Most Florida banks avoid cannabis and related companies — given the obstacles and legal uncertainty. Others see opportunity in the mushrooming industry.
Alex Levine knows what’s like to be told by his bank to take a hike. Like the time in 2015, his Colorado retail cannabis business flush with cash from sales, when he sat outside an ATM shoving bills into the kiosk at night. Call it the dope deposit.
That was when Wells Fargo, mired in a public relations crisis with an account fraud scandal, gave Levine short notice it was dumping him, and his company, Green Dragon, as clients. Levine, whose Denver-based business entered the Florida medical marijuana market in late 2020 with plans to open at least 10 locations in the state in 2021, says the banking scramble was a drag. “We had one year where we really didn’t have any banking,” Levine says, citing third-party lenders with double-digit percentage loan terms as one of several issues. “It was a horrible experience.”
Green Dragon’s banking is on better ground now — though Levine says it’s mostly self-financing its Florida expansion. But Levine’s banking challenges are just one of multiple examples of the struggles people and businesses in cannabis and related industries — hemp and CBD products particularly — face in maintaining strong banking relationships.
The problem on the banking side is simple, yet tantalizingly frustrating: community bankers in Florida constantly look for underserved or under-banked markets to boost assets and deposits. Cannabis, with its rapid growth and cash-heavy nature, would seem to be a perfect fit. To wit: Florida processed $1.2 billion in medical cannabis sales in 2020 and statewide annual sales are projected to top $6 billion by 2030, according to a March report from marijuana industry research firm Leafly and Whitney Economics. The industry, the report also found, added 14,891 jobs in 2020 and now supports 31,444 total jobs.
Yet even though Florida approved medical marijuana in a 2016 amendment, possessing, using, growing and selling marijuana remains a federal offense. So banks that get into the sector take a big risk with auditors and regulators, including being part of any potential money laundering investigation. Several federal and state regulatory agencies have released guidance memos over the past few years that provide banks a bit of wiggle room on banking cannabis — while also creating a gray area.
Florida Bankers Association President Alex Sanchez addressed the situation in a note to members March 30, also commenting on pending federal legislation called the SAFE Banking Act. That law, the Secure and Fair Enforcement Act, would provide safe harbor for banks and other financial institutions to provide services to the cannabis sector, including loans. The U.S. House Financial Services Committee approved an updated version of the bill in late March and it has some bipartisan support in the Senate.
“As I have shared with you in the past, a bank should be able to bank a legal business,” Sanchez writes. “In Florida now and in a growing number of states, (the) cannabis business is legal but most banks are hesitant, with few exceptions, in banking that industry…even FDIC Chairman (Jelena) McWilliams told us in Washington, D.C last year, her examiners have to enforce federal regulations and laws, and marijuana use is still a federal offense.”
Despite the laws and lingering warnings, some swashbuckling Florida bankers and financial services entrepreneurs are attempting to fill the cannabis banking void. They are doing it slowly, yet sometimes aggressively, with a major time and financial investment in training employees, education and protocols. One reason for the intense training is to prove to regulators that the clients and money the banks are working with are for legitimate, state-legalized businesses. It’s a dual goal: to meet current cannabis banking needs and also be positioned to become a market leader if and when federal laws are reformed.
Lead the way
‘We had one year where we really didn’t have any banking. It was a horrible experience.’ Alex Levine, Green Dragon
On a national scale, through December 2020 there were 684 banks and credit unions that serviced the cannabis industry. That’s down from 739 in December 2019, according to a Financial Crimes Enforcement Network (FinCEN) report. The drop, the report states, could stem from some marijuana businesses being closed during the pandemic.
Two of the statewide banking leaders in this area are Lake City-based First Federal Bank, a $3 billion institution, and Jacksonville-based Florida Capital Bank, with $475.6 million in assets through Dec. 31. First Federal has a branch in Apollo Beach and a loan office in Tampa, while Florida Capital has a branch in Tampa.
First Federal currently has about 650 cannabis and hemp-related business accounts. The clients are broken into tiers, says Dana Chaves, senior vice president and director of specialty banking services at First Federal. The first tier are companies that touch marijuana at some point in the supply chain, from cultivators to labs to dispensaries. The second tier, such as software providers, ad agencies and payment processors, provide products and services to the first tier.
First Federal works with Tier 1 clients in Florida and Arizona, offering debit cards, secured and business credit cards, treasury management services, armored courier services and some real estate lending. It also offers those services to Tier 2 clients.
