maturity transformation, but it is also clear that a tighter monetary policy would have been a very blunt tool. substantially mitigating the emerging financial vulnerabilities through higher interest rates would have had sizable adverse effects in terms of higher unemployment. in particular, a range of studies conclude that tighter monetary policy during the mid-2000's might have contributed to a slower rate of house price appreciation. but the magnitude of this effect would likely have been modest relative to the substantial momentum in these prices over the period; hence, a very significant tightening, with large increases in unemployment, would have been necessary to halt the housing bubble.2 such a

slowing in the housing market might have constrained the rise in household leverage, as mortgage debt growth would have been slower. but the job losses and higher interest payments associated with higher interest rates would have directly weakened households' ability to repay previous debts, suggesting that a sizable tightening may have mitigated vulnerabilities in household balance sheets only modestly. similar mixed results would have been likely with regard to the effects of tighter monetary policy on leverage and reliance on short-term financing within the financial sector. in particular, the evidence that low interest rates contribute to increased leverage and reliance on short-term funding points toward some ability of higher interest rates to lessen these

vulnerabilities, but that evidence is typically consistent with a sizable range of quantitative effects or alternative views regarding the causal channels at work.4furthermore, vulnerabilities from excessive leverage and reliance on short-term funding in the financial sector grew rapidly through the middle of 2007, well after monetary policy had already tightened significantly relative to the accommodative policy stance of 2003 and early 2004. in my assessment, macroprudential policies, such as regulatory limits on leverage and short-term funding, as well as stronger underwriting standards, represent far more direct and likely more effective methods to address these vulnerabilities. turning to recent experience

outside the united states, a number of foreign economies have seen rapidly rising real estate prices, which has raised financial stability concerns despite, in some cases, high unemployment and shortfalls in inflation relative to the central bank's inflation target. these developments have prompted debate on how to best balance the use of monetary policy and macroprudential tools in promoting financial stability. for example, canada, switzerland, and the united kingdom have expressed a willingness to use monetary policy to address financial stability concerns in unusual circumstances, but they have similarly concluded that macroprudential policies should serve as the primary tool to pursue financial stability. in canada, with inflation below target and output growth quite subdued, the bank of canada has

kept the policy rate at or below 1 percent, but limits on mortgage lending were tightened in each of the years from 2009 through 2012, including changes in loan-to-value and debt-to-income caps, among other measures. in contrast, in norway and sweden, monetary policy decisions have been influenced somewhat by financial stability concerns, but the steps taken have been limited. in norway, policymakers increased the policy interest rate in mid-2010 when they were facing escalating household debt despite inflation below target and output below capacity, in part as a way of "guarding against the risk of future imbalances. similarly, sweden's riksbank held its policy rate "slightly higher than we would have done otherwise" because of financial stability concerns. in both cases, macroprudential

actions were also either taken or under consideration. in reviewing these experiences, it seems clear that monetary policymakers have perceived significant hurdles to using sizable adjustments in monetary policy to contain financial stability risks. some proponents of a larger monetary policy response to financial stability concerns might argue that these perceived hurdles have been overblown and that financial stability concerns should be elevated significantly in monetary policy discussions. a more balanced assessment, in my view, would be that increased focus on financial stability risks is appropriate in monetary policy discussions, but the

potential cost, in terms of diminished macroeconomic performance, is likely to be too great to give financial stability risks a central role in monetary policy decisions, at least most of the time. if monetary policy is not to play a central role in addressing financial stability issues, this task must rely on macroprudential policies. in this regard, i would note that here, too, policymakers abroad have made important strides, and not just those in the advanced economies. emerging market economies have in many ways been leaders in applying macroprudential policy tools, employing in recent years a variety of restrictions on real estate lending or other activities that were perceived to create vulnerabilities. although it is probably too soon

to draw clear conclusions, these experiences will help inform our understanding of these policies and their efficacy. if macroprudential tools are to play the primary role in the pursuit of financial stability, questions remain on which macroprudential tools are likely to be most effective, what the limits of such tools may be, and when, because of such limits, it may be appropriate to adjust monetary policy to "get in the cracks" that persist in the macroprudential framework. in weighing these questions, i find it helpful to distinguish between tools that primarily build through-the-cycle resilience against adverse financial developments and those primarily intended to lean against financial excesses.12 tools that build resilience aim

to make the financial system better able to withstand unexpected adverse developments. for example, requirements to hold sufficient loss-absorbing capital make financial institutions more resilient in the face of unexpected losses. such requirements take on a macroprudential dimension when they are most stringent for the largest, most systemically important firms, thereby minimizing the risk that losses at such firms will reverberate through the financial system. resilience against runs can be enhanced both by stronger capital positions and requirements for sufficient liquidity buffers among the most interconnected firms. an effective resolution regime for sifi's can also enhance resilience by better protecting the financial system from contagion in the event of a sifi collapse.

further, the stability of the financial system can be enhanced through measures that address interconnectedness between financial firms, such as margin and central clearing requirements for derivatives transactions. finally, a regulatory umbrella wide enough to cover previous gaps in the regulation and supervision of systemically important firms and markets can help prevent risks from migrating to areas where they are difficult to detect or address. in the united states, considerable progress has been made on each of these fronts. changes in bank capital regulations, which will include a surcharge for systemically important institutions, have significantly increased requirements for loss-absorbing capital at the largest banking firms. the federal reserve's stress

tests and comprehensive capital analysis and review process require that large financial institutions maintain sufficient capital to weather severe shocks, and that they demonstrate that their internal capital planning processes are effective, while providing perspective on the loss-absorbing capacity across a large swath of the financial system. the basel iii framework also includes liquidity requirements designed to mitigate excessive reliance by global banks on short-term wholesale funding. oversight of the u.s. shadow banking system also has been

strengthened. the new financial stability oversight council has designated some nonbank financial firms as systemically important institutions that are subject to consolidated supervision by the federal reserve. in addition, measures are being undertaken to address some of the potential sources of instability in short-term wholesale funding markets, including reforms to the tri-party repo market and money market mutual fundsalthough progress in these areas has, at times, been frustratingly slow. additional measures should be taken to address residual risks in the short-term wholesale funding markets. some of these measuressuch as requiring firms to hold larger amounts of capital, stable funding, or highly liquid assets based on use of short-term wholesale fundingwould likely apply only to the largest, most complex organizations. other measuressuch as minimum margin requirements for repurchase agreements and other securities financing transactionscould, at least in principle, apply on a marketwide basis. to the extent that minimum margin requirements lead to more conservative margin levels

during normal and exuberant times, they could help avoid potentially destabilizing pro-cyclical margin increases in short-term wholesale funding markets during times of stress. at this point, it should be clear that i think efforts to build resilience in the financial system are critical to minimizing the chance of financial instability and the potential damage from it. this focus on resilience differs from much of the public discussion, which often concerns whether some particular asset class is experiencing a "bubbl"" and whether policymakers should attempt to pop the bubble. because a resilient financial system can withstand unexpected developments, identification of bubbles is less critical. nonetheless, some macroprudential tools can be

adjusted in a manner that may further enhance resilience as risks emerge. in addition, macroprudential tools can, in some cases, be targeted at areas of concern. for example, the new basel iii regulatory capital framework includes a countercyclical capital buffer, which may help build additional loss-absorbing capacity within the financial sector during periods of rapid credit creation while also leaning against emerging excesses. the stress tests include a scenario design process in which the macroeconomic stresses in the scenario become more severe during buoyant economic expansions and incorporate the possibility of highlighting salient risk scenarios, both of which may contribute to

