The cannabis industry’s lack of banking access has created public safety concerns and social equity challenges in the rapidly growing marketplace.
That was the main takeaway from an Oct. 28 virtual briefing titled “UNSAFE Banking & Cannabis,” which was hosted by the U.S. Cannabis Council (USCC).
During the hour-long webinar, which was moderated by USCC CEO Steven Hawkins, several cannabis entrepreneurs and a security expert shared firsthand accounts of how a lack of banking services has impacted them.
Alphonso “Tucky” Blunt, CEO of Blunts + Moore in Oakland, Calif., shared details of robberies at his dispensaries and the public safety risks of the cash-only cannabis industry.
Precious Osagie-Erese, co-founder and chief operating officer of cannabis delivery and logistics company Roll Up Life, based in New Jersey, described her limited options to raise capital and the pressure to accept predatory deals in the industry.
Seun Adedeji, CEO of Elev8 Cannabis in Oregon and Massachusetts, shared his experience with seeking capital as a $50,000 start-up business in the space.
Leo Bridgewater, founder of Bridge H20 in New Jersey and director of veterans outreach for Minorities for Medical Marijuana (M4MM), discussed his efforts to secure a license in New Jersey.
And James Bauer, manager of retail compliance and corporate security for Livwell’s 21 dispensaries across Colorado, provided details of the company’s numerous burglaries and how Livwell has invested millions of dollars into security measures since it launched in 2009.
The Secure and Fair Enforcement (SAFE) Banking Act, which would provide a safe harbor for financial institutions that serve state-legal cannabis businesses, passed the U.S. House for the fifth time last month, this time as part of a defense spending package. The legislation has yet to make progress in the Senate, but the “UNSAFE Banking & Cannabis” panelists agreed that the bill would remove barriers to entry that have kept smaller and minority-owned businesses from growth, as well as eliminate some of the public safety concerns associated with an all-cash industry.
Here, Cannabis Business Times and Cannabis Dispensary round up the key takeaways from each panelist.
1. The lack of banking access harms smaller and minority-owned businesses.
Precious Osagie-Erese, Co-Founder & CEO, Roll Up Life
According to Osagie-Erese’s insights, the inability to access loans is detrimental to many social equity operators. Smaller and minority-owned companies in the industry often feel pressured to accept predatory lending deals because the lack of traditional banking services leaves them few to no other options, she said.
Osagie-Erese also shared that the cannabis industry is “capital-contingent and intensive” and that she had to work “10 times harder” than she would in other industries to get her company up and running.
“We’ve been building this company for the last four to five years,” said Osagie-Erese, who co-founded Roll Up Life with CEO Tiyahnn Bryant. “And to say that there would be challenges is an understatement. … There’s so many things that goes into building a cannabis business from the ground up, especially when you’re on a grassroots level with not that much access to capital. You have to maneuver in a way where it’s not traditional. I almost feel like I’m working backwards. I have to work 10 times harder that I would initially in order to do basic services such as accounting, such as cashflow, such as loans, such as raising capital.”
In the midst of raising capital for the past six months, Roll Up Life, and other social equity entrepreneurs, are often pigeonholed into accepting “predatory deals” because they don’t have access to loans, Osagie-Erese said.
Although she is able to access banking in New Jersey, Osagie-Erese said that her bank is two hours away, does not provide debit services to Roll Up Life and maintains high wire fees for the company.
What’s more, the limited number of banks in the state that do work with cannabis businesses will not have the bandwidth to serve the entire industry as it expands into an adult-use market, Osagie-Erese said.
The bottom line: entrepreneurs, especially minorities, are often turned away from starting a business in the cannabis space because of the banking challenges, Osagie-Erese said.
2. Cannabis businesses were declared ‘essential’ during coronavirus-related shutdowns but were not offered the same financial aid as other essential businesses.
Leo Bridgewater, Founder, Bridge H20; Director of Veterans Outreach, M4MM
In the early days of the COVID-19 pandemic, many states declared cannabis companies “essential businesses” that could remain open during coronavirus-related shutdowns. Despite their essential designation, however, cannabis operators were excluded from the Small Business Administration’s (SBA) disaster assistance due to federal prohibition.
Bridgewater said being denied SBA loans is just another way that cannabis businesses continue to get passed by when it comes to financial services, even when they are considered essential in their communities.
“During the COVID shutdown, cannabis businesses, us entrepreneurs were forced to watch our colleagues in other industries be awarded SBA recovery loans,” he said. “Those were things that were not afforded to us during the shutdown. … These are all things that we have to actually continue to see happen and get passed by while this industry is moving forward.
“And if safe banking, if the larger MSOs is what you’re worried about, then let us give you the real boots-on-the-ground, real-time intel and tell you the ripple effect is mighty for those of us who are already in this business.”
While introducing a broader reform proposal, the Cannabis Administration and Opportunity Act (CAOA), in July, Democratic Sen. Cory Booker said he’d lay himself down and block a standalone effort to pass a safe banking bill in the Senate because it would allow corporations to make a lot more money.
But many small and minority-owned business operators have said safe banking and restorative justice go hand-in-hand in the cannabis industry.
3. All-cash businesses are a public safety risk.
James Bauer, Director of Retail Compliance and Corporate Security, Livwell
Cannabis businesses are targeted by criminals because they know much of the industry deals primarily in cash, according to Bauer’s insights.
