to-day for maybe an extractor or a cultivator, dispensary owner, and what they’re having to deal with in terms of hassle, security and compliance exactly?
Ken: Yes of course. Let me give you actually a real world story from one of our clients. They are a producer up in Washington. I’ll use the jargon from Washington State where they’re called producers and processors. Like many of them up there they’re family owned businesses so it’s the mom, it’s her husband and it’s her son. As they were operating it was typically the husband or the son that was making deliveries to the dispensaries or retail stores, but one day they couldn’t do it so she said, I’ll go make the deliveries.
So, she drove out, made the deliveries to the retail store. They had a couple of stores and she had about $30,000 to $35,000 in her car, and she wanted to stop for lunch and get a sandwich. She pulled into - maybe it was a Starbucks or something - just to get a sandwich or what have you and she was thinking what do I do with this money. I’ve got $30,000 in my car. I don’t want to leave it in the car. I don’t want to carry it in with me. What do I do? And then she also realized the danger that she was putting her husband and her son in on a day-to-day basis because they were the guys usually making the deliveries and bringing the cash back.
Matthew: Then she turned to PayQwick, or what did she do next to kind of mitigate this problem?
Ken: She turned to PayQwick, and she signed up for her PayQwick account and is getting paid now electronically through our platform.
Matthew: Does she have to - all the vendors and people she works with and so forth, she says, okay I’m going to be on PayQuick. This is how you get signed up. So there’s kind of a viral component to it in that the more people get onboard the more they want to get everybody else they work with onboard.
Ken: That’s absolutely correct. And our whole goal and what we’ve done is to make it easier to pay. To make it just as easy to pay with PayQwick or easier to pay with PayQwick than it is to pay with cash, but you’re right. It does have that viral component to get additional people signed up.
Matthew: How does a dispensary customer get their money into PayQwick if they wanted to pay a dispensary? Let’s say they bought a hundred dollars worth of items and they wanted to pay for it with PayQuick. How does that work?
Ken: Twofold, one, just like PayPal or Vimeo you link your PayQuick account to your personal checking account, and then you can transfer funds from your checking account into your PayQwick account and then use that to make your purchase at the dispensary. The other way that people are able to do that, we’re just rolling that out this month as a matter of fact in Washington, is the ability for people to load their PayQwick account with a Visa or Mastercard. So they’ll be able to use a credit card to transfer funds into their PayQwick account and then obviously use those funds in the store.
Matthew: This is getting interesting here. People are getting more options on ways to do it. Do customers who are loading up PayQwick have an questions the first time, or is it pretty much simple for them? They’re like, oh this reminds of PayPal or anything else.
Ken: It’s pretty simple. We don’t get a lot of questions in that regard. I think folks generally are familiar with how an eWallet works, given the prevalence of PayPal and Vimeo out there these days. There’s not a lot of explaining that has to go on in terms of using an eWallet these days.
Matthew: So, if I’m a customer at a point of sale at a dispensary, is there QR codes, or how do I actually then initiate the movement of money from my phone to a dispensary?
Ken: Yeah it would be a QR code on the phone that said just scanned at the point of sale.
Matthew: That makes it easy. Okay good. So, let’s say I’m a licensed dispensary that made $100,000 this week on PayQwick. What happens after all those sales in terms of compliance and know your customer, anti money laundering, all those things that a dispensary really has to stay on top of to ensure that they don’t get in trouble and spend their life dealing with bureaucracy?
Ken: That’s a great question. And people ask us what is PayQwick and when I answered your question we are first and foremost a compliance company that happens to have a pretty sophisticated eWallet. But we do all the normal filings that a bank would file. So, the bank files a CTR, currency transaction report, that would be - we file those as well. We’re a BSA filer. We file the marijuana limited marijuana priority or marijuana termination, SARS, Suspicious Activity Reports because we are registered federally as a money service business and so we file all those reports directly with FINSIN.
Matthew: And just for people that are still getting up to speed with the Cole Memo, can you just explain what that is?
