Still Waiting For The SAFE Banking Act? A New Cannabis Dating Service Might Solve Your Financial Needs

When the SAFE Banking Act (SBA) was first discussed in the U.S. House in 2013, it seemed the perfect solution for CRBs’ (cannabis-related businesses’) financial needs. Cannabis was, and is, illegal at the federal level. And that status has long made banks and credit unions, especially interstate ones, leery of federal regulators and the risks inherent in offering bank accounts without FDIC insurance.

Yet, years have passed and still no SBA. Even as state after state (36 to date, plus DC) has legalized recreational cannabis (containing psychoactive THC), CRBs still struggle with banking. They’re criminal targets as they physically transport cash receipts to the few banks that work with them. They endure exorbitant bank fees. Electronic transfers for their accounts are a nonstarter.

And the SAFE Banking Act? It’s passed the House with bipartisan support six times, but the Senate won’t budge. The SBA’s main champion, U.S. Rep. Ed Perlmutter, D-Col. retired last year.

Mike Kennedy and Kevin Hart had had enough. “Rather than wait for Washington, we opted to forge ahead and set the standard for what compliant, equitable financial services look like in the cannabis industry,” Kennedy said by email. He’s chief strategy officer for Green Check Verified (GCV); Hart is CEO. In 2017, the duo launched their fintech. Its purpose: to provide CRBs with compliant cannabis banking solutions, ranging from banking, loans and insurance, to payroll and cash logistics.

Their efforts paid off: In a telephone interview, Kennedy said his company, by the end of 2022, boasted about 4,500 clients and $4.5 billion in sales processed during that year.

This year, February brought something more: the debut of Green Check Connect, an online marketplace for GCV to learn about and connect clients to trustworthy and cost-effective financial and business service providers.

How does Green Check Connect, which GCV clients have free access to, address the cannabis banking quagmire? Call it a marketplace, maybe even a dating service. “All Green Check Connect participants will benefit from the platform’s intelligent matching technology, which will present options to cannabis businesses based on product/service fit, location, price and a variety of other factors based on provider data and Green Check’s industry-leading insights engine,” the company’s website notes.

In the interview Kennedy addressed why such services are needed. Certainly, a few large institutions, like AFC Gamma and GCV clients Abaca and Valley National Bank of New Jersey are willing to service cannabis companies. And there are other large and small cannabis-friendly institutions out there as well: In early 2022, a U.S. Treasury Department report identified 553 such banks (11 percent of all U.S. banks) and 202 credit unions (4 percent).

But those numbers were down compared to pre-pandemic times. And some institutions continue to signal nervousness: J.P.Morgan Chase, for example, recently halted its brokerage clients from purchasing cannabis-related securities.

“It’s pretty dire,” Kennedy said of the issues inherent in cannabis companies unable to find affordable banks. “Imagine managing a million-dollar business on a cash-only basis. It’s nearly impossible. It’s dangerous, it’s costly and it’s wildly inconvenient.”

He compared cannabis operations to the cell phone industry five or six years ago; once some carriers began offering unlimited data, all carriers had to follow suit, to stay competitive. With cannabis, he pointed out, there’s no critical mass of service providers willing to engage with the industry.

“So what you are left with is [only] a small cohort of businesses that will even engage, let alone offer, competitive rates,” Kennedy said. “What these operators then do is use their monopoly status to effectively set their own rates. Those that are less savory will hide behind the guise that, ‘This is a high-risk market; we need to do additional due diligence and monitoring, so that’s got a cost associated with it.’”

What results, he said, is “private capital being offered to the cannabis industry at rates as high as 20, 30 percent.” Such issues are what motivated GCV’s cofounders to “unlock this ecosystem of service providers that do want to offer high-quality services” at affordable rates.

Transparency is crucial, Kennedy continued. So is allowing a financial institution or service provider to “marry their transactional data with the source and use of funds coming from the day-to-day operating services of these businesses.”

That model creates more visibility into a cannabis business than any other commercial customer or business in the typical portfolio, Kennedy said. Of course, guidance from Treasury’s FinCEN (financial crimes) network and state agencies comes in handy, he said, as do the legal couriers permitted to deposit funds directly to the Federal Reserve, which leads to legal electronic transfers. Some cannabis companies are fine working with their state’s participating banks; others need a national partner; Green Check Connect, Kennedy said, can help with those decisions.

As for GCV’s competitors, they exist, the executive said, but some service their cannabis clients manually, meaning spreadsheets and internal audits. But spreadsheets are cumbersome. “What that does is put the onus on the cannabis business to undergo rigorous scrutiny every month just to keep a bank account open,’’ Kennedy said.

There are also some fintech players out there, he acknowledged, but those software players lack a significant market share. Some have gone out of business.

And, what of the SAFE Banking Act? Will its passage dampen GCV’s prospects? Quite the opposite, Kennedy said. “It’s going to make us a lot stronger,” he argued. “Think of the financial institutions that are [already] willing to service the industry – our total available market increases significantly. Plus, from an operational standpoint, we now have one [federal] set of rules we have to develop against, versus 36 sets of rules in the various states in which we operate.”

In any case, SAFE is not the “silver bullet” some observers claim, Kennedy opined And given today’s political landscape, it’s not yet time to break out the champagne in expectation of the SBA’s imminent passage. “I think it’s going to be put on the back burner,” Kennedy said of possible congressional action. “There are other topics that the financial services committees will likely choose to focus on, namely cryptocurrency and speculative trade, and have the SEC get involved in those areas.

“I do feel we’re in a bit of a holding pattern for the [SAFE Act] until the next administration. But, hey, it’s been passed before…it’s definitely still moving in different areas in Washington. But perhaps I’m jaded. I don’t have a lot of hope [and] don’t see it passing in the near term.”