While cannabis banking still has its challenges, Safe Harbor Financial is on course to make those challenges a thing of the past. Here to tell us about it is Safe Harbor CEO Sundie Seefried.
Learn more at https://shfinancial.org
[00:57] An inside look at Safe Harbor Financial, a fintech banking platform that provides cannabis companies a safe and 100% compliant place to bank
[1:22] Sundie’s background in the credit union industry and how she came to start Safe Harbor
[2:21] How cannabis banking has evolved over the last few years and where Sundie sees it heading
[4:46] The Safe Banking Act and what it means for cannabis banking
[7:36] Compliance challenges cannabis companies are facing right now
[9:08] What lending in cannabis banking could look like in the next few years
[14:06] How Safe Harbor Financial has grown since its inception in 2015 to manage over 500 cannabis banking accounts
[14:54] Safe Harbor’s onboarding process for new clients
[19:14] How cryptocurrency and stablecoin are changing the cannabis banking landscape
Matthew Kind: Hi, I'm Matthew Kind. Every Monday, look for a fresh new episode where I'll take you behind the scenes and interview the insiders that are shaping the rapidly evolving cannabis industry. Learn more at cannainsider.com. That's C-A-N-N-A insider dot com. Now here's your program.
Cannabis banking is still difficult but improving. Here to tell us more is Sundie Seefried, CEO and President at Safe Harbor Financial. Sundie, welcome back to CannaInsider.
Sundie Seefried: Thanks for having me. Good to be back. It's been a couple of years.
Matthew: Give us a sense of geography. Where are you in the world today?
Sundie: I am still in Denver, and I have recently changed companies over to Safe Harbor Financial, which is a subsidiary of Partner Colorado, where we're focusing 100% on cannabis banking solutions and service.
Matthew: At a high level of Safe Harbor Financial, then would you say it's a bank? Is it a credit union? What is it exactly for people that want to know?
Sundie: It's really more of a FinTech model, and we do everything from services to compliance, lending, same staff, same service. We have about 35 employees at this time. We just have bigger plans to grow the enterprise now.
Matthew: Since it's been a few years since you've been on, can you just give us a little background about you professionally and how you got into the cannabis banking space?
Sundie: Sure. Way back in January of 2015, we decided that there was a lot of issues surrounding safety in Colorado, and so that was really what prod us into the industry, and actually take the risk and bank the cannabis industry. We started with that, but what really sold us on it was when we started meeting the owners, and the owners were really pretty sophisticated and they were compliance-driven. By that point in time, we really just thought they deserve to have a bank account. Credit unions were formed to actually serve the underserved and the unbanked, so it was perfect for us to step in.
Today we've processed over $8 billion in cannabis-related funds, and we're estimating $4 billion alone in 2021.
Matthew: Look at that. You go. At a 10,000 foot level, where are we in cannabis banking today? We've got a lot of people that are not sure, a lot of people that are deep in the weeds and know all the pain points and a lot of people in between. Maybe you can give us just a very high-level overview of where we are right now.
Sundie: I would say the industry is in a pretty good place at this point in time. That's because it's getting competitive in the finance world. We're starting to see a lot more financial institutions actually move into this space. It's a two-edged sword. While the options are there, it also causes the situation where the competition is driving pricing, which is good for the industry, but it also brings in financial institutions who may not be prepared and start cutting corners, which means you may have that situation where they enter it. They don't have enough resources, and they exit the industry at the same time.
Pricing pressures and lowering costs for the cannabis clients is definitely a good thing, so I think that that is going to remain one of the factors that everybody is looking at this point in time. Then mainstream lending is starting to be a great option for real cannabis businesses without having to give up equity.
Matthew: Oh, great. What's the banking environment like for cannabis companies outside of Colorado, is it different?
Sundie: No. Actually, it's pretty much the same. It's getting standardized at this point in time. The regulators are more educated, but there's still discrepancies there. It's still a difficult situation to be in, but they could remain to be the roadblock in terms of cannabis banking moving throughout the country. FIs cannot manage the funds into the system plus regulate the product.
FinCEN was pretty clear on that, and the guidance said that you can rely on the state for that information, but regulators seem to be pushing a little further to say, you got to know all the regulations in all the states. If FinCEN says we can rely on the state, they regulate the product, we need to see the licenses, then we should be monitoring the financial system and protecting the financial system from illicit dollars entering. I still think it's all really good positioning for the industry to get more banking at this point in time.
Matthew: What is the SAFE Banking Act, and where are we on that?
Sundie: As we know, the SAFE Banking Act is through the House at this point in time and being considered in the Senate, but we know also that there are a lot of politics going on in DC, and it's not a top priority. It provides access to banking for the industry in short. It also eliminates the exclusion of financial institutions from the main systems, whether it be the Federal Reserve across the country, or even insurance, that type of thing.
They can't exclude us just because we bank cannabis. The SAFE Banking Act doesn't take all the risk out of banking. It takes the prosecution out of the bankers and officers so that they won't be prosecuted simply for banking the industry that is illegal at the federal level. That's important, but the real risk is BSA risk, and that doesn't change. That is monitored and enforced by FinCEN, and those are the fines that we really fear the most, and that is what causes the compliance work in terms of reporting.
The SAFE Banking Act will propel more financial institutions to enter the industry. May even open up major credit cards, but I even wonder if the major credit cards are going to be able to fight some of these closed-loop systems that have been put in place because they're coming in a little bit lower costs, and they've taken a foothold in some of the states. It might be a good, interesting thing to be watching in the next couple of years.
Matthew: We think closed-loop systems for people that aren't familiar, could you just give a little background on what that means?
Sundie: Sure. A lot of closed-loop systems were created whether they involve ACH payments or EFT type of payments, and they stay out of the mainstream, not using credit cards, not using different venues where it isn't fully approved, mostly in the credit card world, and go straight from consumer to the bank or the financial institution that will bank it. It's kind of closed outside the mainstream financial institution where it has to be at this point in time, but they are able to facilitate payments, and it was a really big deal during COVID when so many people had to--
The delivery systems were put in place and nobody wanted to carry cash all over town. These closed-loop systems made some really good progress during that time, and kept the safety factor high in order to still facilitate the transport of cannabis itself.
Matthew: You're in more of a compliance business than a banking business in some ways, what is compliance like for the average cannabis business, a grower, a retailer, or a processor? What is their lifelike from a compliance point of view?
Sundie: It still remains pretty intense with the greatest level of compliance happening during the onboarding stage. This is really important to know your customer, the KYC aspect. If we're charged as financial institutions to protect the financial system and not allow illicit dollars or illicit players to have access, it's important for us to know the clients coming in the door. It's a really good gatekeeping mechanism. This won't change.
There's still the requirements regardless of what happens with SAFE Banking Act. They're still going to be monitoring on a regular basis. There's still going to be validating and verifying funds that they're from legitimate businesses. Those aspects won't go away for a long time. Probably even not after that, because if you look at casinos and their banking relationships, they run into the same problem where there is black market activities that mar the reputation of the whole industry, whether they're involved in that or not, but banks and financial institutions always have to be watching out for those funds.
Matthew: Is there lending going on in the cannabis banking system now or not really?
Sundie: I think that COVID really helped move lending ahead and credit to the actual cannabis companies. I think this because so many other companies were struggling during COVID, and cannabis businesses were put in the forefront because they were essential. The cannabis industry really performed during that timeframe. We watched our own portfolio continue to grow and thrive, and once they made the adjustments to the shutdown or to curbside pick up or whatever it is, they really performed and continue to perform like a recession-resilient enterprise. I think that gave them a lot of credibility with lenders out there and access to capital but, the thing to remember is forfeiture and seizure is still an issue, and it remains illegal at the federal level, so there's still going to be a premium on the rates, but we're making our loans and commercial real estate at this point in time, between six, six and a half percent. I approved one this morning for six and a half percent on commercial real estate. It's still getting the attention it needs and moving across the country.