Ken: Of course. So, the way the Cole Memo works is basically the Department of Justice obviously they’re tasked with enforcing the Controlled Substances Act and going after folks who are violating federal law. And as everybody knows, cannabis is illegal federally. So the local attorney generals went to Deputy Attorney General Cole and said how do we decide who we’re going to go after and prosecute and how do we decide who we’re going to leave alone. So, what James M. Cole issued was he said, this is how you use your prosecutorial discression and that’s what that’s called really. Every prosecutor has prosecutor discression.
So, he said to them, if you have a cannabis business that’s operating in compliance with state law, and the state has a robust licensing program for cannabis businesses, and that business is not implicating any of the eight enforcement priorities, let’s call them bad boy acts, which would include selling cannabis to minors, selling cannabis across state lines, having firearms at the premises, being a front for drug cartels or gangs, disguising your activity or using your legal activity as a disguise for illegal activity, growing on federal lands. These basically eight bad boy acts, if the marijuana business is operating in compliance with state law and not implicating these enforcement priorities, not doing any of these eight bad boy acts, leave them alone. Just leave them alone and go after the cannabis businesses that are engaging in any of these eight bad boy acts. So, that’s the Cole Memo in a nutshell.
Matthew: So, PayQwick helps marry up to each one of the points in the Cole Memo so your customers can kind of be at ease about it.
Ken: That’s absolutely correct. Under the Bank Secrecy Act there’s something called the know your customer due diligence obligations. That’s part of the banks’ responsibility and even at PayQwick we’re regulated under the same thing. We’re a non-bank financial institution so we’re subject to the Bank Secrecy Act and the anti money laundering laws as well. And under that there’s something called, like I mentioned, know your customer due diligence. You’ve got to go in as part of your compliance program and know you customers. There’s nothing magic about it. You really got to know your customers, which part of that obligation entails knowing that they’re not implicating any of these eight enforcement priorities.
So, when we onboard a client we go through the exact same onboarding process that a bank or credit union would engage in when bringing on a marijuana business themselves. That includes onsite site inspections. We’re looking at who all the owners are, all that kind of stuff, and making sure that they’re operating in compliance with state law and not implicating any of those eight enforcement priorities.
Matthew: Well, all those compliance points have expense. How much do your customers pay to keep up with PayQwick in terms of onboarding and then sustaining costs to use PayQwick? Can you give a ballpark there?
Ken: Typically when we onboard somebody there’s a $495 application fee that takes care of the initial onsite inspections, compliance review, that type of thing. Then we go out periodically and do onsite compliance inspections as well, and depending on where the business is, those typically run about $150 per inspection. I will tell you that the banks absolutely love it. We stand shoulder to shoulder with the banks in terms of compliance and share our compliance information both with the bank and with our clients. So from a bank’s perspective they can’t outsource their know your customer obligations under the Bank Secrecy Act, but they certainly can have someone who stands shoulder to shoulder with them and buttresses their own compliance efforts with respect to each of those marijuana businesses. So, it’s a huge benefit to a bank if they’re banking a cannabis client to have that client as part of the PayQwick platform because they get to piggyback on our compliance efforts. That’s number one.
Number two is a tremendous for our clients because when we go out and do our onsite compliance inspections if we find something that’s wrong or a potential violation, we tell them about it. They have an opportunity to fix before the state regulator shows up and issues them a notice of violation. So, a good analogy would be an OSHA inspection. If you have your own independent OSHA expert come in and review your facility, he or she is going to catch things that you can then fix before your state OSHA inspector comes in and takes a look and issues you a violation for something.
Matthew: That makes sense. Do other industries besides the cannabis industry use PayQwick?
Ken: Right now the answer is no, although it’s fully usable for any other industry. It’s an eWallet. I will tell you that we do have a number of what we call ancillary businesses and those would be landlords, they would be accountants, they would be lawyers or any other business that is serving cannabis businesses and historically have been getting paid in cash. The landlord, for example, I’ll give you another real world example, can open up a PayQwick account and just get paid electronically. We did get a call from a landlord who was getting paid about $30,000 a month in rent. He was getting it in cash and taking it to his bank and depositing it. After about three or four months the bank said to him, don’t bring that cash here anymore. We don’t want it. We’re not going to close your account. We know you, we trust what you’re doing, but do not bring that cash here.