increasing resilience during periods in which risks are rising.13 similarly, minimum margin requirements for securities financing transactions could potentially vary on a countercyclical basis so that they are higher in normal times than in times of stress. in light of the considerable efforts under way to implement a macroprudential approach to enhance financial stability and the increased focus of policymakers on monitoring emerging financial stability risks, i see three key principles that should guide the interaction of monetary policy and macroprudential policy in the united states. first, it is critical for regulators to complete their efforts at implementing a macroprudential approach to

enhance resilience within the financial system, which will minimize the likelihood that monetary policy will need to focus on financial stability issues rather than on price stability and full employment. key steps along this path include completion of the transition to full implementation of basel iii, including new liquidity requirements; enhanced prudential standards for systemically important firms, including risk-based capital requirements, a leverage ratio, and tighter prudential buffers for firms heavily reliant on short-term wholesale funding; expansion of the regulatory umbrella to incorporate all systemically important firms; the institution of an effective, cross-border resolution regime

for systemically important financial institutions; and consideration of regulations, such as minimum margin requirements for securities financing transactions, to limit leverage in sectors beyond the banking sector and sifi's. second, policymakers must carefully monitor evolving risks to the financial system and be realistic about the ability of macroprudential tools to influence these developments. the limitations of macroprudential policies reflect the potential for risks to emerge outside sectors subject to regulation, the potential for supervision and regulation to miss emerging risks, the uncertain efficacy of new macroprudential tools such as a countercyclical capital buffer, and the potential for such policy steps to be delayed or to lack public support. given such limitations, adjustments in monetary policy may, at times, be needed to curb

risks to financial stability. these first two principles will be more effective in helping to address financial stability risks when the public understands how monetary policymakers are weighing such risks in the setting of monetary policy. because these issues are both new and complex, there is no simple rule that can prescribe, even in a general sense, how monetary policy should adjust in response to shifts in the outlook for financial stability. as a result, policymakers should clearly and consistently communicate their views on the stability of the financial system and how those views are influencing the stance of monetary policy. to that end, i will briefly lay out my current assessment of financial stability risks and their relevance, at this time,

to the stance of monetary policy in the united states. in recent years, accommodative monetary policy has contributed to low interest rates, a flat yield curve, improved financial conditions more broadly, and a stronger labor market. these effects have contributed to balance sheet repair among households, improved financial conditions among businesses, and hence a strengthening in the health of the financial sector. moreover, the improvements in household and business balance sheets have been accompanied by the increased safety of the financial sector associated with the macroprudential efforts i have outlined. overall, nonfinancial credit growth remains moderate, while leverage in the financial system, on balance, is much reduced. reliance on short-term wholesale funding is also significantly

lower than immediately before the crisis, although important structural vulnerabilities remain in short-term funding markets. taking all of these factors into consideration, i do not presently see a need for monetary policy to deviate from a primary focus on attaining price stability and maximum employment, in order to address financial stability concerns. that said, i do see pockets of increased risk-taking across the financial system, and an acceleration or broadening of these concerns could necessitate a more robust macroprudential approach. for example, corporate bond spreads, as well as indicators of expected volatility in some asset markets, have fallen to low levels, suggesting that some investors may underappreciate the potential for losses and

volatility going forward. in addition, terms and conditions in the leveraged-loan market, which provides credit to lower-rated companies, have eased significantly, reportedly as a result of a "reach for yield" in the face of persistently low interest rates. the federal reserve, the office of the comptroller of the currency, and the federal deposit insurance corporation issued guidance regarding leveraged lending practices in early 2013 and followed up on this guidance late last year. to date, we do not see a systemic threat from leveraged lending, since broad measures of credit outstanding do not suggest that nonfinancial borrowers, in the aggregate, are taking on excessive debt and the improved capital and liquidity positions at lending institutions should ensure resilience against potential

losses due to their exposures. but we are mindful of the possibility that credit provision could accelerate, borrower losses could rise unexpectedly sharply, and that leverage and liquidity in the financial system could deteriorate. it is therefore important that we monitor the degree to which the macroprudential steps we have taken have built sufficient resilience, and that we consider the deployment of other tools, including adjustments to the stance of monetary policy, as conditions change in potentially unexpected ways. in closing, the policy approach to promoting financial stability has changed dramatically in the wake of the global financial

crisis. we have made considerable progress in implementing a macroprudential approach in the united states, and these changes have also had a significant effect on our monetary policy discussions. an important contributor to the progress made in the united states has been the lessons we learned from the experience gained by central banks and regulatory authorities all around the world. the imf plays an important role in this evolving process as a forum for representatives from the world's economies and as an institution charged with promoting financial and economic stability globally. i expect to both contribute to and learn from ongoing discussions on these issues. thank you very much. [applause]

>> oh, my goodness. madam chairman, you have impressed us enormously with a rich, dense, very informative and very candid your read of the current situation and how monetary policy and macroprudential tools could be used in sequence, in parallel, in different circumstances. and i would like to, maybe following the stradivarius analogy of michel, to stay loyal to him today, what would you say? would you say that macroprudential tools are second fiddle to the main stradivarius of monetary policy? or would you say that, depending on circumstances, macroprudential tools become the premier violon and have to deal

with the issues as a first line of defense? >> well, i think my main theme here today is that macroprudential policies should be the main line of defense, and i think the efforts that we're engaged in in the united states but all countries coordinating through the -- through basel, through the financial stability boards -- the efforts that we are taking to globally strengthen the resilience of the financial system -- more capital, higher quality capital, higher liquidity buffers, stronger and -- arrangements for central clearing of derivatives that reduce interconnectedness among systemically important financial institutions,

strengthening of the architecture of payments and clearing system dealing with risks we see in areas like tri-party repo. all of these efforts -- and particularly focusing on the resilience of the most systemically important firms through sifi surcharges and other measures -- higher leverage ratios. i see this as the core step that we need to take in the united states and globally to create a safer and sounder financial system. and if we're able to do that, reducing also the reliance on wholesale funding, if the system does experience shocks, it will be better able to deal with it. i would also put resolution planning which we're engaging in actively as among those

measures. and, you know, as i mentioned, i think cyclical policies and sector-specific policies that we're seeing many emerging markets take steps that can be used, particularly when we see problems developing in housing or a particular sector. these are really promising. i don't think we yet understand how they work. when they can be effective, how we should use them. i hope this will be an area for the imf and for us of active research so we can better deploy those tools, capital -- countercyclical capital charges.

but i think importantly, i've not taken monetary policy totally off the table as a measure to be used when financial excesses are developing because i think we have to recognize that macroprudential tools have their limitations. and there may be times when monetary policy does need to be adjusted or deployed to lean against the wind. so to me, it's not a first line of defense, but it is something that has to be actively in the mix. >> right. and if you -- if you're using your first line of defense, do you think that this is likely -- not now but sort of in more calm possibly and in more medium-term times, would you -- would that help us get away from this zero lower bound environment in which monetary policy is currently a bit stark without being negative about the -- being stuck -- words that i'm using. but whether it's here or whether

it is in the u.k. or in the euro area, we are faced with that issue. with the exploring of negative interest rates, as is the case now in -- by the ecb. do you believe that the sort of constant use of those macroprudential tools are likely to move us out of that direction? >> so it is remarkable to see how many countries have been affected by the zero lower bound. it's something that for most of my career would have seemed frankly unimaginable. and often, it has been the case that these episodes have occurred in the aftermath of a crisis that impacted the financial system whether it's in japan or here in the united states. so, you know, i think it will be helpful if we can strengthen the financial system.