Some financial institutions want to move directly into lending and not do the depository relationship, but I would caution against that, because it's necessary to know the customer, know the money, and know the business, and you learn a lot about that in the depository relationship. We're also issuing line of credits to all of our clients in the next couple months so that they can have a little room in their income statement because cash in transit can be an issue if it's delayed in any way, shape or form.
Matthew: Some of these FinTech companies like Kabbage and Square, and they offer kind of like, since they've already KYC'ed their customers, they just say, "Hey, do you need an extra $5,000? Or some amount of money?" Because they look at their cash flow since all the money flows in and out of them to these businesses. Do you see that come into the cannabis business or cannabis industry, where you'll just be able to say, "Yes, I'd like $50,000 at 6% interest rate with a three-year term," and just say yes, and it's instantly approved, because you're seeing the cash go in and out, you have a sense of the cash flow?
Sundie: I don't see it becoming that easy for the industry. I think, though, you'll see it become more mainstream, like getting a normal commercial loan from a financial institution. Commercial loans have so many different facets and layers that they have to jump through so many hoops to get those loans. I believe that the financial institutions will play a bigger role.
The FinTech companies can facilitate operations, but they aren't a depository relationship, which means they are not always directly doing the lending themselves and rely on their financial institution relationship as well to get this job done. I think, though, that again, in the last seven years that we've been in the banking, FinTechs have really improved and really added to the cannabis industry and moving them forward. I really think that the time that it was illegal, and the launch of FinTechs into the cannabis industry provided a lot more services for the cannabis industry.
Matthew: You said that you approved a loan this morning for like around 6%. Is there like a 2% or 3% premium, because it's cannabis industry? You said it's a seizure risk so you have to get some additional yield the cover for that risk. If it was a non-cannabis business, would it be 3% or 4%? Or what would it be?
Sundie: It would definitely be a couple percentages lower. In this instance, again, go back to the fact that this is still illegal at the federal level. On a normal business or commercial loan, you would probably have to do an annual review once a year, on that company. With cannabis, you're still going to the BSA level in order to take the fear out of it, and you're doing a quarterly review on those loans, and making sure that everything is in order, and not major changes, and think about the speed at which this industry is growing and changing.
If you're always doing mergers and acquisitions, and then you're changing operating agreements, just to keep up with this continued emerging market itself requires additional monitoring. That's where you're getting that premium to do that BSA work.
Matthew: Do you have a lot of cannabis companies reaching out?
Sundie: We still do have a lot of cannabis companies. There was a period of time where we were stressing our balance sheet, and we were just growing organically with the clients we have. In the recent last year, we decided to increase, and we're taking on 15 new accounts per month and keeping them on the balance sheet in servicing them, so we have been fortunate to write off our reputation.
In this next phase, the company you're going to see us do a little more aggressive marketing and show ourselves to the industry, and be there for them, and expand the service base for them so that they have a pretty good one-stop shop for services.
Matthew: For potential clients that are listening either in Colorado or outside of Colorado, can you give a sense of what the due diligence is and the paperwork required for onboarding?
Sundie: Sure. For onboarding, again, one of the most important aspects of the entire relationship. If you were to compare it to what you've been through to get a commercial loan in your past, that's similar to what you're going to go through to onboard. Now, if you add cannabis to that, and the FinCEN guidance, it requires you to go into an enhanced due diligence mode, which means more, just more of this and more of that, more understanding of the business, more understanding of the funds that started that business, because again, we can't let illicit dollars get into the system.
Your startup funds become very important to us and the beneficial owners, and making sure that we understand those owners are not coming out of the black market. Add cannabis and alignment with the state that's required and licensing understanding, then you're going to go through, probably, 25% more intense onboarding than a commercial loan.
Matthew: Can you just talk about what kind of disclosure of beneficial owners means and why some clients might view that as a pain point?
Sundie: It is actually one of the bigger pain points in the industry when it comes to onboarding. It requires the disclosure of all owners, and this is a regulatory requirement at this point in time across the country for all commercial businesses to disclose. It's based upon a 25% ownership. Now, a lot of people don't want to be affiliated or known as part of the cannabis industry, but it's also to make sure that there's full disclosure and full transparency. When we talk about enhanced due diligence, financial institutions find themselves lowering that threshold.
Instead of 25%, they'll move it down to 10%, and some even 5%, because again, we are having to protect the financial system from ensuring no illicit dollars run into that financial system. To do that, we've got to know the owner sufficiently at an enhanced due diligence level. It's usually the last paperwork we get back because not everybody wants to disclose that, but it is one that cannot be bent as far as rules go. It has to be completed, and financial institutions don't have a choice.
Matthew: Gosh, it just sounds like oceans of paperwork here. If you could wave a magic wand and change one thing about cannabis banking in the industry in general, what would it be?
Sundie: I think it would have to be regulator oversight. Now that regulators are becoming more aware of cannabis and have educated themselves, the difference between what FDIC does or NCUA does or OCC does, they are not totally aligned, which means they're throwing different expectations on different financial institutions, which can hinder the expansion of banking.
That being said, though, regulators are responsible for their financial institutions and to make sure that they're fulfilling their obligations and meeting regulatory guidelines. It is open for interpretation. It's just a matter of how far they take it. The place where I see them taking it too far is that banks and credit unions need to not only monitor and manage the funds and protect the financial system, but you need to know the product.
I disagree with this, and it's impossible for a financial institution to go out there and understand and know everything that's happening with that product. It's the state's requirement to know the product and know the business as it pertains to cannabis. It's the financial institution's responsibility to know the money. That's their biggest responsibility here.
Matthew: We've talked about innovation a little bit, but there's a ton of innovation going on in FinTech and cryptocurrency, stablecoins, blockchain, in particular, stablecoins, which are cryptocurrencies that are pegged to an asset like a dollar or a euro or a yen. What do you see going on in the space? I know it's growing billions of dollars a month, but do you see anything going on there or what are your thoughts about it?
Sundie: I do see our cannabis companies moving into virtual currency. The stablecoins I see more on maybe state levels where the state is trying to do something, and we're involved in a couple of projects, but they're still in their infancy stage at this point in time so I can't say a lot, but stablecoins is really a no-brainer to me at this point in time if I can get involved in those projects and facilitate the transfer of funds, whether it be for taxes or movement of money or bill payment.
I think that that's a great opportunity for financial institutions. I know that when you say virtual currency or you say crypto, that it's a kiss of death with cannabis, but I believe the systems have caught up. I believe there are some really great companies who can help facilitate the use of virtual currency in the cannabis industry. One of those particular uses would be moving it on an international level.
The only issue we run into is the level of transparency and being able to track the money start to finish. If you're not in a stablecoin environment and a contained environment, we've got to be able to answer to that money moving into the system and moving out of the system, again, which makes it a little more complex for financial institutions.
Matthew: I understand the regulator's needs as you regulate it to make sure there's not a lot of failure, but can you really ensure there's no failure and when you try for that as a goal, then you end up suffocating and sucking all the oxygen out of the innovation. Where are we on that spectrum of over-regulation versus allowing innovation and competitiveness?
Sundie: Financial institutions have always been regulated and for good reason. You want your banker to be conservative with your money. You want the financial institutions to fulfill these regulatory guidelines. There is definitely a burden every time there's an issue within the consumer arena or a commercial arena. It goes back to the financial institution. It's like a mortgage loan. How many people really need all that paperwork, but we're still required to give it.
I think the FinTech model is going to help facilitate new channels for us to do things and work with FinTechs arm in arm to get the job done in a faster pace. The question is going to be, will regulators get more involved with FinTechs, which they will, they're already starting to, and will the financial institutions try to level the playing field between financial institution regulations and FinTech regulations?
