The Cannabusiness Key: Banking and Financial Services for Cannabis Businesses

All right, I see some people filing in here, and we'll give it a few minutes. A minute or two and we'll get started. Great. One more minute, make sure everybody's here. The recording is on, so, uh, just one more minute and then we'll get rolling. Great. Okay, everybody, to the latest installment of the Cannabis News Key. I'm your host, Jason Klein. I'm a partner with Ramon Law, the corporate and cannabis group out of Washington, DC, doing this webinar today from beautiful Missoula, Montana. I'm very excited to have this conversation about safe harbor financial and banking cannabis and banking the cannabis industry with two of the longest standing veterans of this industry that you can find, Sandy Seyfried and Paul Penny. So we're going to have a great conversation today about the challenges in banking cannabis businesses, the challenges that cannabis businesses can expect to encounter as they work to develop a relationship with a banking partner and all the ins and outs of what to expect and, and you know what the benefits are, quite frankly, of finding a good relationship with the financial institution. So, you know, we're going to jump into that in just a minute. As per usual with this webinar series, which is now in its 6th year, believe it or not, monthly installments, almost 6 years. We'll be hitting that anniversary here at the end of 2022. We are trying to make this very interactive. We like to serve the cannabis industry by providing these, this thought leader speaker series, which is intended to be actionable information for you all out there as investors, owners, licensees, operators, employees, or just lookie-loos, people who are curious about the industry, ancillary businesses. You know, we really want to give you a look into what the, what the industry is really like sort of under the hood and, you know, good actionable information. So the way we do that is by trying to make this interactive. I really want to encourage you to use the Q&A feature, the chat feature, either one is fine with me. Type in your questions. What questions do you have for, for Sundy and Paul that they can answer about banking, you know, about, about your situation? Now, of course, they may not be able to answer very specific questions about your specific situation. We can reserve those for a private conversation afterwards with either me or with Paul on Sunday, and we'll have all their contact information for you to connect with them afterwards. But, you know, your general questions, and we'll try to get to as many of those as possible. This is like a fireside chat, you know, more like that than it is a lecture here. So We're going to turn it over to Paul and Sandy just here in a moment, but please go ahead and familiarize yourself with that chat and Q&A bar there if you haven't, if you haven't used that on this webinar series before. The other piece of housekeeping here, I should always say, you know, a little, little waiver here. Of course, I'm a lawyer. This is not legal advice. We're not here providing specific legal advice or financial advice to anybody. This is, like I said, educational, general. Specific questions, things like that, you know, don't, don't put that in the chat feature. But, you know, we can go ahead and talk afterwards. The next webinar in this series is going to be on May 25th. We're doing Wednesdays at noon as opposed to last couple of years we did Fridays. We're fully moved over to Wednesdays now. May 25th is going to be the next one. And you will get a little bit more information about that if you signed up for this one. You'll get a link to the recording of this series, this webinar and previous ones that you can go back and watch, and you'll get more information about the next one. So please sign up and we'll have, you know, great content for you for the rest of the year. Okay, with all of that, Sandy Siegfried is the founder and president and CEO of Safe Harbor Financial. Safe Harbor, of course, is a leading provider of reliable banking and financial solutions to the cannabis industry. She's a 39-year credit union industry veteran, and she has been banking cannabis businesses for as long as they've been around, as there's been banking, quite frankly. So she'll give us a little background about herself, but we're really honored to have Sundy here and call Recently, as you may have seen in some of the news, as part of a SPAC and a business combination deal, has joined forces with Sundy to bring his institutional experience, research analyst experience, private company executive and board member experience into Safe Harbor Financial. So welcome to the both of you, Sundy and Paul. Thank you so much for joining us. And really glad to have you. Sundy, maybe you can just sort of begin and give us a little history of how you found yourself tied in with cannabis businesses, you know, going back, what is it, a decade now?

Well, not quite that long unless we want to count the dog years we've been in it, which ages me even more, Jason, so thank you very much.

Sorry about that.

No, no, that's okay. You know, I figure I'm over 100 years old when I count the dog years that we've been doing it. We actually started banking cannabis in 2015. So I did all my research in 2014. And I was really just doing it for some friends, just, just so I could say I did it. So I could say no, not for Partner Colorado Credit Union, don't think we're going down this path. But the more that I got into the industry, the more that I realized the need was there and the safety in the community was such an issue, the more we couldn't ignore more of what we learned. And that is really what took us to the table and, and what the board saw as something they need to do to protect the community members and their own members and do the right thing. And we just assumed at some point in time legislation would catch up to doing the right thing. And here we are now in our 8th year and still no legislation, but we're, we're pretty solid in what we're doing. And we feel that every year that we have been able to do this is in one way or another permission to continue to do it. So we know legislation will catch up, right? Cross your fingers. We think legislation will catch up, but time will tell.

The longer you do it, the longer you'll be able to do it.

Yeah.

Paul, so there's been great news with the SPAC and business combination. That's going on now and sort of maybe you can just give us a little background on your non-cannabis history and sort of how you found yourself as an analyst looking at this industry.

Sure.

So I have a long career in investment banking and money management, back at Lehman Brothers, the good days of Lehman Brothers, the good days of Merrill Lynch, and then at TCW Group in Los Angeles, managing a small-cap fund. And in terms of cannabis, I was I went back to the sell side in 2017, and I was a special situation analyst, and I covered a wide range of companies across sectors. And during that time, I found cannabis and somehow convinced the powers that be at my little firm to allow me to cover the space and bank the space. And we did that. So during the 2017-2018 time period, when a lot of these companies were going public via RTOs and so forth, on the Canadian exchange. I was part of all those major transactions. So kind of learned the cannabis space very quickly and through a fire hose in 2017, '18, and was the first US analyst to cover the space officially. And I put up in— and so I was part of about 14 different cannabis IPOs. And then using that as a foundation, started a firm called Riverforest Partners, where we did equity and debt investing in the space. And then and a natural progression here at Safe Harbor, where we'll be really taking what Sundy's built, which is really special and really unique, and blowing out the lending portion of the business, as well as looking at other creative acquisitions and so forth to make us ultimately a diversified financial services company.

That's great. Yeah. And I think that brings a level of professionalism and experience depth of knowledge to this business, which is really going to expand what you're able to do. So let's just sort of generally talk about what Safe Harbor Financial is, what sets it apart from other financial institutions that are in the space or looking to break into the space.

Sure, I'll jump in there. So we have been facilitating banking services for the last 8 years at this point in time and providing reliability. And I think that was the biggest thing when we got into what we wanted to provide the industry. After hearing so many stories about getting a bank account, having a bank account closed down, and the fact of the matter is they couldn't run business. And so they ended up just keeping money in a vault and trying to do everything on a cash basis. So we wanted to be that financial institution at Partner Colorado Credit Union to actually provide reliability and stability and be able to provide the safety in the community as well. We provide all types of banking services. People often ask, what types of services, but it's easier for us to say what we don't provide. And quite frankly, up till about 6 months ago when Paul started, lending was on that line of business that we didn't provide. But now we're really jumping in with both feet there and making sure that we're going to provide good credit to our, our base and new clients as well. And the only other thing that we have had issues with are international wire transfers, but we've actually We're in the process of putting that up and standing that program up so that our clients will have that ability to transfer money internationally as well, as many of them are starting to get licenses. What makes us unique is that we actually endured 16 state and federal exams. And this is really important because every time the examiners came in, they helped refine the program so that it would stand on its own and be acceptable at the level of regulators. You'll see sometimes some of our competitors will be out there and they'll actually say endorsed by regulators, FDIC, NCUA. There is zero endorsement. In fact, you talk about legal disclosures like you did, Jason, and every presentation I do, I have to put that disclosure. We are not endorsed by any regulator because there is no endorsement by a regulator. They can only come in and allow you to continue to do what you do or tell you how to fix it or tell you to fix it. So I think that's what sets us aside from, from a lot of our competitors is that we've been through a lot of scrutiny. We've We've trained a lot of regulators, and we've been able to survive the pressures of regulators through the process.

So through all these sort of different— all these years of doing what you're doing and through these different states and with different regulators at federal and state level, they haven't told you to stop yet, which is a sign that you're doing something right.

You know, They may never have told us to stop, but I would say that early on when they started putting the pressure on us, they couldn't find a reason to tell us to stop, but the pressure itself would have pushed a lot of financial institutions out. If you're going through an examination every 90 days, the question is why, right? And how long can you endure that kind of pressure on a financial institution when cannabis is less than 20% of your business? So you're really harming the rest of the team by always focusing on cannabis. It became the biggest risk. And it was the biggest risk for the credit union. But that kind of pressure would push most people out of the business, I think.