such huge adverse shocks are less likely. still it is a real possibility. and for example, the work that we've done with the standard kind of macroeconomic models we use inside the federal reserve, looking at the incidents of shocks that have occurred, there is a real possibility -- there remains a real possibility that we could continue to be hit by the zero lower bound. and i think, you know, we've had recently many discussions of secular stagnation or the notion that for some period of time, whether it's because of slower productivity growth or headwinds from the financial crisis or demographic trends that so-called equilibrium real interest rates may be at a lower

level than we've seen historically. and that's one of the factors that i think will be important in determining how frequently a negative shock could push economies against the zero lower bound. so if it is correct that equilibrium rates in the united states and globally may be lower going forward than they have been historically, i think we will have to worry about these episodes more often. and, you know, of course often there are other tools besides monetary policy, and sometimes monetary policy bears the brunt -- i mean, in recent years it has borne the brunt of responding. i think if countries had greater fiscal scope, if they had more room for the use of fiscal policy than many countries have

now, there would be a larger toolkit that could be used to respond to the zero lower bound. >> well, the toolkit of the moment seems to include more structural reforms than fiscal space, although this is -- the situation is improving slightly. on the sort of lower interest rates, our research department that is headed by olivier blanchard, who is around somewhere, has done similar work to the one that you're alluding to, and we point to that direction as well. >> and you've -- so that's >> one -- let me take you one circle further. you've beautifully demonstrated the efforts that have been undertaken from a macroprudential point of view in terms of the universe that you have under your jurisdiction. but this universe, being restricted and well supervised as it is, has generated the

creation of parallel universes. and, you know, i'm just thinking of you, janet, with the toolbox with all the attributes that you have -- what can you do about the shadow banking at large? and, you know, i'm not giving it any dismissive connotations. it just happens that there have been developments of alternative funding mechanisms and financing mechanisms that are outside the realm of central bankers. what can be done about them in order to make sure that there is no creation of significant risk threats out there which are not covered by macroprudential tools? >> so i think you're pointing to something that is an enormous challenge. and we simply have to expect that when we draw regulatory boundaries and supervise intensely within them, that there is the prospect that activities will move outside

those boundaries and we won't be able to detect them. and if we can, we won't be -- we won't have adequate regulatory tools. and that is going to be a huge challenge to which i don't have a great answer. but as we think about tools that we can use to address systemic risk, i think it's particularly useful to focus on those that have the potential to control risks not only among regulated institutions but also more broadly. and that's one reason that in the speech i gave, i mentioned margin requirements and, you know, limit -- that can serve to limit leverage not only within the banking system but more broadly, by any institution -- >> that would use the clearing system. >> -- hedge fund, an unregulated -- right, that would be

borrowing -- using short-term financing to take on leverage positions. because this is the type of tool that might have wide -- >> universal. yeah. >> -- more universal effect. i'll tell you also, we have developed -- as many, you know, as you have and as many central banks have -- very active monitoring programs to try to be on the lookout for what will cause the next crisis. hopefully, many, many years in the future, but >> we'll both be retired by then. >> i think -- i certainly hope 21536so.

-- i certainly hope 21536so. but you know, what are the new threats? and, you know, we're trying to look for those and to be attentive to them and, you know, particularly to look outside the regulatory perimeter to see where threats are emerging. but this is a -- this is a real challenge, i think, for all of us. >> we share exactly the same concern and we try to -- because we look at the horizon and we know where they -- >> what could happen. >> -- could be the traditional risks based on history. but what i'm obsessed about is what do we not know from history and that will arise and that will be the risk of tomorrow. >> yeah. i think we have a much more active program of monitoring for those risks and -- >> yeah. >> -- you know, than we did before the crisis. >> let me take -- you've taken examples from canada, switzerland and a few other countries. you know, i'd be remiss not to address the issue of spillover. we are an institution that is concerned by 188 countries; they are the members. and we are doing as much research as we can to identify the spillovers from monetary

policies and macroprudential tools used as you have described them. we have seen an episode of strong spillovers between, say, may 2013 and august 2013. i know it's not directly in your mandate to worry about the spillovers, it's in mine. [laughter] and we compare our notes and -- on a friendly basis. but what -- how do you perceive them? how do you integrate them in your -- in your way of thinking? and are you attentive as well to what we are working on, which is the study of the spillbacks from the spillover? and for those who are not so much in tune with our spill-spill business, the spillovers i think is widely understood as the consequences outside of domestic base of decisions made in terms of monetary policy in that domestic base. the spillbacks is the consequences of the spillovers as they bounce back to the domestic markets where the decisions were originally made. and i'm sure that you pay attention to it. >> so we certainly do pay attention to spillovers, although the fed -- and this is

true of most central banks -- the mandates that we're given by our -- by congress or the relevant legislatures tend to focus on domestic goals. we certainly strive to avoid harm in generating spillovers when we use monetary policy, and of course, we are very much affected by the global environment. and so the spillbacks to which you refer are central in our analysis of our own economy and what the impact of our policies would be. i mean, i think if you look at u.s. monetary policy generally, given -- of course, there are spillovers. i mean, in global financial markets that -- where capital flows are as large as they are in the global economy today and financial markets are so interconnected, of course, there are spillovers and there is no denying that. but i think, you know, when you've seen significant impacts on, say, emerging market economies from capital flows, i think most studies -- ours and i

think of other researchers -- would suggest that there are a multiplicity of factors that are causing it, of which movements in global interest rates would be only one. so for example, when we instituted qe2, which generated in that period after that there were capital inflows into many emerging markets. i mean, there were other factors also: stronger growth in the emerging markets, i think, was an important factor. and shifts in risk attitudes among investors globally that are not necessarily driven by monetary policy. but i guess the other point i would make is that the studies that we have done -- and i believe this would be consistent with the imf's analysis -- would

suggest that when the united states, as important as we are in the global economy -- when we adopt policies to -- in pursuit of price stability and full employment, given our importance as a purchaser of goods from other countries, generally, these are not beggar-thy-neighbor policies. we're not mainly affecting foreign countries by pushing down, say, with expansionary policy, our exchange rate, to their detriment. when our economy expands, we buy more, and on balance, i think the spillovers are not negative, they're typically positive. but you did refer specifically to the episode a year ago -- and of course we did see before there had been any real change -- >> right. >> -- in monetary policy, but a shift in communications about future monetary policy, a very

pronounced jump in interest rates. and for some countries -- and i think they were typically emerging markets with greater vulnerabilities -- there were pronounced capital -- >> currency, yeah. >> -- outflows that put pressure on currencies, caused those countries to tighten monetary policy. and obviously those were disruptive. you know, i think it was -- >> just to give you an example because michelle bachelet was here exactly where you are yesterday, and she was reminding me that at that time the currency in chile went up by 30 percent. now, it sequentially went down a bit, but it had immediate and strong effects on those

countries. new zealand is another point and case. >> you know, i think there, in part, what was happening is that traders had built up positions that were premised on unrealistic expectations about interest rate paths and about the appropriate level of volatility. and it wasn't just a shift in monetary policy, but a rapid unwinding of carry trade and leverage positions that had built up that caused that damage. you know, i pledged often and will continue, we will try to conduct our monetary policy, to communicate about it and to conduct it in a manner that is understandable to financial

markets to avoid the kinds of surprises that could cause jumps in interest rates that cause such capital flows. you know -- you know, to some extent -- to some extent, i think -- i think such spillovers are really unavoidable in a situation in the global capital markets. i don't know if you would share this assessment, but my own assessment is that most emerging markets do have much stronger financial systems than they had at the time of the crisis that michelle had to intervene in because of -- >> and it's because they went through the crisis with the support of michelle and the team that they felt a lot stronger afterwards, that's for sure. >> yes. and all the things that were put in place that -- the kinds of shocks that we may see or spillover is -- as hopefully the global economy recovers and we're in a position to be able to tighten monetary policy, i wouldn't assume that this is going to go badly. and i can just say that we will do everything on our side to make sure that it goes smoothly.