If they're going to get access to the financial system, you're going to find that FinTechs will also be subject to a lot of the regulations that we are. It can slow it down, but it can also once again, if you're in a FinTech model, it can also provide more comfort and security to those using those FinTech solutions. It's good for the consumer, good for the business.
Matthew: A lot has changed since we talked a few years back. How do you think cannabis banking is going to evolve over the next three to five years?
Sundie: I think there is a rush to action at this point in time with, again, SAFE Banking Act pending, but I don't know if that's going to happen. Also, that there are enough financial institutions in the market, the rest are starting to follow, and not as slowly as it was. You saw all the legalization in the last couple of years and that legalization or even the discussions of legalization in the states is driving a lot more financial institutions to prepare for it rather than follow. We're seeing a lot of institutions who are shopping around, looking for solutions, how to get into it safe and sound. It's the learning curve those financial institutions need to remember.
What I think you're going to see are a series of entrance and a series of exits due to the regulatory oversight and the requirements and resources necessary to manage cannabis banking. Maybe it's the new sexy hot topic to get into cannabis banking. I don't know, but the fact of the matter is it is still very labor intensive. We still file a good thousand reports a month and that is labor intensive. That's the compliance burden that goes with it.
Matthew: A thousand reports a month? Okay. Let's pivot to some personal development questions here, Sundie, so people can get a sense of who you are personally. You're not this rigid formal banker after hours, you've got a personal life, let's talk about that. What is your favorite unhealthy comfort food, Sundie?
Sundie: [laughs] I have to laugh at this one. It's so very obvious to all my staff members. I have this little problem with Dairy Queen like five days a week and the amount of exercise I have to do to keep up with that bad habit. It's become my go-to pleasure for the year, but I am managing to keep up with it but how long can I do 75 minutes of exercise a day? Even my Dairy Queen knows me way too well.
Matthew: You're talking about are they Blizzards? Is that your thing?
Sundie: [laughs] Yes, the Chocolate Blizzards with peanut butter and cocoa fudge, oh yes. Now you're going to make me want one after this.
Matthew: I think it's a good reward for being on CannaInsider. I think you should treat yourself. I'm going to speak for the audience and I think they agree. Now, let's move on to another question. If you had to be in a totally different career field, just for fun, besides banking or cannabis, what would you do?
Sundie: True story here. I drove to Dairy Queen yesterday, and they have a hiring sign up there. If you ask my siblings, I kid you not, ask my siblings, the only thing I wanted to be growing up was an ice cream lady because there's so much fun and joy in ice cream. It's a family joke to this day. When I drove to Dairy Queen and saw the hiring sign, and the young fella in the window had my Blizzard and I said, "Tell me. If you work here, do you get a free Blizzard every day?"
Matthew: Oh my God.
Sundie: Really I did this. It's sad but maybe someday I'll have my ice cream shop.
Matthew: I think Dairy Queen needs to make a stablecoin and that you would buy that.
Last question here, Sundie. What was the last song that made you sing out loud?
Sundie: Music is a great motivator for me, and I actually make a playlist every year based upon what's going on in that year. Recently, in terms of trying to retire, not being able to retire again, and being so involved in this project, I've been singing along with Chris Stapleton, I got nobody to blame but me.
Matthew: Okay. Good. Sundie, thanks so much for coming on the show. We really appreciate it. Also, thanks for educating us. This is a complex topic, and everybody is always asking me about it so I'm glad you could come on and clear the air on what's going on. Thanks for coming on. How can people find out more about you and connect with you, and find out about how to bank with you?
Sundie: Sure. Thank you for having me as well. I really appreciate you going through all this with me, but if you go to shfinancial.org, so SH for safeharborfinancial.org, that's where you can get more information and inquiries, and we'll speak with you.
Matthew: Great. Good luck in the rest 2021, Sundie.
Sundie: Thank you.
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