Banking Archives - Green Market Report

StaffMarch 18, 2022
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KINDTAP


JULIA GERMAINE – OPERATING PARTNER,
KINDTAP/KINDRUN

 

What is your proudest accomplishment in the cannabis industry?

I’m most proud that my work has been a force of good, at the end of the day. The industry is complicated, volatile, and at times demoralizing – but I have created jobs and entire workforces, built and revitalized properties and community tax bases, and started conversations to normalize and respect the medical and adult-use of cannabis, in many different contexts and to diverse audiences.

 

Do you feel that the cannabis industry has more opportunities for female-identifying people than other industries?

I believe the opportunity for people who identify as female in the cannabis industry is about analogous to opportunity in equivalent sectors of other industries. Ten years ago, in different policy regimes, when traditional finance was still trepidatious about cannabis, there was a vacuum into which many womxn stepped. Some have been successful, but others have bowed out. Even more so than a lot of high-growth industries, like beauty, the cannabis industry is simply more difficult due to the plant’s fractured legal status in the US and within states (let alone abroad). There is a more open conversation about the disparities of female representation in leadership positions in cannabis, but I am a rare female operations executive – in part because my requisite experience has been gained in male-dominated environments like municipal government relations, construction, cultivation, manufacturing, etc. To ensure long-term sustainability, the cannabis industry right now demands operational expertise, not MBAs and ad executives, and I encourage female-identifying people to seriously consider how their operational skills in other industries and work environments might translate to cannabis.

 

Do you feel you have to work twice as hard as male colleagues or do you think the industry has moved past that?

I don’t have to work twice as hard as male colleagues, because I have authority gained through experience, and can point to a body of work that speaks for itself. The industry has not moved past prejudice, and women in the industry have not moved past the instinct to relegate themselves below typically more risk-tolerant men competing for the same space. I don’t maintain competitive relationships with my male colleagues, and likewise, because I’m very clear about where I begin and end. As colleagues, we share the same goals, and I am glad society is slowly moving past gender binaries that stifle female participation in economies.

 

What was your biggest challenge in business and how did you overcome it?

My biggest challenge in business has been an unethical, negligent co-founder of an early cannabis business my family and I started. Capital and pedigree – both personal and academic – are often prerequisites to starting a business and raising money, and were more readily available than competence and operational expertise ten years ago. I have yet to overcome the encumbrance of the company and co-founder, but overcame the professional and personal frustration by re-starting – I have new partners and new businesses, and am much smarter and more-empowered than I was ten years ago.

 

What has you or your company done to help give more opportunities for women?

My company is woman-led at the executive and directorial level, and actively recruits diverse candidates for new positions, including women. We promote women into leadership positions. We are flexible about schedules and are fortunate to operate in Massachusetts, where employee protections and rights are strong, and support maternity and other types of leave that allow women to participate in the workforce. I personally mentor other women to bolster their leadership and soft skills, which are often accessible only through experience and exposure.

 

What are your personal goals for 2022?

As the business leader for one of the first cashless cannabis home delivery businesses in the country, I hope that we can not only generate several millions in revenue this year, but more importantly show the world our collective 3+ year efforts of moving cannabis into the fully-elevated age of digital commerce, and the ability to accomplish this through social equity-businesses and a diverse leadership team. On a personal note, I’m hoping to take a holiday to Paris with my husband at the end of the year.

 


Debra BorchardtFebruary 4, 2022
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Is the gazillionth time the charm for the cannabis banking legislation known as the SAFE Act? Yesterday, the U.S. House of Representatives officially attached the Secure and Fair Enforcement (SAFE) Banking Act to the full America COMPETES Act. A final vote in the House is expected today. However, it will them move to the Senate, where the legislation often fails to proceed any further.

The amendment comes from Colorado Democrat Rep. Ed Perlmutter and was preliminarily approved on a voice vote as part of an en bloc group with other amendments on Wednesday, according to Marijuana Moment but a roll call was requested. It was then passed in a 262-168 vote. In a Tweet, Perlmutter wrote:

I have filed #SAFEBanking as an amendment to #AmericaCOMPETES b/c cannabis-related businesses – big and small – are in desperate need of access to capital & the banking system in order to operate in an efficient, safe manner & compete in the growing global cannabis marketplace

Marijuana Moment also reported that there was no floor debate about the cannabis provision itself, demonstrating how relatively noncontroversial the bipartisan-supported reform is in the House.

“The SAFE Banking Act has been sitting in the Senate for three years and with every passing day their unwillingness to deal with the issue endangers and harms businesses, their employees and communities across the country,” Perlmutter said in a statement. “My work on this bill is far from over,” he continued. “As Speaker [Nancy] Pelosi and Senate Majority Leader Schumer are aware, going forward, I plan to pursue every possible avenue to get SAFE Banking signed into law.”