>> well, thank you so much for this commitment to it. certainly, the -- there are representatives of the emerging market economies in the room and i'm sure that they are particularly interested in your views as to how we can best -- you can best communicate and they can best anticipate so as to limit the volatility risk that arises from that. i will ask you a financial question before we wrap up because i know that we are pressed for time. michelle referred to napoleon bonaparte who said that the central banks should be independent, but not too much. [laughter] well, purposely i changed a little bit. [laughter] monetary policy, macroprudential tools to be used for financial stability, your dual mandate in a way of both employment and growth -- are you independent? [laughter] >> well, i think we are independent and appropriately so in the conduct of monetary policy. congress has established the goals the goals that we're to pursue. and i think this is true in most countries that there's not goal independence, but there is

independence about how to carry out monetary policy. and there's an awful a lot of research that suggests that macroeconomic outcomes are better when central banks have the ability to decide how to use their tools. they have to explain them. they have to be accountable. we're accountable to congress. and i think that is very important. sometimes when central banks take on financial stability mandates, it becomes harder. and i don't think independence is appropriate in absolutely every sphere of conduct that central banks become involved in. so i think it's really the conduct of monetary policy where independence is important.

we had the experience during the crisis of putting in place a very large number of liquidity programs and when central banks become involved in those kinds of lender of last resort activities. for example, the lines between what should a central bank do and what's the responsibility of government can become blurred. >> right. >> and, you know, these are times when i think the activities of central banks can become quite controversial. and one of the things that we did during the crisis to try to clarify what's the dividing line, what are we supposed to do, what is the line a central bank shouldn't be dragged over, or if it is, that the fiscal authority should clearly be taking responsibility. we actually had a kind of accord

with treasury that was signed. it kind of indicated we may use our balance sheet to lend, but we shouldn't be taking on credit risk. and to the extent we do, it's the responsibility of the government. but with cooperation and becomes very natural, the lines do get blurred and there is a potential threat to central bank independence. but i think it is important. >> but from a monetary policy, there is complete independence. >> from a monetary policy, there -- right. released tool independence. >> well, chairman yellen, as a token of our appreciation, i would like to hand over to you a little book which celebrates actually the 70th anniversary of the imf and tells the story of how it all started back 70 years ago plus one day, because the anniversary was actually yesterday of the beginning of the imf. you've been a fantastic speaker -- >> thank you so much. >> you've been a terrific partner in this venture. and i look forward to continuing working for you. >> as i do too. >> thank you so much. [applause] [captions copyright national cable satellite corp. 2014] [captioning performed by national captioning institute]

>> coming up, the first cannabis business summit. then the d.c. bar review of the 23rd team-2014 supreme court term. then janet yellen speaks at the imf conference. on the next washington journal, former u.s. ambassador to iraq, james jeffrey. here is here to talk about the latest developments on iraq and options regarding the terrorist group isis. then a look at a proposed $.12 increase in the federal gas tax. our guests are curtis dubay and beth osborne. the conference of bank supervisors on the emergence of electronic amen systems and efforts to regulate the industry. is liveton journal"

every morning at 7:00 a.m. eastern on c-span. you can join the conversation on facebook and twitter. >> our week of "american history with theme time" gettysburg conference on the civil war in 1864. at 8:00 p.m., robert e strategy against the union and the potomac. grant0 p.m., ulysses s. concerning robert ely and forces in virginia. i 10:00 p.m., a look at the sand creek massacre tom an attack on an indian village in the colorado territory. p.m., confederate general john bell hood campaign in tennessee that resulted in the almost total discretion of of hisy -- destruction army. that is in prime time on c-span

3 on "american history tv." warmer tv sat down with secretary of state hillary clinton in little rock to discuss her new book "hard choices." >> getting to the point where you can make peace is never easy because you do not make peace with your friends. you make it with people who are your adversaries who have killed those you care about, those you are trying to protect. it is a psychological drama. you have to get into the heads of those on the other side. you have to change their calculation enough to get them to the table. talking about what we did in iran, we had to put a lot of economic rusher to get them to the table. we will see what happens but that has to be the first step. we did in afghanistan and pakistan trying to get the taliban and to the table for a comprehensive discussion with the government of afghanistan. i think what we

have to understand is it is primarily a political problem that has to be addressed. ascension of the sunni extremists, the so-called isis group, is taking advantage of the breakdown in political dialogue in the total lack of trust between the al-maliki government, the sunni leaders, and the kurdish leaders. >> marmot hillary clinton saturday at 7:00 p.m. eastern and sunday morning at 9:00 15 a.m. on c-span 2 "the tv." july 1 was the six-month anniversary of legal marijuana use in colorado. is this owners, activists, and policy makers discuss the futures of the legal cannabis industry. this was part of the first

cannabis business summit in denver. this is two hours. >> our first speaker was scheduled from harborside. unfortunately, steve sends his regrets but has fallen ill with the flu and was unable to make it to denver. we are excited to be able to have troy dayton from the arcview group, his business partner, take his spot. we are grateful to troy for taking it at the last minute. we've had the pleasure of working together for about a decade now, first with the marijuana policy project and then he founded the arcview group right before ncia was formed in 2010. troy a, more than anyone, understood early, early on that building a new kind of profitable american industry that is politically engaged and setting an example for how

commerce can be transacted in this country with legal marijuana would change the world. this country with legal marijuana would change the world. be putely no one would behind bars and cages for using this plan. he is an inspiration, a mentor, and a friend to me and it's an honor to introduce troy. he is our first keynote speaker. [applause] >> give it up for aaron smith. [applause] wow. there's a lot of people here. this is pretty impressive. i saw so many chairs and i thought this would really be the great next american industry. we've been saying that for a long time. now it seems that it's actually

coming to pass. this is by far the largest number of people who has ever come to a business conference for this industry. here and for being taking whatever risks you've taken in life to wind up here. we will find out more about that as we go forward. i just want to take a quick moment to collectively acknowledge the fact we are sitting on the soil where cannabis is legal. [applause] even though it's been well over one year since it has been through, it sends chills down my spine when i think about all the hard work and against all odds .hat was passed

now, everything becomes possible. when i started in this movement when i was eight teen, i was a marijuana policy project first volunteer in 1995. basically through my life, most them ihave said i told wanted to make cannabis legal "that willuld say, never happen. that's hopeless." they would proceed to tell me why all the reasons making marijuana legal -- pharmaceuticals, parents, whatever. a litany of lists why we would never make marijuana legal. then something happened a few years ago. overnight, the storyline changed. then when i told people what i was working to do to make marijuana legal they would say it was inevitable.

