Rising High: Exclusive talk with financial services firm Safe Harbor Financial

In this edition of “Rising High,” The Fly conducted an exclusive interview with Sundie Seefried, founder and chief executive officer of Safe Harbor Financial (SHFS), a financial services provider to the regulated cannabis industry. Here are some highlights:

CANNABIS LENDING: SHF Holdings, Inc., doing business as Safe Harbor Financial, is a Colorado-based financial services provider offering compliance, monitoring and validation services to financial institutions while providing traditional banking services to cannabis, hemp, CBD and ancillary operators. The company has facilitated over $20B in deposit transactions for businesses with operations spanning over 40 states and territories in regulated cannabis markets.

As competition continues to accelerate within the cannabis industry, Seefried pointed to Safe Harbor’s reliability as a key differentiator for the firm. “We’re now in our ninth year, heading into our tenth, and the cannabis industry is very aware that reliability isn’t always out there,” she said.  “They definitely rely on our ability to facilitate reliable and normalized banking services.” The CEO added Safe Harbor has also positioned itself with greater access to balance sheet capacity, giving the company another edge. “That will allow us to work with multi-state operators and facilitate all their balances and all their accounts without the limitations they may face with other financial institutions,” she said. “We also offer lending products at very competitive rates to our clients.”

CREDIT PRODUCTS: In September, Safe Harbor announced the launch of its new portfolio of credit products to now include access to Lines of Credit, available to cannabis businesses nationwide. Under the new and expanded programs, the company, along with its financial institution partners, will offer credit facilities ranging from $25,000 to $1M at market-leading, normalized rates.  “Cannabis companies have such high tax obligations that often they run short, whether it is payday or paying the bills,” Seefried said. “The line of the credit addition is really going to be most helpful to the cannabis clients themselves. They will be able to utilize that as necessary for business under our approval and have access to that cash.”

Credit will be based upon normal deposits clients make into their account monthly, the CEO said. “Since we know our clients really well, we can pull that data and move those line of credit applications through very rapidly,” she said.

LOAN ORIGINATION: Additionally in September, the company announced it had originated a $3M loan for a Washington-based organic, THC-infused beverage company to support its expansion into the California market. “We actually have been very active in the loan space this year,” Seefried said. “We are seeking these clients specifically because there is a lot of good opportunity out there for us to make good solid loans with real estate liens.”

She noted Safe Harbor has currently been offering national loans for multi-state operators. “We wanted to do the whole portfolio for a lot of these companies and span all the states,” the CEO said. “Of course, the more beneficial states for Safe Harbor are going to be those limited license states, but we really look at the company dynamics and their financials to make sure that they can afford the debt.”

$20B MILESTONE: Safe Harbor announced in August that since its inception in 2015, it has facilitated the processing of over $20B in cannabis-related funds through its trusted network of partner banks. “The biggest thing that that $20B represents is the fact that the financial system trusts Safe Harbor to monitor those funds to make sure we have our BSA obligations fulfilled and the money entering the system from the cannabis industry is not illicit,” Seefried said. “It really benefits the companies because it legitimizes them as they work with Safe Harbor and our partner financial institutions.”

SECOND QUARTER EARNINGS: Additionally in August, Safe Harbor reported a second quarter loss per share of (40c) on revenue of $4.6M, compared to 0c per share on revenue of $1.9M for the same period last year. The company also reported total deposits increased 36% to $1.1B year-over-year and monthly average number of accounts held with financial institution clients increased 65% to 1,002. Safe Harbor also guided to 2023 revenue of $15.3M-$16.3M. “The results show that we are growing,” the CEO said. “That’s really important to the investors that we are moving, especially on the revenue end, that we are seeing good increases year-over-year.”

She noted there are a couple factors that went into Safe Harbor’s revenue forecast. “By the end of this quarter we will have funded $45M in loans on the balance sheet of our financial institution partners,” Seefried said. “Interest on the loans, along with origination fees and service fees, contribute greatly to the increased revenue of company and in a longer-term way. It gives us a long-term relationship and income stream from lending. It’s a really solid line of business to have pushed and grown in the last year.”