Yeah. So it's also pressure that creates diamonds, right? And that by being able to persevere through that pressure, you can demonstrate your commitment to the industry, but also the sort of ability to continue to do that, which is— I think that's something that's that's very valuable in recognizing a financial partner who's going to be with you for the long run. This gets to a question about why, which I get all the time from, from licensees, from clients of mine. Why is it so expensive to maintain a relationship with my bank? And why is it so difficult and expensive to maintain a relationship? Why are they charging me all these fees? Why did it make me jump through all these hoops just so I can get a, you know, an account that has less features and less access than just a standard business account? You know, obviously from a, from a banker's perspective, there is all that compliance that needs to happen, but maybe you can just sort of go into a little bit more detail and talk about what that really involves on your, on your side and how you see it how you present a value proposition to your customers. Sure.

You know, it is expensive at this point in time, and the reason it is expensive is because of the regulations that are placed upon the financial institution banking cannabis industry. If you were to take the Partner Colorado and size Partner Colorado, 35,000 members and 100 employees at the point in time when we were starting cannabis banking, 35,000 members, 100 employees. Safe Harbor has about 600 clients and 30 employees. So if you look at the ratio, they're just on a staffing level to make sure we do this right. And the reason staffing has to be there is because of the compliance burden. Used to be you could just sign an account up if it's a business account, and you can get that business account going and maybe talk to that business once a year. On a cannabis level, regulators require, and regulations and guidance requires that we're talking to them, if not monthly, and think about that in the beginning of 2015, they wanted us talking to our clients monthly. Only over time have we got it down to quarterly or semi-annually, but we talk to our clients on a quarterly basis. The industry being, you know, having a history of black market and having a very cash-intensive nature, it requires more attention all the time to know the client. So on a quarterly basis, you have to know if officers are changing, you have to know if ownership is changing, you have to know everything about that company in order to fulfill that regulation. And that takes what we would consider a private banking model that allows us to really talk to those clients, get to know their client, the clients, their business, and their money. And that's labor intensive. But the most important thing is the fact that we have to file reports. On a monthly basis, Partner Colorado with that 35,000 members probably files 10 federal reports. Safe Harbor files approximately 1,000 reports a month, and the majority of that is because we have to understand the money and the federal government has to understand the money and be able to follow the money, and we have to make sure every dollar going into that system is accounted for. And that's very labor-intensive when you think about 1,000 reports in comparison to what I just told you Partner did in or does on a regular basis. That's very labor-intensive.

Absolutely. And when people hear the word reports, they often think of marijuana-specific SAR reports, but there's other reports besides that, right? In fact, that's not, that's not the bulk of them anymore. May, may, may used to have been, but not anymore. So can you just talk really briefly about the types of reports that you regularly are required to file and what you think the feds do with all that paper.

Yeah, this is one of those things, and I'll start with the fact that they call it bank secrecy for a reason. And it was really interesting when people started just telling me what the regulations were because they got online and FinCEN had put them out there. And we have been taught as bankers for those 39 years— thank you, Jason— we are not supposed to be talking about SARs and we're not supposed to be talking about reporting. And cannabis has really changed that. In the industry. So yeah, you have two different types of reports. You have the monetary reports and you have the SAR reporting, and you have to do those on a regular basis. And the question is, what do they do with those? It's interesting because I spent a lot of time in the last couple of years working with law enforcement and just recently did a webinar or a conference with the Attorneys General Association. And we're talking about how to utilize those reports and be more efficient and effective with those reports and work with law enforcement because not only does law enforcement want to weed out some of the bad actors, the industry wants to separate themselves from that black market history and be legitimized. And this is how it gets done. It gets done this way over time. And banking is really key in making sure those reports are filed and legitimizing their businesses as, as they go along. Once had a story, if you don't mind, where I was in with a bunch of bankers, and it was probably 2015. And they had the DEA up there, they had, you know, commissioners up there, they had regulators up there. And they were talking about all the difficulties in terms of banking the industry. And really, it turned into kind of a negative. We were one of two financial institutions in the room full of bankers. And it was very negative about banking the industry. And, you know, the DEA was very down on it. And I'll finally ask the DEA officer, I said, you know, do you find the money is better banked or unbanked? I mean, that's what it really boils down to— banked or unbanked. Where does law enforcement want that money? And he said, well, this is funny. He said, well, you know, if you start with cannabis, then you'll be banking heroin and cocaine, the gateway drug to banking, right? And I mean, I couldn't believe what was coming out. But then he said, What was really important was, but we love the reports. We love understanding the flow of money throughout the country, and it really helps us do our jobs. So I know two sides of the mouth speaking, and I'm thinking, but that's when I really was assured that what we were doing was helping law enforcement, but also helping the industry.