how did that happen? i think the commonality between those two approaches as they absolving the person of responsibility for doing anything. if it's hopeless, why do anything? if it's inevitable, why do anything? it's important to recognize it was not hopeless then and it is certainly not inevitable now. the inevitability is in everyone in here and everyone who cares about this cause. in is in their hearts and ui their wallets. it's only inevitable if people put their desire and passion into this and continue to donate, take action, move the ball forward politically. if you donated your time or many of the political

efforts of the past, can you raise your hand? let's give these guys a big round of applause. [applause] effort andor your your energy. the only reason there is now a market for legal cannabis where there is money to be made is because people have gone out against all odds work to change the future laws which will only be changed with more of the same. we have had just an amazing run .ecently i want to of knowledge the recent house appropriations bill . for the first time, a body of congress has said something positive about cannabis by blocking the dea from spending laws.ces forwarding state it was amazing. even the most optimistic among us did not think it was going to

pass this year. congress is always the last body to do anything. passed byid it and it a 30-vote margin. people are really waking up and you know people are breaking up are members of congress actually on your side. what politicians and elected officials are starting to realize is cannabis is a popular among their constituents. we will see more and more positive reforms. let's give a nice round of applause to our fellow activists and business people from the great state of new york becoming the 23rd medical cannabis state. [applause] finally. for manybeen a slog years trying to get that passed. it's good to know there is

something there and i'm sure it will expand over time. i also want to welcome minnesota -- minnesotatate as the 22nd state from a few months ago. [applause] it's also worth mentioning -- well, it's a great thing but beating theruguay you asked to the punch on becoming the first country to fully legalize cannabis for adults. [applause] in thes not just here u.s. but it's spreading. the canadian market is opening up. across the world and it is just incredible. here's why. cannabis prohibition does not withstand the light of day. ignite aeded to do was conversation. once that conversation got pread in it read -- it s

living rooms and cocktail parties across the world where realized cannabis was a reasonable adult choice with far less social harms than anything else we let people do. and also with great and if it. it is remarkable moment in history we are all getting a chance to be a part of. thingot just a political that all three of these things we are seeing such a remarkable shift. we have some big, big things thatg up just this year could either continue this storyline that we are all building or it could send it in the other direction. there are three ballot initiatives happening in november. on legalization in november.

we also have alaska voting on legalization for adults in november. and florida voting on medical cannabis. none of these three are a given. they are going to take a lot of energy and work and we have to win. momentumo keep this going. advance forin anything you are doing more will be doing to help make sure that we succeed there. one of the best ways that we can all make sure that we succeed greatis by running businesses, running businesses we can be proud of that understand all the stakeholders that are at play, consumers, neighbors, the communities that , investors,he media

etc. how you manage that will be just an incredible challenge and opportunity for this industry. it's not every day that a new industry just get started out of nowhere -- not that this is a new industry but a new, legal industry. an opportunity to build something that's different. not just a new industry that a new kind of industry -- but a new kind. that ouristake continued freedom of cannabis issumers around the world dependent upon how we do business. they are watching. you know, it's only a small percentage of the population that consumes cannabis. we need the support of lots of non-cannabis consumers and may be people who don't even like it but are opposed that understand

prohibition does not work. marketing, when it comes to labeling, when it comes to our ecological foot rent as an industry, these are need to make sure we are paying attention to in the frenzy or the green rush that occurring. just out of curiosity, i'm curious who's here. how many people currently operate a licensed dispensary, cultivation, or infused product manufacturer? great. how many people hope to do one of those things? great. how many people here currently run an ancillary business in this sector?

how many people hope to be doing it? great. how many people here think you will be raising capital for your business over the next year? or hoping to raise capital? lookingmany people are to invest in a business other than your own this year? great. thanks. it's just good to get a sense of who's here. i also like to say that money is one of those things that can really galvanize these people. you are here mainly for money, that's great. i think a lot of people come to only because of the economic opportunity but

that is not what keeps them. them are the people, change we arehe making, the pie in nearing spirit we are building. this is different. your businesses are not like other businesses. i think it's going to be an interesting ride as we look at our different motivations for sector.volved in this we learned that if you want something done in this world, you have to figure out how to make it profitable. let's just say hippies keep being right. they were right about renewable energy. we were right about organic foods. we are right about cannabis. look at renewable energy and organic food. becausevements started people cared about something. they cared about the environment.

they wanted to use renewables. they cared about the health of farms, the land, what we put in our bodies. it started out really small with a knack the best sort of flavor. but once they figured out how to have profitable business models around those ideas -- boom. now organic foods are everywhere. renewable energy is growing by leaps and leaps and bounds. i think that's what the cannabis energy -- industry is doing for freedom. every time we show communities thatcan raise tax revenue, they can have businesses that provide benefits to their communities and investors can see this as a viable investment opportunity and entrepreneurs see this is a viable business

opportunity, that moves things. has been kept in place in partial part because of the profit being made by the people who make money off of depriving people of liberty. when you start a business where is outcome of your business that people are more free as a result of your business, that's a very powerful, powerful act so thank you. sorry. i lost my train of thought. i want to talk a little bit about how i got here. as i'm doing that, if you can start thinking little bit about how you got here, then we will

compare notes. thisay i got my start in industry-movement, i was a senior in high school and some of my friends played a trick on me. i was consuming cannabis for the first time and i was always the paranoid one in the group, the friend like -- no, let's not do that. i was the one that was always nervous about these types of things. they played a trick and they had a security guard come and put me in the car. they came in and they were laughing. they put their hand on the receiver. this is back when you had to pu sh the button down to turn the phone off. at that moment, it hit me in my corner. -- i realized i

could not believe people were punished for this. that they wereow building an activist that day. here's the thing. for millions of people around the world, it's not a joke. it's not a joke. people are sitting in prison right now while we are here thinking about how to make money. we really owe it to them to make sure we do this right. to really make sure that we build the right kind of industry. in 2010, i was the lead fundraiser for the marijuana policy project. i was raising money from high net worth individuals who were donating to change the laws and also high net worth people working in this industry in the dispensaries and such in

california. what i realized is that these two groups of people needed to know each other. a lot of people were just donating to change the law. they were not thinking about business opportunities but many had money to donate because they have been successful in other businesses. there were all these entrepreneurs who had great ideas and wanted to expand their businesses and wanted to do sector.n this they did not know the investors. did not know how to scale a business or put together business plans with financials and all this other stuff. every lies the one day i was like -- wait, these people need to know each other. i realized i could raise a whole lot more money as a peer. i set down with steve deangelo who runs harborside health center and he saw the same

thing. he had all of these people coming to him with different is this ideas. he had no way to invent the ideas and nothing for them to invest in. there's something here, but i already have a job. i brought him this idea in late 2009 and he immediately saw it. if you want to figure out what's going to happen next, figure out what steve deangelo is doing now. just an incredible visionary for decades pioneering much of what we see today. think he's crazy for doing it but then a few years later they are like -- aha. steve have the right idea. that was a real great affirmation for my idea because he was willing to become our first investor. we started this view then with

the idea that the development of a responsible, politically cannabis industry would lead to a day when not a single adult is punished for this plant. couple things. probably the most notable is our investor network. meeting yesterday at the denver center for the performing arts. we had over 250 accredited investors and doesn't companies pitching them. how many people were there? are upressed that you this early and i'm so sorry you had to hear me talk so much over the last two days. [laughter] great. over the last year, we've seen $12 million invested in a little over a dozen companies from these folks. remarkable to see

how it's been growing in the new waves of people who are getting involved. the thing about being here in colorado is that there is this sphere we don't talk about. when we talk about the punishments, we tend to focus on the people who are caught and punished. challenge isreater all of the people who live in ,ear about being themselves like feeling they need to keep ink from their family members and these sorts of things. get whenom that people they walk into a store -- i heard a friend tell me a story that they locked into a store here in denver and went up to the counter and the person said, do you consume cannabis? um, yes. [laughter] they are like, great.