So, the guy went out, before having a PayQwick account obviously, he went out and he bought a safe at Costco and he started putting the cash in the safe, and when he had contacted us his comment was basically, I have this $30,000 and it’s useless paper. There’s only so much I can buy at Best Buy and I’ve exhausted that. It’s just stacking up in my safe as useless paper. Now with a PayQwick account the tenant pays him the rent, $30,000, electronically through PayQwick. His PayQwick account is linked to his bank account so then he just transfers the money from his PayQwick account to his bank account, that same account that didn’t want the cash. The bank goes, great, fantastic. Now the money is coming in electronically. We have no problem.
Matthew: Interesting. In terms of when you see people make mistakes with compliance what are the top two or three offending mistakes that you see?
Ken: A couple that we see is, which is a really bad one, they’re not properly checking drivers licenses. So, and a drivers license should be checked not only at the door but again at the point of sale. Some states consumers are comfortable with doing that, excuse me, having the driver license checked at both places. Make sure your surveillance cameras are on. Make sure everyone is badged, all the employees are badged. There’s sign-in sheets and visitors get badges, that type of stuff. As we’ve seen is really some of the traps for the unwary. It’s just a matter of being diligent.
The other thing that we counsel all of our clients to do is appoint a chief compliance officer for your cannabis business, and send that person to the appropriate training classes. Make sure they’re familiar with the law and what has to happen and give that person appropriate authority within the organization to make decisions, to engage in disciplinary action, because compliance really starts from the top. It’s the owners of the business that have to have a mindset of compliance and make compliance a priority and then that will trickle down through the organization. If the owners don’t really endorse compliance, you’re going to end up with a corporate culture that doesn’t stress compliance as important.
Matthew: In terms of getting new customers signing up, do you see dispensaries sending out emails or text messages inviting customers to sign up so that when they come in, they walk in the door they’re good to go so they don’t have to wait and it’s more frictionless, or do most new dispensary customers actually do it there in the dispensary?
Ken: Most customers do it in the dispensary or they do it beforehand. They’ll download the app or they’ll go on our website and apply for their account and do it before going into the store. So, that’s where it’s typically done. And then the other big piece of our business is the business side of the house, the B2B transactions. There any cannabis business in the states in which we operate, they can go online to our website, fill out the application and you can attach copies of your articles of the organization or your operating agreement or that type of thing and get the application part started to open up a PayQwick business account versus a consumer account. That’s really where we seen the greatest amount of growth over the past 12 to 24 months is on the business to business side.
Matthew: I imagine those transfers are probably much larger.
Ken: They are much larger, and the other thing that we’re rolling out with respect to that side of the house is what we call our ecommerce solution. In the industry today there’s a number of companies out there that are starting what we call marijuana exchanges. And an exchange is pretty similar to Amazon. All the sellers, manufacturers and cultivators they list for sale what they have, their inventory, at the wholesale level. The dispensaries and the retailers can then go online, login to the website, select the items that they want to purchase for their store. They drop down into a shopping cart and then at checkout there’s a button where they can pay with PayQwick versus cash on delivery. That’s a really big part of our platform today is that ecommerce solution because again the biggest headache is not delivering the cannabis product. The biggest headache that we hear out there is carrying back the cash. That’s where the biggest risk is too.
We found, the criminals, they’re not really interested in stealing the product itself because they’re just going to have to resell it. If they can hit the driver when he’s driving back with the cash in his truck, then that’s the attractive target. So, what we try and do is eliminate that cash in the truck, if you will, coming back.
Matthew: I have to ask you about the block chain here in cryptocurrencies. I still think the volatility of cryptocurrencies is quite a problem for businesses and consumers in the space. They don’t want to watch their value drop 10 to 30 percent in a day on cryptocurrency they acquired and then have to come up with more cash to buy whatever they’re going to buy in the dispensary or from another merchant in the ecosystem. There is new entrants like (Di) and Tether that aim to fix cryptocurrencies to a stable collateral like the US Dollar or the Euro. With that, do you think there’s a place for cryptocurrencies emerging in the cannabis ecosystem for payments?