Many in the House have blamed Senator Chuck Schumer for not advancing the SAFE Act in the Senate. Schumer has longed for a broader more comprehensive legalization effort and continually pulls the banking legislation from larger pieces of legislation. This has created an opening for Republicans to court cannabis advocates. Even proponent of the “Big Lie” Rep. Mace found herself getting lots of attention from cannabis industry executives for a bill she proposed. Credibility was apparently not an issue for these executives that fawned over Mace, even though her freshman status made it unlikely she could get any legislation approved.

Mississippi Legalizes

While Washington debates easing banking rules for the current legal businesses, states continue to move ahead. This week Mississippi became the 37th state to legalize medical marijuana. On Wednesday Republican Gov. Tate Reeves signed into law the Mississippi Medical Cannabis Act. The bill known as S.B. 2095 was originally approved in January by the state Legislature. Voters had approved of legalizing medical marijuana as a ballot issue, but then the state Supreme Court struck it down on a technicality pushing the issue to legislators. The Governor wasn’t a big fan of the law saying on Twitter:

The “medical marijuana bill” has consumed an enormous amount of space on the front pages of the legacy media outlets across Mississippi over the last 3+ years. There is no doubt that there are individuals in our state who could do significantly better if they had access to medically prescribed doses of cannabis. There are also those who really want a recreational marijuana program that could lead to more people smoking and less people working, with all of the societal and family ills that that brings.

My goal from Day 1 (post Supreme Court ruling) has been to allow for the former and do everything in my power to minimize and mitigate – though knowing it is impossible to eliminate – the likelihood of the latter. After all, the overwhelming majority voted for a medical marijuana program in the 2019 election and I committed to supporting the will of the people.

I have made it clear that the bill on my desk is not the one that I would have written. But it is a fact that the legislators who wrote the final version of the bill (the 45th or 46th draft) made significant improvements to get us towards accomplishing the ultimate goal. Just a small sampling of the improvements we fought to include in the final version of the bill:

1. Reduces the total amount that any one individual can receive to 3 oz. per month. This one change will reduce the total amount by 40% from the original version (I asked for 50%). Said differently, there will be hundreds of millions of fewer joints on the streets because of this improvement.

2. The medical professional can only prescribe within the scope of his/her practice. And they have to have a relationship with the patient. And it requires an in-person visit by the patient to the medical professional.

3. Only an MD or DO can prescribe for kids under 18 and only with the consent of a parent/legal guardian.

4. An MD or DO must prescribe for young adults between the ages of 18-25.

5. The MSDH will promulgate rules regarding packaging and advertising, and I have confidence they will do so in a way that limits the impact on our young people.

6. Prohibits any incentives for the Industry from the Mississippi Development Authority.

7. Protects our churches and schools from having a marijuana dispensary within fewer than 1,000 feet of their location.

Because of these improvements to the program (as well as many other small ones that I am not mentioning), SB2095 will become law. I thank all of the legislators for their efforts on these improvements and all of their hard work. I am most grateful to all of you: Mississippians who made your voice heard.

Now, hopefully, we can put this issue behind us and move on to other pressing matters facing our state.

 

 

 


StaffJanuary 24, 2022
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Cannabis banking provider Dama Financial has entered into an agreement to acquire GrowFlow Corp. for an undisclosed amount. GrowFlow is a business management and compliance company that has processed more than $3.3 billion for cannabis retailers, cultivators, processors, and distributors. The deal is said to be planned to close this quarter.

“With this acquisition, we are creating the leading platform for cannabis operators, essentially a one-stop-shop for the business tools they need to thrive,” said Anh Hatzopoulos, Dama’s co-founder and chief executive officer. “We created Dama to solve real problems for the industry through innovation, and integrating GrowFlow’s software into our fintech is a huge step forward in that mission. To be successful in the long term, cannabis operators need legal, compliant, forward-looking solutions like Dama’s that don’t skirt restrictions through workarounds, and this sets us up to keep innovating to champion our customers and propel a booming market.”

GrowFlow was founded in 2016 and is a B2B SaaS platform that is dedicated to helping its customers grow their cannabis businesses. It provides compliance, inventory management, point of sale, analytics and sales tools for cannabis and hemp businesses at various points in the supply chain.

The company said in a statement that by combining Dama’s fintech and payment solutions and GrowFlow’s industry-leading software platform the two will create a comprehensive solution for cannabis companies, integrating product, operations, compliance, and financial data in a more usable and flexible solution than any current offering in the industry.

“I could not be more excited about this merging of minds and technologies,” said Travis Steffen, chief executive officer of GrowFlow. “Our leadership teams have nearly identical views of the industry and how it is evolving. Bringing our solutions together will allow us to serve customers in many unique ways and compete on much more than price.”


Debra BorchardtDecember 14, 2021
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Visa (NYSE: V) could begin cracking down on the way many cannabis customers use their debit cards to make a purchase and the change could have a devastating effect on the cannabis industry. Numerous companies have been created in order to address the payments issue facing the industry since the major credit card companies like Visa Inc., Mastercard Inc. (NYSE: MA), and Discover Financial Services (NYSE: DFS) have all stated they won’t process cannabis transactions. The major banks have also taken this stance and it’s all because cannabis remains federally illegal. 

