Ben S. Bernanke, chairman of the U.S. Federal Reserve, waits to address the inaugural meeting of the National Commission on Fiscal Responsibility and Reform in Washington, D.C., U.S., on Tuesday, April 27, 2010. Bernanke said a failure to reduce the federal budget deficit may push up interest rates over time and impair economic growth, putting the recovery at risk. Photographer: Win McNamee/Pool via Bloomberg *** Local Caption *** Ben S. Bernanke

This ex-Treasury Department employee has a solution to bank the marijuana industry: How it works

There are lot of companies out there trying to solve the banking conundrum that plagues the cannabis industry.

Some have taken action such as setting up holding companies to provide banking or even flying cash to the Bahamas, says Lamine Zarrad, a former banking examiner with the Office of the Comptroller of the Currency.

“Most of them, at best, are unethical,” Zarrad says. “Quite a few are, quite frankly, illegal.”

After Zarrad left his job with the OCC (an independent bureau of the U.S. Treasury Department) he founded Tokken, an electronic payment startup aimed at facilitating banking for cannabis companies. Tokken is being launched now as a pilot program.

“We don’t shy away from regulatory requirements,” he says, noting that his executive team includes former officials of the Central Intelligence Agency and U.S. Navy, among others.

Tokken works by allowing consumers to download an app and then connect a payment source, such as a credit card or a banking account. They then can go into a participating dispensary and when they make a payment, it goes into a Tokken bank partner account, he says. The dispensary, at the time of the transaction, is issued a “Tokken,” which can then be used with other retailers that accept Tokkens, or it can convert the Tokken to U.S. dollars, he says.

On the surface, Tokken resembles a Venmo or a PayPal, but there are layers of additional complexity, he says.

“Users want safe, secure transactions that are frictionless; users don’t want to download some application that requires your Social Security Number,” he says. “However, regulators want something that’s traceable and transparent.”

Tokken aims to reconcile those concerns, he adds.

Tokken asks users for their first name, last name and phone number and then can use mobile provider data to verify the identity and age of the user. To satisfy regulators’ desires for transparency, Tokken incorporates Blockchain — a ledger that allows for the storage of encrypted data — as its backbone, he says.

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