Ken: We really don’t, and I have nothing against cryptocurrencies, Bitcoin and (21.06 unclear) and the other cryptocurrencies out there. It’s an interesting idea, interesting concept. Clearly it’s here to stay. We just think it’s premature for the cannabis industry to be dealing with cryptocurrencies. What we typically tell clients is there’s no greater way to invite additional scrutiny from Jeff Session than to be engaging in cryptocurrency in the cannabis space. We already have strike one against us because we’re dealing with cannabis. Bringing in Bitcoin and cryptocurrency is just going to be another red flag for them.
So, having said that we just think it’s too early. It’s too soon. Let’s let the industry get its legs under them and under it and normalized and stabilized before you start introducing something as potentially dangerous or vague or inviting scrutiny as cryptocurrency. The other thing that listeners should be aware of is that Visa and Mastercard have now come out and said if you are buying Bitcoin or any cryptocurrency with your credit card that they deem that to be a cash advance and they’re charging another five percent fee to the consumer to purchase the Bitcoin. I know there’s been a number of banks, Citi Bank, Chase, Bank of America, they have prohibited their customers from using cards issued by those banks to purchase cryptocurrency. You can’t buy cryptocurrency at all with your Bank of America, Chase, Citi Visa card or Mastercard. You just can’t. They prohibit the purchase of cryptocurrency.
So, at the end of the day, like I said, we don’t have anything against Bitcoin or cryptocurrency per se. We just don’t think it’s the right time for it to be entering into the cannabis space. It’s too early in the life of the cannabis industry.
Matthew: Yeah if you’re bank is playing referee on what your purchases should be as an adult, I encourage anybody to switch banks if they do that. Because that’s a slippery slope when they say hey you can use your card for this or not that, or this or not that and it gets very political. And when it’s something, a political view you agree with that’s fine, but then how do you know the next year they’re not going to do something that you don’t agree with. So, I really don’t like to see big Wall Street banks deciding who should be able to purchase with what, with your own money. I guess you can still purchase with debit cards because it’s not the bank extending credit for something that might ultimately cannibalize their business. So, I can understand that.
Ken: I think the other thing I would mention with cryptocurrency is that all the banks and credit unions that I know except for one will not accept funds that have ever been in the form of cryptocurrency. So, if you’re a dispensary and you’ve signed up with one of these credit card processing companies where they use the credit card to purchase Bitcoin and then that Bitcoin operator tries to send you an ACH or tries to give you a check for those purchases, your bank is not going to accept them. No bank that I know of or credit union except for one will accept that check for deposit. So, you’re still kind of stuck, and you certainly can’t go and open a separate account at a different bank or credit union, try to deposit that money under a different name. That’s money laundering 101. You certainly don’t want to engage in that. Even all the banks and credit unions that we know of they won’t even accept the funds if they’ve ever been in the form of cryptocurrency.
Matthew: I’ve not heard of that, but you deal with more banks than I do. I definitely see this issue. I can almost see this across age demographics. When I talk to Millennials versus GenX versus Baby Boomers, the responses are almost entirely in the same bucket 80 percent of the time. Whereas the Millennials they see this as absolutely inevitable. They don’t trust banks. They don’t trust mutual funds, and they definitely are in to Vinmo and Square cash app and definitely into Bitcoin but also other cryptocurrencies, and they actually see it as not so much the payments as a store value. And then the GenXers are kind of schizophrenic on the topic but they see it like yeah I kind of have my feet in both worlds. Then Boomers generally but not always thinks it something crazy. It’s made up money. It doesn’t even make sense. It’s like Minecraft for adults. It’s totally something that’s just going to go away. It’s like a fiction. It’s interesting to see how different those world views are, but it seems to me like the Millennials are just waiting. They’re like the (26.26 unclear) waiting for the Boomers to get older, just a little bit older, a little bit older, and then they’re going to move. I’m a GenXer saying that, but I can just tell there is a wariness and frustration with the stranglehold that the Boomers have on the financial institutions and not changing them quickly enough to their liking. That’s why we see this kind of crazy (26.52 unclear) revolution that you’re part of happening here is people want more options and they want to see more of their banking services come from Silicon Valley than from Wall Street.
