Phil Baca underwent a serious role reversal when he joined Blue Line Protection Group. After spending eight years in the Jefferson County, Colorado, sheriff's department kicking in doors and arresting people, his job now is what police in neighboring states would call a drug mule. But now that the state's recreational marijuana industry is legitimate, he's an "armed transporter" and "a third-party financial compliance officer."

Founded in 2013 by former Colorado police officers Ted Daniels and Dan Sullivan, Denver-based Blue Line has grown to 80 employees supporting the complex security and financial logistics for companies in the all-cash cannabis business. Blue Line transports millions of dollars in cash and hundreds of pounds of marijuana every week in armored trucks flanked with armed guards for clients all over Colorado. It also sets up security cameras at dispensaries and grow houses, does customer ID checks, takes cannabis samples to be tested in the lab, handles clients' payroll and accounting, and hosts wholesale cannabis sales between businesses.

If you think transporting weed and cash is a fun, relaxing gig, think again. Blue Line has an intense 40-hour training program for new recruits, conducts background checks, and maintains a strict no-tolerance drug policy, ensuring its security operators are serious, sober, and shrewd. "Our guys are 95 percent ex-military and ex-police," says CEO Sean Campbell. "They enjoy what they are doing, but for some it took effort for them to 'switch sides.'"

The enforcers

Blue Line is adding to its current list of 55 clients, which includes big dispensaries and grow houses such as Medicine Man. The company ensures that the cannabis is grown, packaged, and transported according to state regulations, that cash is tracked from customers to the business so no laundering occurs, and that bills and taxes are paid.

"What we're doing is to make each of our clients' businesses as legitimate as possible. By having professionals, former law enforcement, it adds a layer. We are enabling the industry. We are helping it progress," says Campbell, who took over as CEO last year after serving as the managing director of MKM Capital Advisors, a hedge fund that invested in Blue Line and brought it public through an over-the-counter offering. 

Blue Line's security operators are armed with 9 mm handguns, transport cash or product in armored trucks, and have all been trained in surveillance and counter surveillance. Their clients have never been robbed, unlike a significant number of other cannabusinesses. "We get the call the day after--'we just got robbed,'" says Matt Karr, Blue Line's security operations manager. "If your location is not secure, you can lose $200,000 of product in three minutes--or you can pay us."

Although medical and recreational marijuana is legal in Colorado, it is still illegal under federal law. This unique gray area makes banks apprehensive about accepting cash from the state's roughly 500 licensed dispensaries and growers. Typically, dispensary owners have to open multiple bank accounts using fake names or fake businesses and move money from one to another when the bank figures out the source.

In February 2014, however, the Treasury Department's Financial Crimes Enforcement Network released the Cole Memorandum, which outlines rules and regulations cannabis companies would have to follow in order for banks to accept them as clients. According to the memo, dispensaries need to make sure no customer is under 21 years old; the product must be tracked from the time it is first clipped from a larger plant to when it's sold to a customer; cash must be tracked from the customer to the dispensary to the tax office; and the growing operation must be in Colorado, with no product crossing state lines.

Campbell, who estimates that dispensaries lose 6 to 8 percent of their revenue by dealing in cash--due to extra costs to transport and store it, as well as theft--quickly sensed an opportunity. He decided to broker relationships with banks and expand Blue Line's service to third-party financial compliance to help companies open legitimate bank accounts. "Our guys are the ones delivering the product from the grow house to the dispensary, so we know where it came from. We're the guys picking up the cash and taking it to the tax office," he says. "We can validate that each of our clients are hitting each requirement."

Blue Line is now trying to convince banks to take its clients' business, promising an intense forensic accounting process to ensure all rules are followed. It has made an agreement with one bank in Colorado so far, which the company declined to name.

"Money to us isn't money to us unless we can track it. We dump customers if the records and history doesn't match," Campbell says. "We will only accept money we can track from the consumer to the tax office. If a company has $10 million in their back pocket, we can't take that money and the banks won't take it."

Blue Line will begin beta testing its financial compliance package with four of their larger clients at the end of March. To better track the exchange of money and product, the company has deployed kiosks to the dispensaries, which run seed-to-sale software that will verify a customer's age and identity through biometrics (facial recognition, iris scanning, or fingerprint). After their ages are verified, customers will select the type and amount of cannabis through the kiosk, pay for it with their debit card, and then go to the "budtender" and get their order in exchange for the receipt.  

"The kiosks are there to further prevent criminal enterprise from forming. The customer can only buy something that is in the system. This way, the owner knows what's in the system, the state knows what's in the system, and we know what's in the system because the software tracks everything, seed to sale," Campbell says.

Once the beta testing is over, Blue Line will onboard more of its clients in Colorado toward the end of April. Blue Line is expanding to new cannabis markets as well. In Nevada, the company has made agreements with 14 medical marijuana companies to supply security and financial compliance services. It also will serve companies in Washington State, Illinois, and Florida.  

"This is the future. The Feds like it, the banks will find it very lucrative, and the companies are dying to get their money in the bank," Campbell says. "We are in a unique position of trust with each business owner--they don't trust anyone with their cash and they certainly don't trust everyone with their product. But they trust Blue Line."

Published on: Mar 17, 2015