A memo dated December 2 that was first reported on Marijuana Moment stated, “Visa is aware of a scheme where POS devices marketed as “Cashless ATMs” are being deployed at merchant outlets and are operating in violation of the Visa Core Rules and Visa Product and Service Rules and Plus Core Rules and Plus Product and Service Rules.” Often a customer will walk into a dispensary and make a purchase of say $62 and the budtender will ring up the purchase as $65. The transaction is coded as an ATM withdrawal, but the customer never receives the whole $65, they would instead just get the $3 in change. So many companies have been doing this “workaround” for so long it was becoming accepted as an approved transaction, but that isn’t so.

“Those products were never permissible,” said Tyler Beuerlein of Hypur Inc., a Scottsdale-based payment and banking technology platform that services highly regulated industries like cannabis. “They were never compliant. You’re purposely misrepresenting the nature of a transaction” he said. “There are billions of dollars a year worth of transactions being processed fraudulently.” 

The memo doesn’t specifically state that it’s directed at cannabis companies, but it does say, “Cashless ATMs are primarily marketed to merchant types that are unable to obtain payment services—whether due to the Visa Rules, the rules of other networks, or legal or regulatory prohibitions. Therefore, supporting this scheme affects the integrity of VisaNet and the Plus network, as well as the Visa payment system.” Several people interviewed have said that typically when a memo of this sort is sent out, Visa often follows up shortly with enforcement. Such enforcement could have a drastic effect on thousands of cannabis companies who rely on the workaround to allow customers to have a seamless traditional retail purchasing experience.

“Cannabis retailers should break up with their ATMs before they break up with them,” said Cathy Corby Iannuzzelli a Principal at digital payment company KindTap.  “ ‘Cashless ATMs’ have been misrepresented to cannabis retailers as a compliant payment solution, and they have been misrepresented to consumers as debit purchases. Financial institutions that refund out-of-network ATM withdrawal fees for their customers have also been unwittingly subsidizing cannabis transactions. Consumers who expect debit transactions to be covered by network satisfaction guarantees have no recourse. The red flag should have been raised years ago when dispensaries were instructed to have customers round-up their debit purchases to $5 or $10 increments. Instead, an industry hungry for cashless payments accepted the assurances of ATM sales reps and now cannabis retailers run the risk of the rapid removal of cashless ATMs and return to largely cash-based sales.”

While some in the industry were rattled at the news of the memo Katrina Skinner, General Counsel & Chief Banking Officer at Simplifya seemed to take it in stride saying, “The Visa memo does not actually state that cashless ATMs are illegal; it says that miscoding transactions on a POS system as an ATM cash disbursement, rather than a purchase transaction, violates Visa network rules and that acquirers who allow such violations may be subject to compliance assessments/penalties, including for intentional network rule violations. The memo is directed at acquirers, processors, issuers, and agents who have a contractual duty to ensure network rules are followed. In doing so, Visa is essentially shifting the burden for ensuring network compliance onto the acquirers. Whether the acquirers will take action remains to be seen.”

It’s true the memo doesn’t say that it is illegal, however, the fraudulent payment case involving delivery service company Eaze case clearly demonstrates that some people are facing prison sentences for knowingly processing transactions that aren’t approved. At the end of the day making a pretend transaction is bank fraud. 

Visa/Mastercard Just Say No

Both Visa and Mastercard have consistently said no to any type of transaction processing when it comes to cannabis. American Express (NYSE: AXP) also prohibits any marijuana-related business for transactions. Since cannabis is federally illegal, credit card companies have said they will not work with the industry. Once it becomes federally legal – that could change. The result had been that many dispensaries had a physical ATM machine located within the store. That worked great for walk-in traffic, but during the pandemic and lockdowns, online orders became hugely popular. Dispensaries scrambled to create online menus and companies like Dutchie had perfect timing to help them create the back office programs to accept and fulfill orders. 

Customers could make purchases online and then just drive by and have curbside service to pick up their orders. That convenience factor has continued even as lockdowns have been over for some time and stores have reopened. Walk into any dispensary and you’ll now see a section devoted to pickup orders. Losing online purchases could wreak havoc on dispensary owners who have enjoyed sharing the efficiencies with their customers. 

What’s The Problem?

There are a couple of issues that are at the core of this type of transaction processing. The first is that it is federally illegal and technically neither the banks nor credit card companies can process a transaction for something illegal. While many in the cannabis industry get indignant about being called illegal when many states have legalized it, it remains federally illegal. Visa and Mastercard have equal concerns about cashless ATMs being used for child trafficking and other more dangerous drugs. They can’t just carve cannabis out of the illegal transaction world.

The transaction violates the ‘know your customer’ edict. When a consumer makes a transaction, it becomes attached to it. For example, if Jane uses an ATM machine at a dispensary then the withdrawal is attached to Jane. If Jane does the workaround at the register of the dispensary, the transaction gets attached to the dispensary, not Jane. Thus the banks and credit card companies can’t keep track of the transaction and this is when the concept of money laundering comes in. The transaction isn’t clearly attached to the correct person. The transaction is processed with the knowledge that this purchase isn’t being handled truthfully. Jane is making an actual purchase from a dispensary – not truly getting an ATM withdrawal. 