Ken: I agree with you. It’s interesting the demographics. I don’t doubt those demographics for a minute. Personally I’m a Baby Boomer, and I’ve fully endorsed eWallets from Vimo and PayPal and that type of thing. So, have completely gotten onboard with that technology if you will and that kind of (27.28 unclear) technology but definitely still feel more comfortable dealing in US dollars than in a cryptocurrency where the value can just fluctuate so dramatically day to day or even hour to hour.
Matthew: That’s true. Good points. Let’s pivot to some personal development questions here. Is there a book that has had a big impact on your life or way of thinking that you’d like to share?
Ken: I’m trying to think, a book. Alexander Hamilton’s book frankly and just how he, and obviously it’s an incredible musical at this point, but just what he went through and what he persevered to get where he did and the thinking involved was just so far ahead of his time. It really opened my eyes to things.
Matthew: Do you have a couple of examples you’d like to share of what you mean about what he thought about?
Ken: He thought ahead how he traded on the political level. What they were doing, the checks and balances in creating out government and the banking system etc. Just very impressive to me if you will.
Matthew: Have you seen the musical Hamilton?
Ken: I did. I was lucky enough to see it in New York on the very last night of previews before it opened. It’s just genius. I mean it’s just absolute genius how he read a book and thought, you know what I can make a musical out of this. It was like what.
Matthew: I guess you can make a musical out of anything, but a good musical is the challenge.
Ken: Right. And I had seen In the Heights and absolutely loved In the Heights, and my son is a musical theatre actor in New York. So, musical theatre has always been near and dear to our hearts growing up. My mom took me to a ton of plays, all the classics in Los Angeles at the Pantagias. So, musical theatre was a big part of our lives. We exposed our son to it and now he’s made a career out of it. Having said that, that’s another - and me personally I have absolutely no musical talent at all whatsoever, none, zero so I’m always in awe of people who can sing and dance.
Matthew: Maybe we could see a musical ad from PayQwick soon. Challenge accepted?
Ken: I won’t be in it but yes.
Matthew: Is there a tool, web-based or otherwise, that you consider vital to your productivity apart from PayQwick?
Ken: Yes as a matter of fact and that is I’ve gotten completely addicted to using One Note to keep track of everything that is going on in our company, in PayQwick. We share One Note amongst ourselves, amongst certainly the executives in the company to keep everybody focused and rolling in the same direction. So, One Note for us has just been an incredible productivity tool to share information, to share ideas, and most importantly with any business you got to stay focused and particularly in this space. There’s a lot of shiny balls that pop up all over the place that you can go chasing. If you do that you’re going to get distracted from your core competency, which for us is compliance and electronic payments. So, that One Note in keeping everybody focused and on track with what they need to be doing has really helped us, and obviously it syncs with your phone, computer, iPad, etc. So, you can really use it and have access to it wherever you go.
Matthew: Do you use it primarily for project management type function, collaboration type functions?
Ken: Correct. That’s exactly right.
Matthew: That makes sense. Ken, thanks so much for coming on the show today and helping us understand this mess that we’re in with the banking and finance. Your offering sounds like it makes it easier for people and everybody welcomes that. I hope we get some more clear direction from Jeff Sessions soon, but I’m not going to bet on it. Please tell us one more time how listeners can find out more about PayQwick and learn about your offering and connect with you.
Ken: The best way to do it is going to our website, and we’re spelling challenged. So, we’re at www.payqwick.com, but we spell PayQwick, P-A-Y-Q-W-I-C-K. There are phone numbers on there. There’s contact information on there. You can fill out an application to open a PayQwick account both business-wise and consumer-wise. We’d love to hear from you and join us.
Matthew: Ken, thanks again for coming on the show. We really appreciate it and good luck the rest of the year too.
Ken: Oh thank you so much.