California State Treasurer’s Cannabis Banking Working Group Report Highlights Regulatory Barriers

> = Po cor > Qa LA Cannabis Investment Report | December 2017 The California State Treasurer’s Cannabis Banking Working Group—a panel convened by Califor- nia State Treasurer John Chiang that includes representatives from the cannabis industry and financial institutions, and government tax collection, law enforcement and regulatory agencies—issued a report in November 2017 on the cannabis industry’s banking challenges. In the report, the State Treasurer's Office stated that the cannabis industry’s lack of access to banking services is one of the biggest threats to the success of the state’s recreational cannabis law, which is scheduled for implementation starting in January 2018. Based on the working group’s findings, the State Treasurer’s Office recommended the following four actions: 1. Implementation of safer, more effective, and scalable ways to handle the payment of taxes and fees in cash that minimize risks to stakeholders. 2. Development by the State of California and local governments of a data portal of compliance and regulatory data to be made available to financial institutions that bank cannabis businesses. 3. Conduct a feasibility study of a public bank or other state-backed financial institution that provides banking services to the cannabis industry. 4. Establish a multistate consortium of state government representatives and other stakeholders to pursue changes to federal law in order to remove the barriers to cannabis banking. The State Treasurer’s Office also stated it was apparent that a definitive solution to the cannabis banking quandary will remain elusive until the federal government removes cannabis from its official list of dangerous drugs or the U.S. Congress approves safe harbor legislation protecting financial insti- tutions that serve cannabis businesses from federal penalties. Federal Securities Law The U.S. securities markets and industry participants are regulated principally under two federal laws: the Securities Act of 1933 (Securities Act) and the Securities Exchange Act of 1934 (Exchange Act). The Securities Act regulates the offer and sale of securities by issuers, and the Exchange Act regulates securities firms, stock exchanges, reporting by publicly traded companies and investing and trading practices of investors. The Exchange Act also establishes the Securities and Exchange Commission (SEC), a federal agency charged with enforcing federal securities laws. Federal securities laws are intended to facilitate capital formation, maintain fair and efficient mar- kets, and protect investors. The laws are based on a philosophy of disclosure: issuers of securities generally are obligated to completely and truthfully disclose material information to investors and the market, and failure to satisfy that obligation may result in civil or criminal penalties. Information generally required to be disclosed includes audited financial statements, discussions of risks applicable to the issuer and investors in its securities, and details of conflicts of interest faced by the issuer’s officers and directors. Federal securities laws related to private offerings provide fewer investor protections than laws related to public offerings and generally assume investors in private offerings can “fend for themselves.” An issuer of securities in a private offering is not subject to the same extensive reporting requirements 80 © 2017 Ackrell Capital, LLC | Member FINRA/SIPC HOUSE_OVERSIGHT_024716