Therefore, the unapproved process is money laundering and bank fraud. People could go to jail. In the situation with Eaze, whose former Chief Executive Officer was found guilty of allowing fraudulent credit card purchases. In June, U.S. District Judge Jed Rakoff sentenced Eaze banking consultants Hamid (Ray) Akhavan, 43, to two and a half years in prison and Ruben Weigand to 15 months in prison. The story noted that the jury convicted the two men on one count each of conspiracy to commit bank fraud in March.  The former CEO of Eaze, James Patterson pled guilty to the crime. He had been working with Akhavan and Weigand, who disguised the payments to sneak them past the banks and credit card companies. Patterson is scheduled to be sentenced in February.

Who Takes The Blame?

In October, Dutchie raised $350 million and received a $3.75 billion valuation based on its tech platform that facilitates orders. Those transactions often include a prohibited process that Visa has signaled it will not allow and will begin charging penalties.  One source though claimed that Dutchie doesn’t actually touch the payment portion of the transaction and that that responsibility falls back onto the dispensary owner. Dutchie did not receive a copy of the Visa memo. The interesting thing about that argument is that it is exactly what Eaze said before the company’s former CEO admitted to doing what the company claimed it didn’t do. 

Of course, Dutchie isn’t the only large cannabis company that is somewhat associated with this method of transaction and there are plenty of payment processing companies in the cannabis industry. Just about every major MSO has some sort of online purchasing where customers use their debit cards or allows this sort of workaround at the physical point of sale. Some of these MSO’s are ringing up over a billion dollars in sales and it will be up to the CEO to either claim ignorance or be willing to pay fines while it searches for another alternative. Could CEOs receive a prison sentence for bank fraud for allowing unapproved transactions under their watch? 

The issue could be the start of a cascade of lawsuits from investors claiming they were bamboozled. Investors could be pretty angry to think they were told this was okay when the company’s management knew it wasn’t. Then the question becomes whether the Chief Executive Officer of an MSO can be accused of bank fraud if they allowed this type of processing to happen in their dispensaries. Could the MSOs point the finger at their platform companies and place the blame on them? Also even if Dutchie or any of the other payment processors doesn’t touch the payment portion of the transaction, are they facilitating a transaction that they know is not allowed and thus guilty as well? 

Solutions

Even though many in the industry felt that the Safe Banking language in the proposed legislation would have resolved the issue, that isn’t the case. The proposed language did not change the federal legal status of cannabis and would not have changed the issue with the banks or the credit card companies. “It’s unfortunate that certain underserved industries continue to live in fear of their business operations being impacted overnight. It leaves many scrambling for options,” said Dan Muller, CEO, AeroPay, a fintech company with a payment platform used by the cannabis industry. 

There is a group within the cannabis industry trying to create a separate credit card like a Discovery card that will operate outside of the Visa/Mastercard world, but it doesn’t exist yet. Several companies are building platforms that exist outside the credit card rails, but they still need a bank attached to the process. Plus, the situation though can be confusing as some companies have claimed to be compliant when they aren’t and it becomes difficult to ascertain who is telling the truth. Like in the case of Eaze, which insisted it did nothing wrong, and then the ex-CEO confessed it did. 

Dutchie CEO and Cofounder Ross Lipson said, “We are heavily investing in R&D to continue creating and launching innovative products that help further normalize the industry, provide safe and easy access, and make it easier for dispensaries to run their business and retain more customers. We are excited to be close to launching a closed-loop ACH product to provide our customers and consumers with a cashless payment option that’s sustainable, compliant, and easy to use.”

Muller said there are plenty of compliant solutions available now and that industry doesn’t need to do the workaround anymore. “FinTech companies like AeroPay provide compliant, integrated payment solutions for the cannabis industry,” Muller said. “Our solution facilitates account-to-account bank transfers through the ACH (Automated Clearing House) and we work alongside partner financial institutions and state regulators to ensure the highest levels of transparency.”

Skinner went on to say, “While cashless ATMs have become prevalent in the legal cannabis industry, they have also been used as a cashless payment solution for other high-risk industries that clearly have a need for them. Since cashless ATMs aren’t new and continue to be utilized by other industries, it’s unclear how Visa’s memo will affect the continued use of these solutions and whether the merchants employing them will be forced to seek other payment solutions. Thankfully, there are more compliant payment solutions available now than ever before. So although there may be some disruption if acquirers take steps to determine what solutions may be miscoding transactions, or if Visa decides to enforce its rules by taking action against the acquirers, licensed cannabis merchants will be able to replace Cashless ATMs with new payment solutions more easily than ever.

Still, the scope of fallout for this is astounding. It will touch just about every aspect of the industry, whether it’s ancillary companies or MSO’s. The removal of the cashless ATM option will affect just about everyone involved in the cannabis industry. 

“I’ve been shouting from the rooftops for years,” said Beuerlein. “When the investor base realizes the payment methodology behind these companies was never going to survive  – it was never a compliant solution. I imagine it could end up a litigious mess.” He added, “This should not have been a surprise to anyone.”


Gretchen GaileyJuly 15, 2021
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Editors Note: This is an opinion piece. 

Wednesday afternoon Senate Majority Leader Chuck Schumer (D-NY), Senate Finance Committee Chairman Ron Wyden (D-OR) and Sen. Cory Booker (D-NJ) unveiled the discussion draft of their long-awaited cannabis legalization bill, the Cannabis Administration and Opportunity Act.

The legislation would federally deschedule the plant, while allowing states to continue governing themselves with policies they deem appropriate. It also creates much needed social equity programs and creates a strategy for taxation. The two major surprises of the day were how middle of the road the legislation comes across and how fervently Booker is opposed to allowing the SAFE Banking Act to move forward. 

“If somebody tries in the Senate to do just the banking bill, they are going to make all the wealth and all the money that is going out after this, already is a multi-billion-dollar industry, what could become a bigger industry just so some people could get rich…. I will lay myself down to do everything I can to stop an easy banking bill that’s gonna allow all these corporations to make a lot more money off of this — as opposed to focusing on the restorative justice aspect,” said Booker.

Unfortunately, Booker has been led astray if he genuinely believes that SAFE Banking will do nothing except make a few rich corporations richer. There are over 32,000 licensed adult-use cannabis businesses and an additional 31,000 hemp licenses in this country, the potential benefit of the SAFE banking Act extends well beyond the perceived benefits to larger corporations. Many of these small businesses struggle everyday with exorbitant banking fees and ungodly minimum balance requirements.  

“The significant majority of cannabis businesses are small businesses, many of which are women or BIPOC operated. By not having access to traditional financial services such as bridge loans, insurance, or credit card services, these small business owners are disproportionately impacted by the lack of banking services and financing to keep their doors open. Then when they fail, they are again punished with personal wealth destruction due to the lack of bankruptcy protection,” said Beau Whitney, founder and Chief Economist of Whitney Economics.

It is understandable that Booker is concerned about groups that have been disproportionately harmed by the War on Drugs being left behind with just the passage of the SAFE Banking, but it’s shortsighted to not see the benefits that it would also provide to those communities, like access to loans, lower fees and the capital necessary to grow a business.

The SAFE Banking Act also addresses the lack of safety in the industry.  

“Many businesses have to operate in cash only leaving them quite vulnerable to crime, along with their employees.  They cannot pay their taxes electronically and half to travel with large amounts of cash and armed guards. The SAFE Banking Act is addressing a public safety crisis for small cannabis operators,” added Whitney.

Cannabis businesses need relief now and they need it from a piece of legislation that has already passed in the House and has bipartisan support in the Senate. The cannabis industry cannot continue to wait for a pie in the sky all-or-nothing bill that Democrats don’t even support, let alone the president. And let’s get real, can the Democrats retain power in both the Senate and the House through the midterms to find another day to fight for cannabis legalization? 

The one sure way to keep small businesses from succeeding in this industry is by continuing the same banking policies that currently exist today. Senator Booker, SAFE Banking is not protecting large corporations. Frankly, they have banking already.

 

 

 


Debra BorchardtApril 19, 2021
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Cannabis legalization advocates must be feeling a sense a deja vu. Today, the House of Representatives approved legislation (again) that would provide safe harbor for financial service providers to work with cannabis businesses that are in compliance with state laws. Called the SAFE ACT, (Secure and Fair Enforcement) Banking Act, or H.R. 1996, was reintroduced in March by Reps. Ed Perlmutter (D-CO), Steve Stivers (R-OH), Nydia Velazquez (D-NY), and Warren Davidson (R-OH), and had 177 total cosponsors by the time of the vote. The legislation was approved by a vote of 321-101, including a majority of voting Republicans.

Steve Hawkins, executive director at the Marijuana Policy Project said, “This vote marks a meaningful first step in establishing a more equitable cannabis industry and improves the likelihood that other cannabis legislation will advance at the federal level. Restricting cannabis businesses from accessing financial services creates an unnecessary burden for the industry and limits economic growth. If enacted into law, the SAFE Banking Act would strengthen efforts to increase the diversity of the cannabis industry by providing resources for those with limited access to capital and increasing the chances of success for state-level social equity initiatives. Further, it would protect the 321,000 employees directly affected by the cannabis industry’s lack of access to financial services.”

The SAFE Banking Act previously cleared the House in 2019. The language of the bill was also included in two rounds of COVID-19 relief packages that were approved by the House. This is the fourth time that the House has approved the language of the SAFE Banking Act, initially as the first standalone cannabis policy reform bill ever passed by either chamber of Congress in 2019 and two more times last year as part of pandemic relief packages that were not approved in the Senate.

