LARGE CASH PAYMENTS: SECURITY AND LIABILITY LESSONS LEARNED. Dennis Svanes, CPA, CGMA Chief Financial Officer, La Plata Electric Association, Inc.

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1 LARGE CASH PAYMENTS: SECURITY AND LIABILITY LESSONS LEARNED Dennis Svanes, CPA, CGMA Chief Financial Officer, La Plata Electric Association, Inc.

2 LARGE CASH PAYMENTS Why Large Amounts of Cash Electric / Member Service Issues Remittance Issues Regulatory Concerns Solutions / Results Changes

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4 COLORADO LEGALIZATION OF MARIJUANA Medical Marijuana legalized U.S. Department of Justice Deprioritized Medical Marijuana Medical Cards went from 5,000 in state to 100,000 in the first year Recreational Marijuana legalized

5 CATACLYSMIC STORM AVERTED November 6, 2012 Recreation Pot Legalized November 21, 2012 Twinkie Production Suspended July 15, 2013 Twinkie Production Resumed January 1, 2014 Recreational Sales Begin

6 COLORADO LEGALIZATION OF MARIJUANA Individuals 12 Plants for Recreational Use (No Sales) 24 Plants for Medical and Care Givers Business Side 744 Cultivation Sites 289 Product Manufacturing Sites 538 Retail Stores Compared to 481 Starbucks in Colorado $1.5 Billion in Sales in 2017 in the State

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8 29 States

9 ELECTRIC SALES 7.3 Million kwh Annual Sales Licensed Grow Facilities Store Fronts Testing Facilities Personal Use Non-Licensed Facilities

10 ELECTRIC SERVICE ISSUES Transformers Overloaded / Burn Out Very High Load Factor Meters Burn Out Lines Burn Out Not an Issue for Large, Licensed Facilities

11 SAFETY ISSUES Non-Licensed Facilities Armed Individuals Theft of Power Unsafe Wiring

12 LOAD PROFILE GROW FACILITY 450 kwh :00 2:00 3:00 4:00 5:00 6:00 7:00 8:00 9:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00 21:00 22:00 23:00 0:00

13 BILLING/MEMBER ISSUES High Bill Complaints College Kids Growing Not Realizing Power Usage Landlords Deposits Based On Previous Usage History

14 ACCESS TO BANKING FinCEN guidance: U.S. Treasury Department essentially told banks they were part of the enforcement team to monitor legality of depositors with marijuana proceeds. Colorado Bankers Association response: Can t do business with growers or sellers, Feds telling us we can be prosecuted for providing accounts to marijuana businesses. H.R. 2652: Marijuana Businesses Access to Banking Act (pending) Colorado law: Marijuana Financial Services Cooperatives Act (H.B ) authorizes the creation of Cannabis Credit Coops. Credit unions denied master account by Federal Reserve.

15 REMITTANCE ISSUES Large Cash Payments Creates Counting Accuracy Issues Money Smells Employee Allergies

16 SOLUTIONS Cash Counter Bank-grade Same Brand & Type as Local Banks Serviced by Same Company that Services Local Banks Counterfeit Detection Built-In Sorts Cash by Denomination

17 SOLUTIONS Out of Sight of Public Increased Accuracy Used for Single Payments, Drawer Closing & Deposits* * Deposits before Vault

18 REMITTANCE ISSUES Large Deposits $35,000 in Single Payments Nervous Employees Perceived Increased Crime Rate Hiding Spots in Office for Large Cash Transporting Cash to Bank

19 REMITTANCE ISSUES Conversations with Growers Payments Delivered with Armed Teams in Parking Lot to Pay Power Bill Asked to Stager Days and Times for Making Payments

20 REMITTANCE ISSUES Cash Issues $2.2 Million in Cash / Year Concern for Safety of Employees

21 IRS REGULATIONS Form 8300 Receipt of $10,000 in One Transaction or in Two or More Related Transactions Our Auditors Opined Individual Power Bill (or Other Misc Bill) is Related Transaction File within 15 Days Penalties Assessed if Date Missed

22 BANK CHANGES Bank Hired Security Pickup Not very Professional Unable to Provide Proof of Insurance Discontinued Relationship

23 BANK CHANGES Bank Change Issues Not Related to Security Company Indicative of Other Issues with Bank Banks Considered Needed to Address Cash Issue

24 SOLUTION Custom Built Vault Based Upon our Cash Deposits Opened Only by Brinks Paid for by the Bank Direct Deposit to Bank Daily

25 COUNTS C ASH AS BEING DEPOSITED

26 SOLUTION Real-time Monitoring of Cash Co-op, Bank, Brinks Large Payments or Accumulation Depositing Immediately Daily Cash Drawer Close Armored Car Pickup of Cash Badged Access to Office / Secured Area

27 RESULTS Employee Safety Employee Satisfaction Accuracy Internal Controls

28 CHANGES TO GROWERS/SELLERS Creating Sister Companies Accounting and Banking Services Receiving Electronic Payments from Those Companies Banks Changing Who Can Make Cash Deposits Listed on Account for $500 or Larger Cash

29 CHANGES TO GROWERS/SELLERS Reduced Cash Received Down to $1.8 Million in 2017 Trending Flat for 2018

30 SUMMARY Marijuana Growing in U.S. Problem Until Federal Gov t Changes Banking Electric Services / Member Services Cash Counters Vault (Brinks, Loomis, etc.)

31 CONTACT INFO Dennis Svanes Cell: