Marijuana, Financial Crimes, Surveillance On California Regulator's Agenda

April 7, 2022
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Cardrooms and cannabis continue to be an evolving issue in California, as policymakers try to reach a consensus on a proposal that would allow for dual licensure between the two industries.

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Cardrooms and cannabis continue to be an evolving issue in California, as policymakers try to reach a consensus on a proposal that would allow for dual licensure between the two industries.

The Gaming Policy Advisory Committee (GPAC) is also debating whether to establish a reporting system to make it more difficult for employees who were fired or quit their jobs for financial crimes to continue to work in the cardroom industry, while financial analysis is being completed on a proposal updating surveillance requirements.

Since October, the GPAC has been unable to reach a consensus on whether to allow for dual licensure within the cannabis and gaming industries. Concerns expressed by state law enforcement over money laundering have delayed the committee signing off on any new regulations.

“What we have found is that for all the states that have licenses for both, the only state that prohibited [it] was Nevada,” said Jieho Lee, a GPAC member and managing partner of Knighted Ventures, a third-party proposition player services company in northern California.

During a GPAC meeting last month, Lee cited Washington, Florida and Colorado among the states he contacted with both industries and no regulations regarding dual licensure.

The nine-member committee makes recommendations on gaming policy that are forwarded to the California Gambling Control Commission (CGCC) for approval.

Lee said the “real issue” that the California Bureau of Gambling Control (BGC) is concerned about is the laundering of cannabis funds through a casino. He added that the BGC was particularly concerned about a cardroom’s cage being used to launder marijuana proceeds.

Lee said he sent a memo outlining initial proposals to protect cardrooms to CGCC executive director Stacey Luna Baxter, which he described as a “first attempt of putting something together for the review of GPAC.”

The memo was expected to be discussed and Lee's proposals finalized at the committee’s next meeting, which as of Wednesday (April 6) had yet to be scheduled.

“And then we can go from there,” Lee said.

Legalization of cannabis in California has created an estimated $16bn industry, while licensed cardrooms generate $5bn annually in economic activity.

A few financial institutions in the state have been willing to bank licensed growers, manufacturers and retailers, while others feeling restrained by federal regulations deny services to cannabis businesses.

Federal law deems cannabis to be a Schedule 1 illegal drug under the Controlled Substances Act, putting it on par with heroin.

Nevada voters approved the use of medical marijuana in 2000 and recreational marijuana in 2016.

But the Nevada Gaming Commission in 2018 approved a set of policy requirements for casinos and other gaming licensees to keep their distance from the state's lawful marijuana industry.

“Nevada probably would have allowed dual ownership if federal law did not still consider cannabis as an illegal schedule 1 drug under the Controlled Substances Act,” said Anthony Cabot, a distinguished fellow in gaming law and the University of Nevada, Las Vegas’ William Boyd School of Law.

“The reasoning is that a criterion for licensing and operations is compliance with all local, state and federal laws. Permitting dual ownership would be an affront to that approach,” Cabot said.

Once the federal government either legalizes or decriminalizes cannabis, Cabot said, then no reason exists not to permit dual ownership.

“The issue of allowing the use of cannabis on the casino's premises remains. Most regulatory regimes have some rules regarding alcohol use, but in the United States, they tend to be permissive,” Cabot added. “Good science on the impact of cannabis use on responsible gaming may help inform the regulatory choices.”

The California GPAC is also expected to move forward at its next meeting on regulations that would allow gaming regulators to keep track of employees fired or who quit their jobs over financial crimes but are not prosecuted and move on to another job within the industry.

Gaming regulators have urged that any proposals be reviewed by legal counsel, while unionized employees should not be included to prevent any litigation over interference with union contracts.

Meanwhile, the California Gaming Association (CGA), which represents 66 cardrooms, including Artichoke Joe’s and Ocean’s Eleven Casino, has also submitted comments requesting changes to proposed amendments to surveillance regulations.

Among their concerns are proposals requiring cardrooms to close any area in the event of a surveillance system failure or when cameras reboot or are upgraded. The association is also concerned about requiring separation between the security and surveillance departments and ensuring that surveillance workers have no other job function at a cardroom.

Mark Kelegian, managing partner with Ocean’s Eleven Casino in southern California, said he is concerned about labor costs, staffing and efficiencies if cardrooms are required to separate security and surveillance.

“There is no reason why the general manager of the casino, or another key employee, cannot perform both supervising duties,” Kelegian said.

The CGA also noted that table game activity at many of the Tier 4 cardrooms varies throughout the week with some locations operating ten tables in off-peak hours.

“In short, the need for live 24/7 video monitoring for Tier 4 cardrooms is exaggerated relative to the expected benefit to public safety, gaming integrity and internal controls,” it said.

There are five tiers of cardrooms licensees in California, with Tier 1 authorized to operate one to five tables, Tier 2 six to ten tables, Tier 3 11 to 30 table, while Tier 4 operates 31 to 60 tables, and Tier 5 operates 61 or more tables.

Fred Castano, a CGCC spokesman, said the agency is working on a fiscal analysis of the changes proposed to surveillance regulations, which will show the potential costs and savings to the state and the industry.

Following the analysis, the proposed regulations will be sent to the Department of Finance and then officials will file a notice of proposed regulatory action with the Office of Administrative Law, which will commence a 45-day public comment period.

“The language is subject to change throughout the rulemaking process,” Castano said.

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