“We are incredibly grateful to the bill sponsors who have been working with us for the last eight years to make this sensible legislation become law and have shepherded it through the House time and again,” said Aaron Smith, co-founder and chief executive officer of the National Cannabis Industry Association. “The SAFE Banking Act is vital for improving public safety and transparency and will improve the lives of the more than 300,000 people who work in the state-legal cannabis industry. It will also help level the playing field for small businesses and communities with limited access to capital. It is time for the Senate to start considering the companion legislation without delay.”

Advocates are hopeful that Senate Banking Committee Chair Sherrod Brown (D-OH) will take up the bill in the near future so that it can begin to move through the upper chamber as soon as possible and become law before the end of the year. The SAFE Banking Act would protect financial institutions from federal prosecution for providing banking and other services to cannabis businesses that are in compliance with state law, as well as help address serious public health and safety concerns caused by operating in predominantly cash-only environments. The legislation would improve the operational viability of small businesses by helping them reduce costs associated with lack of access to banking and increasing options for traditional lending that many small businesses in other fields rely upon. It would also mandate a study on diversity in the cannabis industry.

“For the first time since Joe Biden assumed the presidency, a supermajority of the House has voted affirmatively to recognize that the legalization and regulation of marijuana is a superior public policy to prohibition and criminalization,” said NORML Political Director Justin Strekal. “However, the SAFE Banking Act is only a first step at making sure that these state-legal markets operate safely and efficiently. The sad reality is that those who own or patronize the unbanked businesses are themselves criminals in the eyes of the federal government, which can only be addressed by removing marijuana from the list of controlled substances.”

Separate from advocacy groups, corporate cannabis was encouraged as well. Medical Marijuana, Inc. (MJNA) CEO Dr. Stuart Titus said, “Though the cannabis industry has been deemed ‘essential’ during the pandemic, it still mainly operates as a high-liability, cash-only business. We’ve been looking forward to the passage of the SAFE Banking Act for nearly a year but with Democrats now in control of the House, Senate and White House, it’s finally happened. While we have generally resolved the majority of our banking and merchant processing issues that we saw when we began selling CBD throughout the US in 2012, we have done so at tremendous ongoing legal expenses and efforts. We hope that this bill can help other leaders in the overall cannabis industry avoid such hurdles and that it leads to expanded access to cannabis, hemp and CBD across the nation. We’ve seen that the number of banks servicing cannabis businesses has decreased over the past few months and we hope that this bill encourages banks to rethink that decision.”


Debra BorchardtJanuary 19, 2021
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Cannabis software company Blackbird and payment processor company AeroPay announced a strategic partnership to bring cashless payments to cannabis businesses for online ordering. Blackbird was sold in November 2020 by its parent Tilt Holdings (OTC: TLLTF).  Tilt agreed to sell Yaris Acquisition, LLC better known as Blackbird to Slam Dunk, LLC, a Nevada limited liability corporation controlled by Tim Conder, TILT’s Chief Operating Officer and a member of the board of directors of the company. The company said the total valuation of the deal was $15 million and selling Blackbird resulted in a cut of $3 million in expenses quarterly.

The partnership includes the integration of AeroPay’s payments platform into Blackbird’s white-labeled dispensary menus and the BlackbirdGo cannabis marketplace. The two companies said they also have plans to bring greater efficiencies to other parts of the cannabis supply chain such as physical retail and B2B.

“Cash payments have dominated the cannabis retail consumer experience until now,” said Tim Conder, CEO & Co-Founder of Blackbird. “As licensed cannabis operators, we know the benefits of moving toward cashless payments but also understand the challenges with banking as a cannabis business. Our partnership with AeroPay and the integration of our platforms allows our retail partners and their customers to easily accept digital payments and remove the hurdles associated with being a cash-only business. Additionally, AeroPay’s banking relationships will help eliminate barriers for our retail partners.”

Through the integration, cannabis patients and customers using Blackbird will be able to pre-pay online at the time of check-out for delivery or curbside pick-up orders. Payments made with AeroPay will be facilitated through a secure bank-to-bank transfer between the patient or customer and the business.

AeroPay is a financial technology company providing alternative payment processing solutions to state-legal cannabis businesses.  AeroPay has been approved to work in every state where cannabis businesses can legally operate as well as Washington D.C. AeroPay’s compliant solution offers a safe, simple, and streamlined way for patients or customers to pay their favorite cannabis businesses.

“Our approach has always been to create a better payment experience for both businesses and their customers,” said Daniel Muller, CEO & Founder of AeroPay. “Blackbird is a premier end-to-end logistics and delivery company in the cannabis space and our partnership allows us to do just that for the cannabis industry.”

Dispensary patients and customers ordering through a Blackbird white-labeled menu or the BlackbirdGo marketplace will have the option to pay with AeroPay. For first time AeroPay users, the sign-up process is two easy steps and happens directly on the menu at the time of check-out — customers simply create an AeroPay account and link their bank. For repeat users, payments can be completed with a single click.

While the focus of this integration with Blackbird’s menus is to improve the retail and consumer experience, both Blackbird and AeroPay also provide B2B solutions for the cannabis industry. The companies have plans to streamline the cannabis experience in other parts of the supply chain and lower the volume of cash by implementing digital payments.

