Oh, no big deal, it’s just a marijuana get-together. A bunch of guys are chatting, about weed, yes. But the talk is also about revenue, and futures, and even the NASDAQ. Turns out, we’re at a convention center for a business expo on cannabis. And it’s crawling with straight-laced financiers and ex-Wall Streeters. The host, Scott Greiper — a former analyst and New York banker who’s president of Viridian Capital Advisors, the country’s first advisory firm and investment bank totally devoted to cannabis — is bullish: “This is going to be the cash crop of the world.”
Welcome to the new Gold Rush — or Green Rush, as they’re calling it. Last year alone, sales of legal pot reached around $2.7 billion, up a whopping 74 percent, from $1.5 billion, in 2013, according to the ArcView Group, an industry investment firm. And as more states have begun to legalize medical and recreational marijuana, business has been booming for specialized financial firms with cannabis financiers. There’s the Fourth Corner Credit Union, a financial institution specifically for the cannabis and hemp sectors, co-founded by Mark Mason, a Colorado-based lawyer. Meanwhile, in Seattle, the private equity group Privateer Holdings just raised $75 million to create a cannabis incubator. It already has major holding investments, including Leafly, the Yelp of pot distributors, and Marley Natural, a company formed with Bob Marley’s family to produce medical marijuana for the U.S.
These players are stepping in at a time when traditional banks are pulling out or avoiding the market altogether because of cumbersome regulatory requirements or in fear of doling out loans that could lead to prosecution for aiding and abetting illegal drug dealers. And they see plenty of growth opportunity; the legal pot market, ArcView forecasts, will top $10 billion by 2018. John Sullivan got a whiff of its potential as CEO of First Security Bank of Nevada, where last year he approached his board of directors with the idea of banking medical marijuana businesses. He quickly made a name for himself as the industry’s go-to banker in Vegas, taking on dozens of clients when other lenders refused to green-light new accounts.
Yet here’s the thing about this sector: It isn’t easy to make a buck. The process often begins by weeding out hucksters from honest folks — something Greiper has spent countless hours on while considering around 1,000 pot companies that have pitched him since he launched Viridian last year. “I gotta tell you, it’s the needle in the haystack,” says Greiper, who has advised or provided capital to around 1 percent of businesses that have pitched him. Then there’s all the grooming that follows a deal. Once Viridian agrees to do business with a company, Greiper says his firm must often “professionalize” the outfit, putting in a board of directors and smoothing out financial operations. It helps, of course, that Viridian’s own board of directors includes Jennifer Love, a former FBI director, as well as Mitch Lowe, a Netflix co-founder.
At the same time, Uncle Sam is increasingly scrutinizing the industry. The Treasury Department, for one, asks banks and investment firms to file regular reports to help monitor suspicious activity. There are other government and industry requirements too, which some say are too onerous to bother with. MBank, an Oregon-based financial institution, set up a program to attract marijuana businesses last year but shut down nearly 100 accounts this year because there was too much due diligence on potential customers and “we didn’t have the resources,” says its CEO Jef Baker. Similarly, First Security’s president, Sanford Sadler, says the process became “a quagmire” for his bank, leading it to pull out of the business and prompting Sullivan to look for a job elsewhere.
To be sure, tighter regulations aren’t stopping everyone from trying to get into the business. Fourth Corner Credit Union says it can’t provide banking services yet because its application was denied by the Federal Reserve Bank of Kansas City, though the credit union recently filed a lawsuit to appeal that decision. Separately, some cannabis providers are now flying under the radar, or making special deals with banks to deposit their pot cash. Taylor West, deputy director of the National Cannabis Industry Association, a trade group, says some of its members have bank accounts with institutions but agree not to disclose who they are on paper to avoid having their account closed. Other businesses, West adds, aren’t up-front about what they do and that, “ultimately, the legal changes haven’t made the impact we thought they would.”
The result is that a lot of businesses still deal in cash, which is where Sullivan hopes his new venture — Integrated Compliance Solutions — will come into play. It doesn’t sound very sexy, but it’s designed to change the way banks deal with cannabis companies by rolling out special ATM-like kiosks for their use. The only difference, Sullivan says: Money gets deposited, instead of withdrawn, and the kiosks use bank secrecy software that’s been specially modified for the cannabis industry to help prevent money laundering. So far, there are more than 50 of these machines set for Illinois, Florida and Nevada, among other states.
Though still in its infancy, some expect the industry to look quite different in five years. Brendan Kennedy, the CEO of Privateer, predicts big banks will be in on the game and that marijuana will be readily available, professionally packaged and branded — just like an iPhone. Even so, he notes, “People forget it’s a plant and the people who are growing the crop are not the next Steve Jobs — they’re farmers.”
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