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Tuesday, May 17, 2022

Fintech Lenders Go Big on Cannabis Industry

Los Angeles investors are puffing up the cannabis fintech industry, providing funding workarounds for companies that have historically been denied access to conventional finance.

West Hollywood-based cannabis fintech lender Bespoke Financial announced on April 13 that it had entered into a strategic partnership with the Calabasas-based PayQwick, “the cannabis industry’s most comprehensive treasury and financial services platform.”
Bespoke, the first Fintech lender in the country to provide debt financing to cannabis companies, said in a statement that the partnership would create a compliant one-stop shop for cannabis businesses, allowing them to access Bespoke’s lending products and PayQwick’s invoicing, electronic bill pay, armored cash car pick-up, wire transfers and other financial services.

In a phone interview with the Business Journal, Bespoke Financial founder and chief executive officer George Mancheril said the lack of access to traditional financial services such as deposit accounts and lines of credit have ranked among the cannabis industry’s most significant roadblocks. Thanks to marijuana’s Schedule 1 status, operators in the cannabis industry haven’t had access to even the most basic benefits of banking.

“Bespoke’s focus is on lending, which is something that never really existed for the cannabis industry,” said Mancheril. “These companies don’t have a ton of capital, they don’t have the finance needed to invest, and they haven’t really been able to leverage [the industry’s] growth.”

He noted that a significant number of cannabis operators are still forced to operate entirely off cash exchanges, an obvious handicap on their commerce potential even as the cannabis industry sees enormous growth year after year. A May 2021 Reuters report found cannabis sales grew 30 percent, to $22 billion, in 2020, but that windfall left the industry with a literal cash pile of $10 billion thanks to the restrictions on banking.

“They’re still north of 80 percent operating off physical dollars,” said Mancheril. “I’ve looked at the cannabis industry growing 30 or 40 percent year over year in the U.S., and it’s incredible they’ve managed to do that despite all of these restrictions.”
That much cash changing hands creates its own compliance headaches, Mancheril said, offering federal laws that require vendors to report cash payments of more than $10,000 as an example. Despite being aware of the problem, Mancheril said legislators haven’t been in a rush to work out a solution.

“Our internal thesis is that we didn’t expect any federal action before 2024, which seemed like a reasonable timeframe for federal legalization,” said Mancheril. “But even if these things do pass in 2024, it would be another year to a year-plus before we would see any actual benefits for the industry.”

Mancheril said cannabis financing is a lucrative market that remains relatively untapped, and its value will only grow as cannabis inches ever closer to federal legalization.
The lack of access to traditional financial services such as deposit accounts and lines of credit has been a major roadblock in the early years of the cannabis industry. The partnership will enable Bespoke’s clients to access preferred deposit fees in and free money transfers to mutual Bespoke and PayQwick customers via PayQwick’s platform.

In return, PayQwick clients receive priority access to qualify for lines of credit with Bespoke based on the underwriting and due-diligence processes cannabis operators currently abide by. The PayQwick platform is available to cannabis businesses operating in Arizona, California, Colorado, Florida, Illinois, Massachusetts, Michigan, Oregon, and Washington. Mancheril said that while Bespoke has branched out to San Francisco, Denver and elsewhere, the bulk of its team is in the Los Angeles area.

“Having our home base here gives us a good fundamental viewpoint, because this is the largest cannabis market that exists in the country and it will stay that way for some time.”

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