“We’re excited about the future of our partnership with AeroPay as both companies have the ability to service the entire value chain,” said Conder. “This is only the beginning of a long-term relationship that has the opportunity to change the way cannabis businesses operate.”

“Payments have been especially inconvenient for cannabis businesses and we are thrilled to work with the team at Blackbird to create a seamless cannabis shopping experience that is safer, faster, and cashless,” said Muller. “Ultimately, we want to give cannabis businesses the ability to operate in the same manner as any other business would.”


Debra BorchardtApril 1, 2020
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MPG Consulting has recently authored a report looking at the potential of Cannabis Municipal Bonds (CMB).  Adam Orens, Founder of MPG and Sal Barnes, Managing Director, MPG have conducted a theoretical analysis using Colorado showing how the state can translate its cannabis revenue into a short-term bond amount of $166 million and long-term bond issued in the amount of $591 million resulting in $123 million and $438 million available for educational initiatives and infrastructure, respectively.

States and municipalities already use revenue bonds as a way to pay for large projects. The investors of such bonds feel that the risk for these investments is lower since there is a captive source of revenue to pay the interest. The report gives Iowa as an example. That state allocates $55 million in gaming taxes every year to pay the debt on revenue bonds that were issued in 2009 and 2010. That money raised selling these bonds was then used for community revitalization, flood mitigation, and bridge improvement efforts.

Test Case: Colorado

MPG used Colorado as an example of how state and municipal governments could tap into this revenue stream as a way to fund large projects. Although the report stresses, that while Colorado makes a good test case because of its well-tracked tax revenue, it isn’t necessarily a good candidate for a CMB. Mostly because the state has already been able to capitalize on the growing tax revenue for various projects – mostly involving education. The authors believe it is a concept worth exploring for newly legalized states.

In Colorado’s case, Denver collected $46.8 million in tax and license revenue in 2018. The estimated amount for 2019 is $63.3 million. MPG suggests this revenue will grow 21.6% on an annual basis. Using these figures and calculating future growth, MPG thinks that Denver could offer three-year CMB’s at a 1.5% interest rate. The city could issue a $166 million three-year bond resulting in potentially giving $123 million to the education allocation. A 10-year bond issue of $591 million would result in $438 million for education and other purposes.

Since Denver’s education needs seem to be met with this new influx of cannabis tax revenue, a CMB would not have as much impact. However, a city that is new to legalization and has more pressing and expensive needs like housing – a CMB might be an attractive solution.

Minneapolis As An Example

MPG Consulting looked at Minneapolis Minnesota as a city that could benefit from CMB. The state has not legalized cannabis, but if it did it could a large city like Minneapolis use the money to address its housing problems. MPG calculated that if the state legalized adult-use cannabis its first-year sales could hit $64 million and eventually reach $182 million in the tenth year. MPG believes that the tax revenue in the first three years would be roughly $63million reaching $343 million in ten years.

The hypothetical case for Minneapolis is that the city could issue $49.4 million in three-year bonds raising $44 million for affordable housing in year one. The current balance for the Affordable Housing Trust Fund is $21 million, so an influx of $49 million would be substantial. A ten-year bond could generate $233 million in the first year. The report also looks at the state in the same hypothetical calculation where the state would reap $385 million from a three-year bond and $2 billion in a 10-year bond.

Banking

Of course, the cannabis industry is challenged with a lack of banking and most of the major debt underwriters want nothing to do with cannabis until it is federally legal. With the current pandemic crisis and an upcoming election, the possibility of any cannabis legislation getting enacted in the near term is remote. The authors though believe that CMB’s could still be issued in the current environment.

“When state and local governments collect cannabis tax revenue, the funds are commingled in the general fund with revenue from other sources. The funds then enter the Federal Reserve System,” said the report. “Capital raised from CMB’s would be no different than any other tax revenue and therefore, in our opinion, would not require any sort of special regulation.” The authors do concede that convincing the banks and underwriters to offer the products could still be difficult.

Potential CMB States

The report notes that demand for such a bond could grow as cities and states grapple with the economic fallout of the COVID19 virus. The report suggests that seven states could see the potential in CMB’s. These states hold the most promise of legalizing adult-use cannabis in the near term. Those states are Arizona, Connecticut, Montana, Missouri, New Jersey, New York, and Vermont. However, the report notes that only the major east coast markets, Missouri and Arizona could support the CMB. Vermont would not have the tax revenue to make it worthwhile.

“States looking to open adult-use cannabis markets should consider utilizing CMB’s to finance crucial infrastructure or strategic public initiatives,” read the report. “Strong and accurate estimation of cannabis demand, tax revenue, growth rates, and other market development factors are imperative to calculating proper bond issue size, yield and maturity dates. Finally, banks who sell CMB’s must develop diligence methods and models to effectively price these securities.”