do you prefer -- >> that moment of randomly telling a stranger that you consume cannabis is a powerfully liberating act. the fear and society that pervades millions and millions of cannabis consumers we get to solve. i think one of the reasons we are seeing so much excitement about the market here is because in a lot of ways, they are not just dying cannabis. they are buying a taste of freedom. it's a really amazing opportunity to be involved in this. story about how i got here and i wanted to check in with yours. close your eyes for a quick second. think about the first time you knew cannabis existed. think about the first time you knew someone had consumed it. inc. about the first time you realize that people were

punished for this. about the first time you realized that was wrong. about the time when you realized someone benefited medically from cannabis. think about the first time you realized there was a business opportunity in this. the answer to all these questions leading up is, in many ways, how i imagine you got here. i encourage as you meet people over the next few days that there is a thing that we do at business conferences. we shake people's hands and give the elevator pitch. you can have the exact same conversation 400 times, but it does not have to be that way. out whyactually find behind what people do and it

just gets so much richer. i think there's going to be a lot of really exciting opportunities. i think the rays a huge agricultural explosion. we will see a lot of the knology coming out where cannabis will be leading the way. no one of senses over a plant like cannabis consumers and cultivators. we have underground botanists meeting up at the top plant engineers in the world than i think what they are going to create will just be awesome. i think we are going to see a lot more in leafly. we'll start seeing acquisitions in a lot of these ancillary businesses where there are companies that are very similar but in a non-cannabis space. i think we're going to start realg a lot more the first

acquisition of companies probably in the next few years and the most likely place that's beng to happen is going to the media space because it is the most protect it in the most easy to build them. i think that's what we are going to start seeing first. does a lot of money at the table right now and it's looking to find a waste. it's such a nascent energy -- industry. many ways, it's too nascent. the money to build this industry is here. it's just a matter of figuring out which steps we need to go through. really it's going to be interesting to see what happens over the next couple of years as

it rolls out. i'm going to be on a panel -- actually, my colleague will be speaking at one about the art report. arcview we found there is a 1.5 billion dollar industry in 2013 growing $2.8 billion. that is 68% growth. find me another industry growing at that clip. find me another industry that does not have a single player at more than $100 million. her business. this is a rare opportunity for startups and small businesses to take a run at this before really

big is mrs. start to come in. fascinating. be one thing you'll hear a lot about today and tomorrow in conversations is about the professionalizing of the industry. it's great. we need to professionalize this industry. challenge thatof notion a little bit. i agree. we want to professionalize the industry. yourt depends on what definition of "professional" is. if professional is what people wear, where they went to college, where their last job was, sure. that can play a role. means me, professional you do what you say you are going to do, you honor the key stakeholders including the

businesses in the community. and you treat people with respect to matter how long their hair is. some of the most professional people i've ever had the pleasure of working with did not look typically professional. some of the least professional people i've ever worked with have looked like we normally think of when we think of professionals. i encourage everybody to open up the concept of what that means so that we can make sure we are building something that can be a new kind of industry that really embraces and we don't lose the lessons of this plant and the importance of the creativity that so many people discover through it as well. you know what? i got this message from steve

deangelo last night and i wondered high was going to close this out. as i was trying to figure out how to close it out, i read his message and i thought since this was supposed to be his speech, why don't i read what he wrote to me enclosing? i think it's shockingly fitting. i will read that now and then we will close. fellowmy friends, entrepreneurs, and investors. i would like to thank troy for filling in for my speaking spot. i would like to salute the voters, activists, and the cannabis community for their successful effort to create the first full access adult use market. may many more states follow your good example and soon. a sudden flu has robbed me of the ability to present with you in the room today, but i've prepared a brief summary of the talk i was going to give, the

cannabis industry as a social justice movement. it really could not be anything else given the inherent qualities of the plant and everything to do with the people using it. the very first law prohibiting cannabis was passed in california in 1913 followed shortly thereafter by border states. those laws were passed as a racist reaction to the first great wave of mexican immigrants fleeing the brutal battles of the resolution. this was just the beginning of a long, tragic beginning targeting racial minorities and other marginalized people. it was those early laws and the myths that propelled them inspiring the theme of william randolph hearst national propaganda campaign. once they produced the desired result of federal prohibition, some of the very first enforcement targets were black musicians.

others were harlem that welcomed all races at a time when few if in a graded. the decadence of hollywood was also targeted resulting in the arrest of robert mitchum and others. actedjazz-loving beatniks up from african-american museums and passed it on to the hippies, cannabis laws provided cops of the great reason to hassle anyone with the wrong kind of clothes or hair cut. started in 1913 has grown into a monster. 2001, 12 million americans have been arrested on cannabis charges. african-americans have an arrested at a rate four times greater that than white people. imprisoned aw larger percentage of its population than any other including north korea and the majority of those arrested will

suffer a lifetime of other damaging consequences including losses of employment, housing, various professional licenses. equal or even more serious social issue is the denial of the effective medicine to people whose lives depend on it. for many years, we believed cannabis was just eight pallet of medicine. now we know that it may have -- was just a pallitive medicine. it could affect arkansas is, alzheimer's. providings them from that help. anyone who has looked into the eyes of a mother whose child depends on cannabis will understand this instantly and we've not even talked about the tens or hundreds of billions of dollars wasted on cannabis enforcement or handed over to gangs and cartels which has been a force of robbery, a social

injustice passed on every american where the hundreds of people killed by police in the the enforcement or those killed by gangs and cartels. our work to dismantle this engine of justice is bearing theyfruit everyday as remove criminal penalties and create new markets, each business will reclaim a portion of the dollars stolen by prohibition. as we build our success, let's remember that our industry was burdened by a movement for social justice and we are dealing with many decades of struggles to deal with the laws and our future is inextricably bound with the cannabis policy reform movement. we must pass new laws if we are to gain new markets and the in other states and countries will not happen unless we find them and push them forward. i encourage you to embrace the future of our industry as a social justice movement.

rarely have investors and atrepreneurs been handed such completely underserved market. take advantage of the unique opportunity we have built for our families and justice in our society. i would be disappointed if all we did was create another successful moneymaking industry. pioneers the early have the skill, dedication, hard, vision to do much more. i hope when we look back 20, 30, 40 years from now we can proudly say it is a new kind of industry with an ongoing commitment to social justice, and industry to set a new standard for others to live up to, and industry with an congress. an industry that values doing good as much as creating wealth. it will not work unless we do it all together.

then make that commitment when we do gather in that room 30 or 40 years from now and we are congratulating each other on our success and wealth, we will be able to look in each other's the mostclaim valuable reward life has to offer any of us, the knowledge we left this world a little better than we found it. [applause] thank you, steve deangelo. thank you. i look forward to building the next great american industry with you. have a great conference. [applause] >> thank you, troy. can i ask our panelists to come up to the stage for the next round.

introduce theto of the campaign and a longtime advocate for marijuana law reform in colorado. brian was the first chair of the it was inand i think this building three-and-a-half years ago that we founded ncia. 2010, he was there from the beginning almost member number one if we had a numbering system back then. it's an honor and privilege to introduce mr. brian vicente. [applause] >> thanks a lot. it's really great to be here. it really gives me great pride.