Right. Yeah. Well, the industry's come a long way since then. Yeah. But it's still a lot of challenges that you face. And, you know, Paul, I don't want to leave you out of this conversation. I do want to make sure you get in, but we've got a great question, which I think is probably a little bit more along Sundy's lines, but, you know, we'll get over to lending in just a minute here, Paul. But from Lee, who asks whether Safe Harbor still requires applicants to be licensed before taking them up before you offer services. For example, like the company in the process of being licensed might need a cannabis-affiliated bank account to pay bills and for build-out, or maybe just for the licensing process. Maybe it's a regulatory requirement. What's the status with safe harbor with that sort of client?

Good question, because interestingly enough, what we're seeing more and more are pre-operational accounts. And we are opening those at a very low fee of like $50 a month. We just, we're, we just gotta have it monitored. And the reason we have to monitor is because we've gotta follow you through the licensing process. We've gotta collect those documents as you expand your business and get into business and eventually move you over to a licensed account. So that's absolutely some of the, the most, the, the, the most accounts we're open at these, at this point in time are pre-operational accounts and we're opening them across the country. So especially in the new markets who are getting ready to be licensed because because they're required in many states to have that bank account before they go into the licensing process so that there's not a safety issue in the community.

Well, that's great. I mean, that really adds a sort of segment of the life cycle of these businesses, really critical as access to banking at that point. Well, talking about sort of life cycle of a business, you know, money is the lifeblood of any business. Everybody needs money to, to start your business, to operate your business on a monthly basis, to expand your business, to grow, you know, and that oftentimes comes in the form of debt. So debt has historically been a difficult nut to crack in the industry. A lot of private deals out there, a lot of inexperienced borrowers who don't understand what they are taking on. When they take on debt and very, very limited access to institutional debt, which creates other issues as well. So, Paul, what are we talking about when we talk about debt instruments and lending from safe harbor and how that works into the industry?

Sure. So just taking a high-level, 50,000-foot view, what you just said, access to capital is a huge, huge problem because of is a federal illegality issue, both on the equity side and on the debt side. Because of the federal legality issue, you just have a small subsector of folks that are actually investing in the space, both on the equity side and the debt side. It's pretty much been limited to high net worth individuals, family offices, a select group of hedge funds, and then some specialty funds in the space. But it's, you know, if you're, if you're going to take a pie of of all the institutional capital out there in the world, it's less than 5% that are actually looking at cannabis and have the ability to invest in either equity or debt in the cannabis space. So a lot of people are just window shopping and just watching the space, but don't have the ability to invest in both equity or debt. So on the debt side, I think we're coming at it with, there's a lot Because there's not much access to capital and there's very few players and few credible players in the debt market, and there's only a handful of them that are there, there is still a lot of abuse in the space and a lot of issues like there is with commercial banking as well. And because there's not much in the way of access to capital, the lenders have had a lot of leverage. And as a result, You've seen lending rates in the high teens and working capital loans in the mid-30% range. So really crazy type interest rates and associated fees and covenants and so forth, because all the leverage has been held by a select group of lenders in the space. So we come to the space with a more holistic approach and we, sure, we will underwrite properly in terms of collateral and in terms of debt service, et cetera, but We're not going to nickel and dime these companies for every single basis point or try to maximize fees. We really want to build a long-term relationship with these companies. And so we are lending across the food chain and across the supply chain in cannabis, all the way from starting from a ground-up construction facility, all the way up to a mature and cash-flowing MSO, publicly traded or privately traded company. So it's a wide spectrum across the supply chain. And And we're approaching the market where we look at every loan on a risk-adjusted basis. But I think companies will find our fees to be way more palatable and way more fair. And at the same time, I think a lot of these companies, they want to be treated with more respect and they want to be treated with the same way they want to open a bank account with not excessive fees. They don't want excessive fees on the debt side too. So So I think there's a huge opportunity for us to really bank the space and lend to the space in a proper manner.

Absolutely. I see you've recognized an opportunity in the market to sort of interrupt what's been going on the last couple of years, which is, you know, predatory, maybe a little bit of extreme kind of word because there's a lot of— everybody's an adult and there's choices that people make. But still, the lack of options that people have when it comes to reasonable rates and fees and terms have really limited what's available to people. So let's sort of dive in here a little bit more because something— you'd have to be hiding under a rock for the last 3 months to not see what's going on in the macro economy with regard to, you know, credit, the credit, credit markets in general. And you know what that means sort of down the line, just for consumer credit, for example, you know, mortgage rates and auto loans and, you know, all those sort of other things. And you know, there's the— we don't need to sort of get too far into the macro, but something you had mentioned when we were chatting before this webinar was that those macro, the macro environment does not, may not affect your lending services as much as one might think. You know, sort of down debt market doesn't necessarily translate to a down debt market in the cannabis industry because you are sort of using risk adjustment for every single loan, looking at every loan independently, and it's not just a formula based on a federal funds rate or something like that. So maybe you can sort of just talk a little bit about the macro environment and how it may or may not affect your business.