“The fact that most cannabis companies are forced to operate in an all-cash business continues to be a public safety risk,” he said. “Cannabis companies are specifically targeted by criminals because they know about the restrictions to banking placed on our industry that we have. The bottom line is criminals know that we are cash-heavy.”
In a 90-day period last year, Livwell had 15 burglaries at its Colorado retail locations, Bauer said, with criminals driving stolen vehicles into the buildings, cutting holes through rooftops and walls, staging lookouts and getaway vehicles, and attacking the stores with pry bars and sledgehammers purchased from local hardware stores. The company’s losses totaled hundreds of thousands of dollars, Bauer noted, with stolen product likely taken out of state and sold on the illicit market.
“That was in 90 days last year,” he said.
In the most recent attempted burglary, which took place around 2 a.m. on Oct. 11, five individuals tried to shut off power to one of Livwell’s dispensaries to disable the cameras and alarms. They proceeded to damage windows and multiple doors to gain entry to the store but were ultimately unsuccessful, largely due to what Bauer described as an investment of millions of dollars into security.
Livwell has over 40 security guards who work around the clock and sit in the dispensaries’ parking lots overnight to be a physical deterrent to potential burglars. The company has also invested in surveillance equipment, Bauer said, and has trained its employees to handle burglaries.
Livwell has also seen what Bauer called a “drastic increase” in construction costs as it installs barriers to prevent future vehicle attacks and secures its doors and windows against break-ins.
Smaller and minority-owned businesses that may not have the same resources as a larger company like Livwell often struggle to put measures in place to guarantee a safe workplace for their employees, Bauer added, further advancing the idea that banking challenges only exacerbate barriers to entry for those entrepreneurs.
4. Logistical issues abound.
Alphonso “Tucky” Blunt, CEO, Blunts + Moore
Blunt, who said he has been selling cannabis since 1996 and is the first ex-felon to operate a dispensary in Oakland, agreed with Bauer about the public safety risks and pointed out the logistical concerns that also arise when running an all-cash business.
“I’ve been selling weed since 1996,” he said. “I’ve always approached it as a business, and to be on this side with a business was always a goal of mine. Did I know that coming into this, on this legal side, selling cannabis would be less safe than I was selling on the street? Nah, I didn’t know that. I was more protected on the street than I am now with having this cash-only business.”
Not only does Blunt have to worry about incoming cash, but then he has to find different avenues to utilize that cash for business expenses, he said.
Blunt said if he has to pay a $15,000 bill, for example, he has to get 15 separate $1,000 money orders from potentially three or four different post offices due to bank policies. He essentially spends all day collecting money to pay one bill, he said, which is simply not how other businesses operate.
“If I could just go into a freakin’ bank and apply for a business loan like a regular business, because I am a business—I have a tax certificate at my store—if I could really just approach a bank and say, ‘Hey, I need some money. Give me a rate, and I’ll pay you back,’ I would be so much better off,” he said.
“We are a business,” he said. “Treat us as such. … It’s impossible for us to win without having the right banking.”
5. Lack of financial support is often the biggest barrier to entry for cannabis entrepreneurs.
Seun Adedeji, CEO, Elev8
When Adedeji launched Elev8, which now operates in both Oregon and Massachusetts, he became what he called the “COE,” or chief of everything, at his company. He was the CEO, budtender, attorney, real estate agent—anything the start-up needed, he was there to provide, since he didn’t have the funds to hire a proper team, he said.
An immigrant from Lagos, Nigeria, Adedeji noted that when he launched Elev8, he slept in his shop for a year, got product on consignment and took on credit card debt to get the business off the ground.
“My journey into the cannabis industry has been a humbling one,” he said. “We started with really nothing. I was very young. I saw the cannabis industry as an emerging market, and I saw a huge opportunity, but I had really a lack of capital. I didn’t have the capital or the know-how or the relationships.”
Many minority-owned businesses get taken advantage of because they can’t afford the right resources, he said, and when put in a position to take on big loans with steep interest rates, they could lose their livelihoods “if they sneeze [or] if they walk in the wrong direction,” Adedeji said.
Now that he has a daughter, Adedeji said he’s willing to do whatever it takes to provide for his family. As a tax-paying business owner, he wants to be recognized as one when it comes to traditional banking, he said.
“We are part of the United States,” he said. “We are invested in our community. We are providing jobs for people. … [Yet] people’s safety, people’s livelihoods are in danger just because we don’t have access to proper banking.”
“We want to just be seen as a regular business,” he said.
6. The SAFE Banking Act is a step forward for the industry.
Steven Hawkins, CEO, U.S. Cannabis Council
Hawkins agreed that smaller and social equity operators are largely the most impacted by the lack of banking services in the cannabis industry, and he noted that within the SAFE Banking Act are mechanisms for change.
“The lack of banking is crippling the cannabis industry from a standpoint of security for the workplace and for workers,” he said. “Also, as we’ve heard very eloquently, the fact that equity operators, people of color with businesses, struggling with businesses, really are hurt by the lack of financial services.”
To move forward, Hawkins said, the industry must continue to have conversations around banking reform and put pressure on lawmakers to advance the SAFE Banking Act.
Until then, he said that while larger companies are more likely to get banking services (if they’re willing to pay more for it), it’s the smaller, minority-owned companies that will continue to suffer.