A Bradenton Beach resident, Chaves, 55, gets several calls a week from people in cannabis asking ‘how do I’ questions — how can they get a loan, open an account and other queries. Other calls come from people in situations Levine at Green Dragon faced — clients cut loose by their bank. “It seems like there’s always a need we are trying to fill,” Chaves says. “A lot of customers need more and more services, but with the current laws it’s really hard to build a business around this, so we are growing it gradually.”
First Federal recruited Chaves from a likely source: Colorado. That’s where she oversaw membership growth for the Partner Colorado Credit Union, developing a cannabis business plan there from 2014-2016. “First Federal has always been willing to take on clients in difficult industries,” Chaves says of the community-based mutual bank, founded in 1962. “We believe we have the compliance put in place to make this work. We want set a foundation for this, not be reactionary.”
Florida Capital also seeks to set a foundation in the sector, with a concentration in hemp and CBD product businesses; it hasn’t yet taken on any medical marijuana companies as clients. Stewart Baker, the bank’s managing director of specialty banking, electronic payments and prepaid cards, says the key difference is medical marijuana and recreational marijuana has THC. That’s the psychoactive compound in cannabis that produces the high — and what makes it illegal. Legal CBD and hemp products, while extracted from cannabis, have 0.3% or less THC.
Baker, in banking for 40 years and with Florida Capital since 2010, recalls a meeting he had with cannabis industry consultant Holly Bell in late 2018. Florida Commissioner of Agriculture Nikki Fried had just appointed Bell the state’s director of cannabis, a new post, and Baker was curious about the banking side of the business. “I came back to the office and told our team ‘this is a business we need to be in. I think this will be a significant industry in Florida.’”
With potential clients in everything from hemp textiles to CBD beverages, Baker made a good call. Hemp and CBD clients now make up about 5% of the bank’s business, a figure Baker predicts will grow significantly, with two people in the bank assigned just to those clients. “There’s a lot of capital looking for a place to go,” says Baker, who, like Chaves, hears from several companies a week that have been neglected or fired from a previous bank or lender. “It’s a nascent industry and we are on the ground floor. That’s why we have made such a big investment in it.”
One of First Federal’s first, and most notable, clients in medical cannabis was AltMed Enterprises. Founded in 2014 in Sarasota, AltMed merged with Chicago-based Verano in late 2020. The merger created a publicly-traded cannabis giant, with some $500 million in combined revenue in 2020.
While Verano President John Tipton, an AltMed executive who stayed on after the merger, says the company has always been profitable, it missed not having a bank in the early going. “We (were) excluded from the typical bank borrowing that all businesses like to do to secure funds quickly for expansion and growth,” Tipton says, adding First Federal wooed them in 2019.
A company like AltMed or Levin’s Green Dragon is what got Sarasota resident Todd Kleperis thinking about the financing side of the cannabis sector — but not through a bank. Kleperis moved to the area five years ago from California, where he had built a company, Hardcar Security, that handled armored security for the medical cannabis industry.
An entrepreneur previously in robotics, Kleperis saw the lack of banking services in the sector up-close with Hardcar. And like others, Kleperis had also seen and heard the crazy stories of the underbanked in cannabis. That goes from businesses that lugged backpacks of cash to check-cashing places to make payroll to a cannabis executive turned down for a mortgage when working in the industry.
To address the need, in 2019 Kleperis, 50, founded PayZel, what he calls a portal for licensed cannabis institutions to safely and securely bank cash, in addition to accessing other banking services. “If we had a funnel to drive all that volume down through the right banks with the right people, we’d radically change the way the financial system happens for the cannabis industry,” Kleperis says in a video promoting PayZel.
The PayZel system, says Kleperis, is up and running and uses artificial intelligence and partner banks to work with cannabis clients. He connects the sides and takes a fee through PayZel. With high hopes, Kleperis has invested his own money into PayZel, around $1 million. He plans to start a multimillion-dollar capital raise soon, possibly engaging with Tampa-based Florida Funders. PayZel has a five-person management team and Kleperis hopes to hire more people locally to build out the system.
Kleperis has recruited five to seven banks nationally for PayZel so far, but for it to work long-term, he says he will need scale, and more like 50 banks. Like many others, that’s the rub — and Kleperis’ biggest challenge. “Finding banks willing to do this,” he says, “is like finding the Loch Ness Monster.”