Sure. The macro environment for us is pretty much on a state-by-state level. So that's where, you know, the federal level is, it is where it is. Interest rates are going higher, but on a state-by-state level, that's where it starts for us. So We look for states that have a really favorable regulatory framework. And what that means essentially is two major components there. That's the number of licenses they allow under their state charter and the tax structure. Those two things are key in terms of states that we want to look for quality businesses within those states. So as a result, there's about two handfuls of states where we think that have the most favorable macro state guidelines and regulations. And those are states like Arizona, Massachusetts, Ohio, Florida, Nevada, Pennsylvania, Illinois, and New Jersey. And also states that are poised to go from a medical legal framework to an adult use framework. Those are also great transition points where, you know, the TAM for those states is going to 2 to 4x from their current medical status. And those are states again, where we think there's lots of opportunity, but that's on a macro level, that's where we kind of look, we look at a state-by-state basis.

I'm not sure if you had clicked this, but there's a question here in the Q&A, sort of picking up on your book, a little pitch for your book about navigating Safe Harbor, which you can Amazon for sure. I don't know if you've got a more preferred place, but everybody should go out and check that out. But basically, you were— the question is that in your book you talk about how important changing slang vernacular is in the cannabis industry. Where do you think we stand as sort of generally in professionalization in the industry? How much further do we have to go? I mean, You go to conferences and there's a lot more people out there, you know, professionals and people coming from other industries, sort of a lot of professional history. But how much more growing up do we have to do as an industry to be taken seriously?

First, I probably hit the wrong button, could have answered that in the box there, but inexperience. But then I thought about it and it's interesting because things are changing. Certainly the vernacular, nobody wants to see pot, weed, and all that in the news, right? I think it just downgrades downgrades what the industry has done and how hard they have fought to get where they are as a professional industry. Cannabis, on the other hand, is widely accepted, but it's a very broad description of what the industry does to even include hemp. So the interesting thing at this point in time I'm starting to hear, and even at the AG conference last week, is there, you know, the, the Delta-8s, Delta-9s, the, the hemp, and, and all the derivatives, the CBD, it's getting more and more specific at this point in time. And And it's going to make a real big difference in terms of how this industry gets banked. Delta-8 is one of those things where we now have to update our onboarding process because we have to understand if you're doing Delta-8 or how, if you're doing hemp, if it's resin hemp, how you're destroying that THC or selling it, because now you really are in the cannabis industry and the marijuana industry. So the vernacular is very important to the banker at this point in time so that we understand your business. And know where to classify you. Thank goodness, Colorado, the governor's office was there and, and they are dealing with the Delta-8 issue at this point in time. And understanding that it is— what they start saying now is mind-altering, you know, you're starting to hear this new term, mind-altering substances. So now we've got to go and take a look at what does mind-altering substances consist of, along with adult use versus recreational, and of course medicinal. So I think the vernacular to us as important as bankers because we got to know how to classify and monitor the account, but it's also very important to the state in terms of regulating it. So we have to follow the state on a lot of that.

Yeah, I see, um, Dr. Rabas chimed in here talking about how coffee, chocolate, and other substances may be considered mind-altering. So that's an interesting sort of expansion of the language and We can save the conversation about banking silo segment businesses for another time. Thank you. Please. You're welcome. You're welcome. But this sort of goes to the fact that, you know, sort of tying together what Paul was just talking about with regard to the macro environment that you're looking at when you're talking about lending decisions is a state. Because of the framework that we've got here in the United States right now, we have a patchwork, every different, every state's its own. There certainly are some federal considerations, but each state needs to be analyzed on its own merits. And there was a question from Britt in the Q&A about how state regulations affect decisions to lend and whether you look at that regulatory environment when you make a decision. And certainly that would have to be a big, input into that. So, you know, Paul or Sandeep, feel free to jump in here, but maybe you can just talk about what you are looking for in a state program to sort of, you know, decide whether, you know, a license or business is worthwhile to lend to.

