Green Check verifies $1 billion in legal cannabis sales each month through its bank compliance software. Inside a company that makes money in an industry where cash is at a premium.
By Will Yakowitz, Forbes Staff
In February 2016, Kevin Hart, former CEO of Apple's computer repair company Techserve, found himself standing inside a safe in Oakland, California, stuffed with millions of dollars in cash. The safe belonged to Harborside, one of the first medical marijuana dispensaries in the country, and the money was considered illegal drug funds under federal law, even though the money was derived from selling medical marijuana under state law. .
Hart, 65, now co-founder and CEO of Florida-based cannabis banking compliance firm Green Check, was there to help build Harborside's payment processing system.
“It's a big safe. The 'Breaking Bad' scene looked like I had turned over my granddaughter's piggy bank,” says Hart, who is not related to the comedian. “I had that much money.”
Hart consulted with legendary California cannabis activist and entrepreneur Dress Wedding, who founded Harborside in 2006 with bank host Steve DeAngelo, to find out why on earth he kept so much money in his pocket. I asked if he was there. Wedding explained that the dispensary was unable to obtain a bank account because marijuana remains illegal at the federal level. That's when Hart realized Harborside and other state-legal cannabis companies were in big trouble. They have little access to America's mainstream financial system.
Although marijuana is legal in 38 states, 25 of which allow recreational sales to adults over 21, it remains illegal under federal law. This means that most banks and payment processors have policies prohibiting transactions with pot providers. Additionally, most payment processors, including majors like Visa and Mastercard, similarly do not allow cannabis transactions on their networks, forcing the industry to make the majority of sales (about 75%) in cash. There is. For an industry expected to generate nearly $35 billion in revenue this year, according to cannabis data firm BDSA, that means billions of dollars are being traded the old-fashioned way, using paper money.
“That was a lightning bolt moment for me,” Hart says. “That's it, I was on a mission to solve this problem. I realized it wasn't about money, it was about data.”
On the flight back to Connecticut, Hart pulled out a notebook and began planning how state-licensed cannabis companies and banking, a highly regulated industry, could work together. And for the next three years, he worked with three of his co-founders, Paul Dunford, John Gadea, and Michael Kennedy, to sway the bank by proving that it was state-chartered but federally illegal. We've developed a compliance software product that can persuade people to cooperate. Every dollar and every product was manufactured and sold in accordance with state law.
As a result, Green Check's software connects to dispensaries' payment operating systems and aggregates inventory, purchase orders, sales, and collects large amounts of financial data to ensure cannabis companies comply with hundreds of rules and regulations. was born. The software then sends that information to the bank to ensure that the financial institution does not violate anti-money laundering regulations or violate the Bank Secrecy Act by doing business with federally illegal companies.
“The biggest misconception about cannabis is that it's federally illegal (to deposit funds from state-legal cannabis sales) and you can't do that. That's not the case, and it probably won't be. “There are,” Hart said. “As long as we can show that we are following the compliance rules of the cannabis industry and the banking industry.”
Green Check's compliance software verifies the legitimacy of approximately $1 billion in cannabis sales across the United States each month. This means it handles approximately 40% of the US $30 billion (annual sales in 2023) legal cannabis market. The company sells its software to more than 150 financial institutions and helps more than 11,000 cannabis businesses, from retailers to growers to manufacturers, obtain and maintain bank accounts. Banks looking to get in on the ground floor of a growing industry are paying about $5,000 a month. Cannabis companies can get the software for free.
It's not a huge amount for a green check. The company posted revenue of $8.3 million last year and expects to generate about $12 million this year. Since 2019, they have raised $19 million at a $90 million valuation from Mendon Venture Partners, Flatiron Venture Partners, Fenway Summer Ventures, and others.
Green Check's largest banking customer is New Jersey-based Valley National Bank, a 100-year-old publicly traded commercial bank with $64 billion in assets. Some of the nation's largest vertically integrated cannabis companies, from Green Thumb Industries to Curaleaf to Trulieve, use Green Check's platform to comply with banking laws. Brinks Security, through its subsidiary PAI, partners with Green Check to provide ATMs to cannabis dispensaries.
“We're making sure the banks keep good money coming in and bad money out,” Hart says. “We are enabling financial services to collaborate with the cannabis industry.”
At the heart of Green Check is a compliance engine. Banks using its software will only work with cannabis companies that are also on the platform. Simply put, cannabis companies publish their books (accounts, vendor agreements, purchase orders, and other details) that allow Green Check to keep track of every product sold and every dollar that comes in. can be verified.
Only 683 banks and credit unions accept deposits from cannabis companies, according to a new report from the U.S. Treasury Department's Financial Crimes Enforcement Network. And there are strict rules for such things.
Brian Watkinson oversees Affinity Federal Credit Union's cannabis banking division. Affinity Federal Credit Union is a New Jersey-based small credit union with $4.1 billion in assets and 20 branches in three states. Since launching the program last year using the Green Check platform, Affinity currently counts approximately 25 cannabis companies as customers. And like many other credit unions, Affinity has to deal with another problem: its inability to leverage funds from cannabis customers. All cash from cannabis companies has to go directly to the Federal Reserve in either Boston or Philadelphia, ironically. (About 80% of the money generated in the cannabis industry goes directly to the Federal Reserve.)
“If that marijuana cash touched my branch, I would lose the safe,” Watkinson says. And despite the jokes about being on the banking side of the marijuana industry, Watkinson knows it's serious business. “There’s nothing glamorous or flashy about what we do,” he says. This is not party time. ”
The green check plugs a hole in the absence of substantive progress on the federal SAFE Banking Act, which gives cannabis companies easier access to the mainstream financial system. In one day this month, we signed 18 cannabis businesses across nine financial institutions within hours. Last year, the company averaged about 70 new businesses per week on its platform.
“We're adding new business every day. There's never been a time where we haven't added new business every day,” Hart said. “There's this cyclone effect in the cannabis industry where every time a new financial institution registers, you get 50 new accounts.”
And even if Congress passes the SAFE Banking Act (which has passed the House of Representatives seven times but has always failed in the Senate) or if the government changes the schedule for marijuana sales, Hart said, is not worried that his business will be in trouble. On the contrary, please be quiet, he says.
“That means more regulations, not less, because they want to be able to track the factories, track the dollars, and put excise taxes on it,” he said. explains. “From now on, it's not just state and local governments coming after you for your taxes. Big Brother is going to come after you for your taxes, and they're going to be after your money. They're going to expect that.” That’s what I’m doing.”
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