when we started the organization, i think there were 10 of us or so and i feel like any time i see his staff, i swell with pride when they say 50ey are up to 500, 500 th dues-paying members -- the dea drug dog is on to us. [laughter] there's a party going on wednesday at my law firm. it's a fundraiser for the united for care campaign. that is the measure on the ballot this november in florida. i really hope we can win that. let's give them a round of applause. let's do it, florida. [applause] briefingave an insider about how the campaign is going. 10s only about five or minute walk from the convention here. please, head on down. i missed going to give a couple of very brief comments at the

beginning then we will turn over to our wonderful speakers. it's profound that we are here in colorado at this moment. not many people are aware of this but when marijuana became illegal of the federal level, the first person arrested under that federal law was a man named samuel caldwell here in colorado. it's phenomenal that colorado began the war on america on and he went to jail for three years for smalltime distribution. now it's really kind of the of where marijuana legalization and commerce is going. was very involved in the campaign to legalize marijuana that passed here in 2012 and i'm happy to report it to been very successful in terms of how the implementation has been going. it's been about six months since we have the commercial system in

fore that you currently see legal recreational marijuana. of data onve tons how things are going, usage rates but it's important to keep in ion teen usage, driving. the state has been good at tracking tax revenue. i think it's worth pausing on for a moment because it was just going into the hands of the underground market and cartels. using $25 million and we've already set that aside for things like treatment, prevention, youth education on marijuana. that is from the sale and now going into these positive things in our state. we produced over 10,000 direct jobs in this industry. 10,000.

many of them get health care. there's thousands of indirect jobs. all we do is marijuana law. there have been tons of job creation driven by these laws. besides that, we set aside about $10 million from the state medical marijuana program. in ours of people country really use medical legally, but the research has not always been there. we are setting aside a significant amount of money to fund actual research and see the positive is going on with medical marijuana. point out one or a two other things. i wanted to apologize in advance because my wife is 40 weeks pregnant. today is due date. i have my phone here at the

ready. let's give her a round of applause. [laughter] send the positive mojo. if i need to run out, one of my capable staff members will pop up. i think i should be ncia supporter of the year but it's profound that we will have children that are born into a marijuanae marana -- prohibition is a thing of the past. to me, it's amazing. [applause] my daughter will grow up thinking it does not make any sense. it's like alcohol prohibition. we look back and it's nonsense how many people's lives were destroyed. it's almost impossible to count. this is a new dawn and him excited to be here -- i'm excited. we will talk about about the challenges as well as the positive vast active legalization and their

particular states. in case you were thinking of speaking out, you should not. at the very end of when the gentleman speak i will ask them a tough question. is there a nexus tension threat to legalization? existentiala nexus tn threat? will the pendulum swing back to prohibition? a lot of us are taking this for granted. we are going to be winning more, blah blah. i think there are some real threats out there. how potentially do we address those? i think i'm going to start with washington, if that's ok with you? our firstroduce speaker, john davis. he's the founder of the northwest patient resource center, a dispensary in seattle. forlso has been involved

years with an event i'm blown away by every time i attend, seattle hempfest. events ando a lot of seattle's is by far the most excellent marijuana event i've ever been to. hundreds of thousands of people. he's been involved in that since 1994. a projectworking on with the former president of mexico, resident -- president relation.x -- no with that, let's give a round of applause to john davis. [applause] >> thank you. come here and speak. the title is colorado and washington, success and challenges from the frontier of post-prohibition america. post-prohibition, i think it's a little soon to be using this

type of words. in thinking about this, i decided to lead with the successes we've had in washington. overall, the most important success we've had in washington, also in colorado, the psychological effect of simply passing legalization initiatives. no one at the time knew what that meant, if the federal government was going to respect .t building was a vote in was the most important event that happened in this industry since california legalized medical marijuana in 1996. it sort of forced the government hand. are in states now violation of the single convention treaty.

treaty allowsnal for medical and for research if you read the treaty. this is recreational. this is the first time this has happened and no one really knew how everyone was going to react. governmentseems the -- the federal government -- is willing to allow it to happen. parts of the government are not the notion ofrall legalization, which is being called the great experiment, .ill be allowed to continue since legalization, the vote on legalization which, in washington, is still a little theoretical,cal --

it has jumped between 10% and 15% for those in favor of legalization but now the polling numbers being around 56% to 58% of the entire country including wantingople in oklahoma out right legalization and over two thirds of those people in our nation one thing some form of legalization including medical. conversation is not just happening here. the conversation, just a cousin of the initiative's passing has been spread throughout the world. last week, they just had a special in australia that was of australia.nc. there are so many of these other countries looking at us saying -- wait a second. the united states put this on us

and now they are going away from it. the conversation is happening south of the border. a lot of people don't know that the drug war really impacts south of the border. if you look at the usage rates of mexicans, of drugs am a they have appear than we in the united states. the united states is one of the ont drug using countries earth. mexico does not have a drug problem. they have a border problem. they are on the border with a country that has a very -- that is a very large drug consumer. a lot of people don't realize direct confirmed casualties from the war on drugs since 1996. --0 of those confirmed children. we have journalists that are kidnapped and killed.

we have truckloads of beheaded corpses dumped on the side of the road but that's down there. we don't think of this as a true war because people are not dying here. the cartels know if you turn up bodies on this side of the border there will be problems. down there, apparently they don't care so much. we heard this claim before for years that it will never be allowed to happen. now we can pretty much put that behind us. now we can look at the other states. at thecan start to look path forward, what these votes did especially in the case of washington is create a framework, a scaffolding in which we can build on. what's been done in washington and colorado is not perfect, but i've been working on drug policy

for a couple of decades now and i've yet to see the perfect legislation. basically what has always happened is we have taken the small baby steps and shored up our position and taken the next step. steps isof those next faltering. it's not perfect. we take it up in the next legislative cycle. also what's been a success in washington is the legalization to force theing localities in washington to actually take this seriously and what it's going to take for zoning, what it will take for occupancy in usage. a lot of people don't realize just how important for businesses the localities are. they think it's legal, problem solved. no, you still need to get into

your localities. this has been forcing the hand and now they are beginning to figure out just how they will issue the building permit for the large-scale production of a schedule one substance. that brings us to the end of washington successes, unfortunately. [laughter] washington has a lot of problems. know, colorado is passing around a brochure where you can go within one mile and find some recreational cannabis. that's not the case from washington yet. washington has done some things very differently. for people in various states, i think it's really important for you to look at what happened in colorado, washington, and even in florida. as you are going to the next , you of changing your laws

can learn from mistakes that are made. we will get over these mistakes. smallust a process, a baby step forward. challenges. washington, when it was legalized dan kicked to the liquor control board and there it a lot of talk about what would look like, this notion of legalization, they did not want to think about it from a business perspective. at the time, it is big ad business. they are going to advertise to isr children and business just a bad. understandable. when the industry reached out to the liquor control board and the powers that be, there were a lot

of people in the community, what one of my colleagues calls, whack-tivists. they're very passionate but politically naïve people in the medical community typically. positivelyengaging with the process with the liquor they started accusing them of things and a number of other things, being a real pain, shouting, not really having a message. that really turned the liquor control board off. they went to the academics and said, how do you do this? academics are not engaged in

the business of cannabis. it's a tricky one. there's a lot to know in the business in order to keep your supply line right, in order to keep you on the right side of taxation. was to wait with what they called mom and pops. they did not want to have any capital requirements. they did not want to require any experience. they did not want vertical integration. the initiative forbids it. if we are on the retail side, we cannot grow our own. they did not want to necessarily give medical which does not have the same amount of regulation in washington as it did in colorado a path to legalization.