Sure, I'll take that. So, you know, like I said, it basically starts with number of licenses. You know, there's unlimited license states, And I'll give you the inverse of that is states like California, Oregon, Washington, even Colorado, where it's quite easy to get a license. And so as a result, it's actually the state with the most abuse, in my opinion, is Oklahoma. There's just a tremendous amount of licenses. There wasn't much in the way of monitoring that. It wasn't— it was rolled out, in my opinion, quite hastily and quite aggressively. It's simply a supply-demand issue in terms of too many licenses in those states. That has really over time really improved and the cream has risen to the top in states like Colorado, where you've seen the best operators stay in business and actually thrive. But again, so when you're looking to underwrite a company, another example is California. California has not only an unlimited license state, but also the illicit market and the black market is quite raging in the state. So it really makes it tough to compete in California if you are a law-abiding company paying taxes and actually trying to do things the right way in the space. So it's a big, it's starting again, it's a real big decision for us in terms of where the underlying company is and knowing the landscape And like I said earlier, there's about 10 states where we find that to be really favorable. And again, my home state of Arizona is another positive example. It's pretty much an oligopoly. There's 140 licenses here. There's a moratorium on those licenses for the next 5 years. And that's it. I mean, they issued 20 social equity licenses. So in total, 160 licenses for the next 5 years. So as a result, you know, it's, you know, you can feel comfort in the fact that there's no new supply coming on board. And then it's all about picking the right operator and the right company that can really execute against their business plan and drive earnings growth.

A lot of sense. We have another question from Daniel about whether you take warrants and sharing the upside value appreciations. Your client is basically a question about how much how much risk you are willing to take on when it comes to underwriting?

Great question. So currently we are not set up for that. So we, what we do do in terms of, again, every loan is individually tailored to that individual company. We oftentimes have PIK interest where we have accrued interest where a company will allow them, for instance, if it's a cultivation, new ground-up cultivation facility where it's not producing revenues for, let's say, 12 months, 18 months, We will have it just be simple interest, cash interest, and then PIK interest, a portion of it, and where that interest accrues into later life of the loan when they're actually producing revenue. So that's the only kind of— and we do that quite often, again, to empower these companies, to give them the runway to run their business and become revenue-producing. Warrants is something I did quite heavily in my previous seat, and we're not currently set up for that currently, but I think that's something we will look to do as we do more entrepreneurial-type loans. Right now, we're really living in— we're trying to underwrite to more stable and secure businesses. And as a result, let's call it the 6 term sheets that we have signed today, the average interest rate is around 11.7%. And again, I think that's where we find a lot of comfort in terms of these are good credits, and that's where we'll live and stabilize here in the near term. But in time, time, we want to have the ability to have warrants.

It's great that you're looking for creative ways to expand the offerings and expand the ways that you can work with your clients. I think it's the type of innovation that we need in the banking sector when it comes to the industry. I want to look forward a little bit. We've got about 15 minutes left before we're going to need to wrap this up. And so if you all have some questions, if the audience has got questions, feel free to put it in now. I just want to look forward a little bit to sort of what you see, you know, Sunny, on the, you know, in the immediate term, federal changes. I know you're, you know, constantly watching what's going on on the federal level as far as you know, banking, for example, or other bills or changes that could impact and hopefully expand access to banking for cannabis businesses. So where do you see this going over the next year or a couple of years?

Well, I certainly think that safe banking or some form of safe banking will eventually pass both the House and the Senate and work in favor of the industry and have more financial institutions actually actually enter the market. What we are seeing is more financial institutions enter the market with or without safe banking, and that's very interesting that they have agreed that permission to do it for 7 or 8 years constitutes permission for other financial institutions. The concerning factor is financial institutions that may jump into it that don't know the demands on compliance and resources necessary to fulfill their BSA obligations. Safe banking will never take BSA obligations away from the financial institution, and that is the expensive part. Yes, it takes away the ability to prosecute officers and directors simply for banking cannabis, but BSA is where they can find you, you know, per CTR you did wrong or per SAR you did wrong, and, you know, any dollar amount times, you know, $12,000 a year is going to be too much for us to absorb, and we've seen levies against financial institutions of $140 million depending on the size of the institution. So those are the things financial institutions fear, not fulfilling BSA obligations. That regulatory pressure, even though we used it to our advantage to fine-tune our program, that can also resort and result in formal actions against a financial institution. And what we're starting to see now that the regulators are trained far better and they're starting to standardize their operations among amongst regulators and understand what's necessary to bank cannabis, the pressure is starting to increase on some of these financial institutions who are not doing sufficiently or not doing— not fulfilling their BSA obligations sufficiently. And so we're seeing formal actions and those formal actions, and if you're looking for a bank account as an industry participant, you want to take a look to see if there's any formal actions and it usually will be against the bank, and it may be very ambiguous and under a BSA heading, but it could indicate that your bank may exit at some point in time. So always keep your eye on the financial institution and do your own due diligence on that financial institution to make sure that they're rock solid, or have a backup account someplace else and make sure that you can transition easily to another financial institution if you're jumping in with somebody who's new. I think that they certainly have better tools at this point in time to do the job, and they certainly have better examples than we had in 2015. But at the same time, that regulator pressure is pretty much everything. And one of the questions you should ask them when you're walking in the door is, how many examinations have you been through with cannabis banking, and how has that gone for you?

