This interview was first published in Nuggets, the Star Tribune's weekly newsletter chronicling legal cannabis in Minnesota. Sign up for Nuggets here.
Last week, Minnesota's Office of Cannabis Management (OCM) named Max Zappia as its implementation chief regulatory officer, a role in which he will "lead the design, implementation, and launch of the regulatory structure for the OCM." Zappia is on temporary reassignment from the state Department of Commerce, where he serves as deputy commissioner for financial institutions. Zappia spoke with Nuggets earlier this week about his new gig and his previous experience with banking issues for cannabis businesses. This interview has been edited for length and clarity.
Please tell us about your personal history and how you got into government.
I had the great fortune of graduating college right at the peak of the 2008-09 financial crisis. When I speak with students, I always like to put a graph up at unemployment and point to the very top, that was me. I was encouraged to apply as a state bank examiner and was extra privileged to have been hired in that role. I worked at the [Minnesota] Department of Commerce for the next 14 years, including being a supervisor for more than the last 10 and then deputy commissioner for financial institutions for the last 6 1/2 years.
As the deputy commissioner for financial institutions, did your role intersect with cannabis?
Yeah, it did. Even before my role as deputy commissioner, there was a state medical program and we were aware of challenges and questions around access to banking. Fast forward to the 2018 [federal] farm bill, where hemp products got their own specific carve-out as a result of that, we worked in early 2019 to provide guidance for banking of hemp-related products — specifically ones that met the [less than 0.3% THC threshold to qualify as hemp rather than marijuana]. From that point on, it was pretty clear that at some point in time there would be an adult cannabis program. So we were talking to our bankers working on what is now the SAFER Banking Act and talking not just at the congressional level, but also with some of the federal regulators, which had more limitations in what they could potentially say or provide guidance on than some of their state counterparts.
Since the [Minnesota legalization] law was passed, the department has been working closely with pretty much the same group. I believe they are putting together guidance. We also had a good amount of banks that were starting to approach us to talk through what the new environment would mean for them, even if they weren't considering offering services.
How would you describe the role of the implementation chief regulatory officer for OCM?
Preface this by saying that my fifth day doesn't start till tomorrow, I think the role is really to ensure that there is a safe, accessible and fair market for adult cannabis for those that want to participate in that market. And to also help identify where that's not happening and take action.
What are your top concerns when it comes to regulating cannabis?
The law as written does provide some clarity around what the regulations are. A lot of it comes down to proper licensure. That's something I have a lot of experience with. We also have advertising and zoning restrictions. And then, also, a lot of labeling clarity. Consumers can't be expected to make effective choices if there's outright fraud or misrepresentation in the market. Creating a system that allows them to make those choices is a big part of regulation.
Do you see any parallels between regulating financial institutions and regulating cannabis businesses that could inform how you do your job?
I think there are a lot of them. There's the interaction between state and federal rules that is certainly at play here. There are considerations for financial solvency for businesses so they can provide consumers with the services that they expect.
I'd take a step back and say conceptually, one of the things I learned in my time in financial institutions is to approach regulation with the assumption that you share positive core values. Going back to what we're trying to protect against — unlicensed activity and mislabeling — I will assume that those are things the industry also sees as detrimental to the long-term viability of the industry. So we will approach regulation assuming a set of shared values until such time that a business shows us that's not the case. That's not to say we won't disagree on important issues. I'm not that optimistic. But even when we do, there are going to be things about the value of the market and the importance of safety within the market that we do agree on.
I'd like to talk a bit more about cannabis businesses and banking. There seems to be a lot of confusion about what is legal, what is not legal and what types of banks might work with cannabis businesses. Are there banks that are currently providing financial services to cannabis businesses?
I looked it up this morning, based on reporting, there are about 496 banks and 177 credit unions across the country that are providing any kind of services [to cannabis businesses]. I would suspect you would see a predominant amount of community finance institutions — so smaller community banks, smaller community credit unions — that are providing services. You will likely see deposit account services. By the time you get to lending, you start to see significantly lower numbers of institutions providing those services.
For individual businesses looking to get involved in [cannabis], they should probably look at developing relationships with community bankers, understanding what their needs and concerns are, knowing that this bank might not be the right fit for them. But relationship-based banking, including credit unions, is always a good starting point for small businesses. This will be especially true [for cannabis businesses].
Do you foresee OCM providing resources to help businesses navigate this confusing banking landscape?
I think one of the best strengths I bring to this role is a good understanding of the banking industry and banking needs. I can't speak for state banking regulatory policy and we can't be giving legal advice for a whole bunch of reasons. I am optimistic that even within those rails, there's a way that the Office of Cannabis Management can be a resource for businesses that want to develop effective banking relationships.
Is there anything else you'd like our readers to know?
I am already very impressed by the quality of staff that are working on implementation and the amount of progress that has been done. Some of that is not as clear to a third-party observer, but that doesn't mean it's not happening. It's a very big task and I'm excited to watch what we're able to accomplish in 2024.