they ended up the property that was a sham, meaningless. people do not have to be tied to property. they could have listed kentucky fine.chicken saying it's the distance relationship is fine and they could change it later. then they ended up limiting the number of licenses per entity. aree are not inc. that likely to laura investment into a market. you are trying to keep three stores and you have all of these other challenges. it has made it a lot more difficult. growers where the 3's could have three tier were they reduced the square footage and said you could only

have one. they've taken a business and secured these facilities. they are holding high overhead and then you are playing against someone who has no overhead, no experience. waitse commonality was it if you can game the system. why would you not want to have money to help build your infrastructure. it just makes it more difficult. .hen the liquor control board they have consistently changed the interpretation of the rules. existing industry has had some sway but they decided they will take more of an academic approach. let thecolorado existing medical go over.

they were a lot further along with their localities and building permits. ofy had to create 70% everything they sold out of the retail stores so they had to get the building permits in place and they had that ready to go. that's why you saw colorado somelly roll out with product first. i cannot stress enough the locality role in implementation. in washington state, we are still in the process of going to the individual localities and working with them to get some sort of zoning, occupancy, and some sort of way to get building permits. with all of the bureaucracies. you have clean air, solid waste, fire, water, labor, department of agriculture.

a process with those people. they are nervous about standing out on the branch alone. they have to be worked with in order to figure out solid waste -- was is it -- what is it? can we put it on a train? can we treat it like any solid waste? is it hazardous? those questions are still being answered in washington. then you have the other factors. contrary to federal law, banks won't work with cannabis industry not even on the ancillary, not yet. e areax challenges with 280 immense. i'm still wondering how we are going to -- how retailers are going to manage to file compliance and not go broke.

we've achieved a lot. what we have to do in washington to let the system turned on july 1 and we will have to show a little failure. we are going to have to let the the system is not perfect. we are going to come back in and we will figure out what works, what doesn't, and we are going to make some changes. this is an ongoing process, as my good friend vivian says, the legalization is not an event but a process. thank you very much. [applause] >> that was a really great overview. we will turn it over to our other panelist from washington state then focus on our colorado panelists. i wanted to focus on banking and

the tax issues. those are two of the ork.erstones of ncia's we there's a panel tomorrow with steve i'm going to turn things over to her neck speaker from washington state. fromr next speaker washington state. i got to know him eight years ago when he was really doing some groundbreaking work with the king county bar association. as a young aspiring attorney, i noticed you were pretty not position a year -- putting out papers saying the war on drugs was a failure. i got the bar association -- is my great pleasure to turn things over to roger. >> let me stand up so i can see

you guys better. it is a pleasure to be back here in denver. working with brian. the time has flown by. i kind of have to pinch myself. you don't see a lot of tie-dye people.tailed reggae i used to be the oldest person in the audience and i am not anymore. i think what i want to do is give you an update on some of the details of what is going on in washington state. i becamereform work, notorious in my area. a seat became open in the state legislature.

iran and they hit me hard. they use the keywords. roger goodman is a lawyer crusading to legalize drugs. my poll numbers shot up afterwards. cultural find. i was fighting for the truth and had the courage to talk about this as a politician. people were saying, you are saying this? i begged me opponents to hit me on the drug issue. it always backfires on them. if they say i raise taxes, that is different and i am vulnerable. but now, i find myself as the chair of the public safety committee in the state house of representatives. which used to have jurisdiction over cannabis. but it is legal now. i don't even have jurisdiction over the substance i helped to legalize.

i also practice law and service cannabis businesses in washington state. -- johnn inside view davis is a pioneer. he is talking about the acceptance of the initiative. all the soccer moms and sure to opposed the initiative said, let's do it. they are excepting it and acknowledging it. he even embracing it. despite bumps in the road, we are developing a regular us -- rigorous regulatory system that is going to satisfy public opinion. to answer brian's provocative

question, i don't think so. it is a little bit of a surprise that -- it looked like we were going to happen back in the late 70's. boy did it whiplash against us. i was with jimmy carter not long ago in atlanta. at lengthth length -- with him about his position on marijuana. he does not believe it should be legalized. marketedes it will be to children and is a dangerous substance. almost all his family members have died from lung cancer related to tobacco. opposed togly cannabis legalization. and is in favor of deke revelation. -- decriminalization. i said, don't you want to get rid of the criminal enterprises?

i kind of stumped him. to let you know, jimmy carter was never in favor of legalization. a.b. it is not a surprise that we did not make it happen way back when. now, the dam has burst. is sitting here. we are unstoppable. if you put your finger to the wind, you see public opinion continuing to go in the same direction. i compare same gender relationships with cannabis legalization. there is still a ceiling, a ceiling acceptability on same gender relationships. some people are still grossed out by it. when you talk about cannabis, it is a plant. the rapid cultural change and aceptance of cannabis as pipette ought to be regulated is gaining acceptance.

i don't because going to go back. we are there. this is a good example of what is called to continuous change. nothing happens, nothing happens, and then the berlin wall falls. for us, colorado and washington, the beeler wall -- the berlin wall has fallen. in 2019, hillary will have to bring down the wall the federal prohibition. five more years of federal prohibition is my prediction. the liquor control board, which we will rename the liquor and , but is doing the best a job they can. they are used to bottles of vodka out. they are not used to an agricultural product. they are learning along the way.

sometimes behaving like bureaucrats. hindering the development of the market. here, and wehase are letting colorado run interference for us to see what lessons you are learning him a we are right behind you. the first retail shop should be opening in the first couple of weeks of july. we are penetrating the market slowly. a statewideeady had uniform regulatory system for medical cannabis. we did not. we had a patchwork of local control, a quasilegal -- we have an initiative on the books. but the medical system is quasilegal. we have to invent something new, which is what we are doing. and then find a way to align medical cannabis with the full access market. use, and i am about to say, recreational as a word.

it diminishes the use of cannabis. i don't go out for recreational beer. tobacco,you who use you don't go out for a recreational cigarette. i would encourage you not to use that word. word forngelo use the access market. general adult use. i try to use those words. there is medical cannabis and there is general adult use cannabis. word.t to use that it comes across as something less than what it should be. we are now licensing to millions hang pete of canopy -- to million square feet of canopy. those 2 million square feet are

estimated to satisfy about 15% of the demand. only 15%. we are just getting started. 25% of the demand in washington state is people under the age of 21. there will always be in on regulated market for those under 21. 50% iser 75%, unregulated. 25% is medical. we are starting to undercut the unregulated market. it is a high-risk venture. for anyone who wants to get into business, as john was saying, it is unpredictable with the bureaucrats are doing. you are paying rent. you don't have a license. the liquor board changes the rules and you have to wait longer. for those getting into this, you need the resources. otherwise -- and quite a number of applicants have withdrawn

because they found the do not have the resources. the challenges are banking. we have one credit union in the state that is willing to provide merchant services. i am actually working on a deal where retailers and maybe other sectors of the market would join an association. would, yet to be named, service the association rather than individual businesses. huge.e bank issue is i'd rather answer questions about what is going on with washington then talk at you. we are moving in the right direction. bumps in the road. in terms of medical, we will be a few medical retail, but it will be general use.