Yeah, I mean, we talk about the difficulty in establishing a relationship with a banking partner, and the last thing you want to do is have to go through that that onboarding process and the getting-to-know-you process just to have them, you know, leave, you know, leave you high and dry 6 months later and for you to have to go through that process again with somebody else. I know you all make the onboarding process as easy as possible. That's not the case for most other financial partners.

Onboarding is, is Certainly one of the most important things we do, and it is because we are the gatekeepers to the financial system, and we have to know that business before we open that account and really know them well. But, you know, BSA doesn't stop there at KYC onboarding. BSA, a really good BSA program, will also find illicit activities within accounts. So there isn't— it isn't like we process one illicit dollar and they're going to throw us out. Is can we pick out those clients who might not be playing well in the sandbox and remove them from the financial system? So BSA has more than one obligation there.

Right. So, yeah, I mean, listen, Safe Harbor has gotten a lot of attention, rightfully so, but it is not a— well, it's not a sort of easy opt-out. For banks to, you know, to ignore their obligations, their KYC and AML obligation. We have a question from Michael again in the chat about this bill that was introduced by Nancy Mace, South Carolina Republican. You know, while we're talking about federal legislation, I don't know how closely you watch general cannabis legislation, you know, non-banking specific, but this bill that Representative Mace has introduced, you know, got a lot of attention initially, but hasn't kept a lot of legs. It just doesn't seem to have gotten a lot of other legislators sign on to it, you know, what do you think about sort of big sweeping changes on the federal level? I mean, even beyond safe baking, do you see sort of federal deregulation or federal, you know, the end of federal prohibition anytime soon?

Anytime soon is the key there, right? Not anytime soon. I think that there will be a tipping point where federal legalization has to occur, and that isn't going to be until there's really massive legalization throughout all the states. I really think that's going to lead the process, and the states are going to have their own programs, and then when it comes time to talk about cross-border transactions and international— I answered some questions on this yesterday— international transactions, if we don't stay in tune with the activities at the international level, we can cause our own industry to suffer and not be able to compete on a worldwide level. So I think that's when you're going to start to see legislation that might include legalization. And also at that point in time, you know, the whole taxation issue has to be dealt with and the 280E issue has to be dealt with. But we did see that when all that reverse merging activity was going on with Canada, you know, Canada was funding this industry. And yet, you know, our own, our own businesses, our own hedge funds and, and private equity and investors were not getting into it as much as Canada. And so it kind of hindered that, hindered the American side of that border when Canada was willing to put them on an exchange and we weren't willing to put them on an exchange here in the States. So I think we learned a lesson there, and I'm hoping that on an international level we don't see that repeated.

Absolutely. Well, yeah, I think that sort of ties in with what you were talking about earlier with international wires, just sort of toppling another obstacle to this, sort of what I've referred to over the years as unringing the Prohibition bell, which is, it's got its tentacles in so many different areas. It's not just as simple as one piece of legislation, whether it's Representative Mace's legislation or safe banking. There's a lot of different aspects which need to be addressed. To sort of fully normalize cannabis banking.

Yeah.

Yeah.

I think the other two big positives worth mentioning are, you know, the court of public opinion, right? Everyone's in agreement that cannabis is good. It's like 70-something percent. And then on the taxation level, about 20 states are in budget deficit, and the states with the biggest deficits are New York, New Jersey, California, Illinois, and those are, I think you'll see, you know, like New York and New Jersey, for instance, really roll out recreational cannabis in an aggressive way in the next couple of years, especially with their mounting debt situation. So the train's left the station from a state level, from a legality standpoint. So at some point, it's going to really push the federal level legalization with especially some of those big states, the biggest 5 states with the biggest deficits, I think we'll have the biggest cannabis programs in the next couple years. So I think that's really going to drive a lot of leadership and a lot of ownership from the federal level to legalize cannabis.