MPG Consulting said that cannabis revenues are steadier than alcohol and tobacco and more like casino tax revenue. While the idea of Cannabis Municipal Bonds may be novel, it isn’t completely unfeasible. The question isn’t if they will happen, but when. MPG might be correct that COVID could push states and cities to issue CMB’s. Financial institutions may also ease their opposition as they too may need additional underwriting revenue. CMB’s could be the next step in legitimizing cannabis.

 


Debra BorchardtMarch 3, 2020
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Ceres Group Acquisition Sponsor and Ceres Acquisition Corp. closed on its initial public offering (IPO) of $120 million of Class A restricted voting units of Ceres. Ceres is a newly organized special purpose acquisition corporation (SPAC) incorporated under the laws of the Province of British Columbia for the purpose of acquiring one or more businesses or assets. The focus will be on cannabis companies, but it is not limited to that specific industry or any geographic location.

The shares will begin trading today on the Neo Exchange Inc. under the symbol “CERE.UN”, and are intended to separate into Class A Restricted Voting Shares and Warrants in 40 days (or, if such date is not an Exchange trading day, the next Exchange trading day), which will trade under the symbols “CERE.U” and “CERE.WT”, respectively.

Joe Crouthers, Chairman, Chief Executive Officer and Director at Ceres said, “Ceres Acquisition Corp. is excited to be partnering with fellow innovators at the NEO Exchange.  We will benefit greatly from their extensive experience and prior success as a senior exchange supporting SPACs and US-focused cannabis listings.  They’ve allowed us to target the most vital segments of an industry that is at a critical inflection point.  This forward-thinking approach sets the stage for companies and industries to flourish.”

Ceres’ board of directors is comprised of Joe Crouthers (Chairman), Jordan Cohen, Dr. Ervin Braun, Brian Goldberg, Jordan Toplitzky and Tahira Rehmatullah, and its management team is comprised of Joe Crouthers (Chief Executive Officer), Jordan Cohen (President, Chief Financial Officer, and Corporate Secretary) and Michael Vukmanovich (Chief Operating Officer).

Ceres said its strategy is to leverage its directors’ and officers’ and the Sponsor’s executive leadership and entrepreneurial expertise, strong marketing and brand capabilities, and investment experience and network in order to identify and execute attractive qualifying deals. Ceres’ management team and directors will undertake to identify potential investment targets, and use their relationships with strategic growth advisors and strategic marketing partners to continue to build relationships with company owners, executives, stakeholders, industry experts and financial intermediaries to uncover attractive acquisition opportunities.

Ceres has granted Canaccord Genuity Corp., the underwriter of the Offering, a 30-day non-transferable over-allotment option following the Closing to purchase up to an additional 1,800,000 Class A Restricted Voting Units, at a price of $10.00 each. The proceeds from the distribution of the Class A Restricted Voting Units (along with the proceeds from any exercise of the Over-Allotment Option) will be deposited into an escrow account and will only be released upon certain prescribed conditions, as further described in the final prospectus dated February 25, 2020.


StaffMarch 2, 2020
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Not only do cannabis companies face banking challenges, but the employees also face the stigma of the big green leaf. Banks are notoriously conservative when it comes to cannabis and that hurts employees who just want a car loan or a mortgage. The founders of cannabis logistics company  Hardcar, saw first hand the struggles with banking and stepped up with a solution.

This new fintech company PAYZEL said it has secured banks to do home loans and other financial services for employees of cannabis companies. The company said that by shifting banks interest from just mortgages on buildings, which Payzel already does, to add homes was a natural evolution. The company arrived at this solution based on market demand from partners across the United States.

Payzel founder Todd Kleparis said, “Companies had called us a number of times telling us that employees just couldn’t get a loan at the banks they were using. Wanting to help, we went to our already established network of banks and offered up a way to expedite the loan process and have cannabis employees be able to get car loans and home loans all in one place. So now a company can get access to legal banking plus help to facilitate their employee’s needs as well. Most banks will not do home loans or offer other financial services but fortunately, we have forged fantastic relationships with many banks over the past four years. This is a major milestone for Payzel in its infancy and a major win for the cannabis space as a whole.” 

With capital becoming so tight these days, cannabis companies may be drawn to a provider that is willing to make loans not only to the businesses, but also to employees. Since the founders have been involved with the cannabis industry for some time in California, they do not stigma issues and recognize the industry’s problems. High operational costs that currently exist within the industry, including licensing and banking fees, drove the creation of Payzel – with a tag line “Forged out of Frustration”.

“With this new expansion of offerings, we believe we are still the one and only financial services platform with real banks accepting real cannabis companies without insane fees,” added Kleparis. “Most other services offering to get cannabis companies to banks are either some sort of wacky custodial account which you don’t even own or a looney scheme to get people paying a fee.  Payzel does none of that. We are the Trip Advisor and Lending Tree of Cannabis.”

Payzel says its accounts are insurance-backed and that credit card services will be coming soon.


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The Green Market Report focuses on the financial news of the rapidly growing cannabis industry. Our target approach filters out the daily noise and does a deep dive into the financial, business and economic side of the cannabis industry. Our team is cultivating the industry’s critical news into one source and providing open source insights and data analysis


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