Really interesting way to frame it. I certainly can see that, and I can see the sort of those budget crunches have a way of actually legislators in the butt.

And one fun fact in my home state of Arizona, which really caught my attention, you know, cannabis became recreationally legal here January 22nd of last year. So let's call it a year and 3 months. There was a news report out yesterday that tax receipts from cannabis surpassed tobacco and liquor sales this past month, which is pretty, pretty astonishing if you think about it. It's only been in You know, it's only been recreationally legal here for 13, 14 months, and it's already surpassing tobacco and liquor. So, you know, I think that's an eye-opener. I think other states like New Jersey's and the New York's of the world aren't ignorant to that.

But yeah, it's a really great point. And really, you know, the recreational component obviously offers a lot more financial advantage for the state, ability to levy higher taxes. And higher fees from recreational customers than they would from medical patients. So, you know, sort of additional incentive. But I guess it's, you know, it's sort of surprising to hear you say it, but I'm not all that surprised when you think about it, given the popularity of these programs and the demand that's out there for, you know, all sorts of customers for cannabis. We've got about 5 minutes left and I want to give you both sort of an opportunity to close out and just, you know, give a little pitch for Safe Harbor and who should get in touch with you. Who are the types of customers, potential customers, that you'd like to hear from the most?

Sure, I'll start and Paul, you can finish. How's that sound?

Sounds good.

So I have to say, you know, when we started the Safe Harbor program in 2015, I said certainly didn't foresee all the exciting things that this would lead to and moving into this SPAC and de-SPAC and onto the NASDAQ, that's been really exciting. But being able to hire the talent to expand on a national level has been even greater. And we are welcoming officers at this point in time like Paul and Tyler and being able to meet the needs of all those states that are legalizing out there. So we're really looking forward to what this is going to bring not only to Safe Harbor, but to the industry and being able to support the industry with the same reliability factor that they've enjoyed from Safe Harbor for the last 7 years. How was that, Paul?

That was good. That was great. And I guess for me on the lending side, you know, if you're a startup and you're, you know, you're an entrepreneur who wants to get in the business, you know, happy to talk to you about your business. Just make sure you have make sure you have some form of equity capital in the business. We can't be your only source of capital. We are, we are at this point just debt financing for you, but happy to hear your business and hear about your growth plans. And then if you're a mature company and you have expensive debt that you want to refinance, or, you know, come talk to us. I think we understand your business from a granular level. And that's, you know, the last 5 years I've been pretty actively involved with a number of companies on an operator level. So I think I understand the business and we understand the business. So we're here to empower your business and help you grow. So that's the advertisement for me.

Great. Yeah, certainly there's a lot of newcomers in the industry, but I would imagine there are more people out there with burdensome debt that needs to be refinanced. You just hear it all the time. Something that they got into a couple of years ago and not quite realizing where it was going to go and something that's really holding back their business. Business away. So certainly those people who are on here today, who are listening to this recording, I'd really encourage you to look at your debt stack and be honest with yourself about what, you know, that structure sort of means for your business and how it may be holding you back. It's a tough conversation to have, but once you sort of find a better alternative, it can be very freeing. So really, Paul and Sundy, thank you so much for joining me and thank you for all the work that you're doing to create these, you know, these great products and provide these services to the cannabis industry. It's really— it really infuses a great deal of opportunity and growth potential for cannabis businesses who desperately need it.

Thanks for having us.

Thank you, Jason.

I hope you continue to do great work. Sundy and Paul, what's the best way to get in touch with you? Is it LinkedIn or or Facebook or just directly through email, or how should everybody reach out to you?

Well, certainly LinkedIn is very active, as many of you already know, but I think if you use our first names, paul@shfinancial or sundy@shfinancial.org, you'll find both of us.

Wonderful. So yeah, go ahead and reach out to them. Certainly you can find me if you'd like to have a conversation about any sort of the legal aspects of your business, particularly those on the East Coast, Mid-Atlantic of the United States where I'm typically working, which is sort of DC and Maryland. And my firm, you know, services businesses all over the country and all over the world. If you have specific legal questions, reach out to me and watch for further updates updates on the Cannabis Business Key, uh, through the Cannabis Business Executive or through my newsletter. Uh, we'll be continuing to talk about this. And go ahead and share this recording with a friend, uh, or, um, business partner of yours who you think may benefit from hearing about this conversation. Reach out to Paul on Sunday and get all your banking services set up for your business so you can succeed. Thank you all very much. Uh, thank you everybody for joining me today. I hope you have a wonderful rest of your day, and we'll see you here next month. Have a great day.

Take care.