She added that the Federal Reserve’s raising of interest rates also contributes to the guidance. “We earn interest on our deposits at our partner financial institutions,” the CEO said. “It used to be down under 1% maybe a year ago or so. The Fed is now paying approximately 5%, so we are earning a good amount of investment income on our deposit base.”

SAFER BANKING: A U.S. Senate committee recently voted to advance The Secure and Fair Enforcement Regulation Banking Act bill, which seeks to ensure that all businesses, including cannabis businesses, have access to deposit accounts, insurance and other financial services. The bill, which was introduced by a bipartisan group of senators, will now proceed to the Senate floor. “Any legislation that we can get passed in Washington at this point in time for the industry is a positive step forward,” Seefried said. “We all know that Washington does things incrementally, and we know that the SAFE Banking Act has been up multiple times and has failed multiple times.”

She said passage would be good for the space as it removes the prosecution factor for financial institution board members and officers for banking cannabis. “That is huge for the industry because more financial institutions will actually consider banking those cannabis clients or working with Safe Harbor to bank those clients,” the CEO said.  “As far as it moving through, it’s a great question for all of us. I was not real positive about it, but I did have the chance to talk with the honorable Ed Perlmutter at length in terms of his thoughts and I think there is a lot of positive discussion there.”

She noted certain measures could be added to the bill that may make it difficult to pass. “I’m pretty bullish on that it may be the right time and the same thing for 2024, because it is going to be an election year,” Seefried said. “It is going to be important that the cannabis industry get recognized as a legitimate industry and I think it’s going to be positive as we move into 2024.”

Even if the bill passes, challenges will still exist for financial institutions banking cannabis in fulfilling their BSA obligations, she said. “Those can be pretty extensive and not only require expertise, but additional resources from financial institutions,” the CEO said. “Many financial institutions won’t bank cash-intensive businesses, which is exactly what cannabis is, because it is difficult to monitor on a BSA level. That’s going to continue as the legislation does not change BSA obligations.”

SCHEDULING: In August, the U.S. Department of Health and Human Services made a recommendation to the Drug Enforcement Agency that cannabis be moved from Schedule I to Schedule III under the Controlled Substances Act. “This would be a huge, huge step forward for the industry,” Seefried said. “I was worried about this being just medicinal and not including adult-use, but with my discussion with Ed Perlmutter he said they wouldn’t just reschedule one side of the business.”

She said a rescheduling of medicinal cannabis only would create problems for the banking environment as it breaks companies’ businesses in half. “The greatest impact for the industry to go to Schedule III is obviously the removal of 280E, which is the fact that cannabis businesses can’t take normal business deductions other than cost of goods,” the CEO said. “This will increase revenue immediately for the industry as their tax liabilities are reduced. They are effectively taxed over 75% versus a normal business so this a major step forward for them should that happen in 2024.”

CHALLENGES: When asked about the largest hurdles facing the cannabis space, Seefried pointed to the state-to-state regulatory environment. “Every state has different regulations, and this forces a lot of expense on the companies to actually manage different regulatory environments,” she said. “When they have a Nevada operation and a Colorado operation, they still have to keep their money in separate bank accounts and be able to manage their money to those different regulatory environments.”

The CEO added if the U.S. can align cross-border activities and regulatory environments, it will create even greater efficiencies for cannabis companies down the road. “But even with going to a Schedule III or total legalization, how do you get 38 states to start agreeing on one way to manage cannabis across state lines?,” she said.  “That is going to be the biggest challenge going forward through any legislation and legalization that goes on.”

OPPORTUNITIES: As the cannabis sector develops, the CEO said she sees the biggest opportunities for cannabis companies in brand management and vertical integration. “It’s really about getting their name out there and having control of their supply chain,” she said. “Vertical integration is important and being able to control the entire line of business, but I also think that single-service providers can ensure they have very solid vendor relationships, which can carry them across the line of success. It’s just a matter of being able to manage it efficiently.”

Looking at Safe Harbor, Seefried said she is most excited about the company’s national expansion plans and having access to a greater balance sheet. “We’re excited about being able to make loans at market rates and being able to meet the needs of the industry, which is exactly how we built Safe Harbor way back in January of 2015,” she said.  “We’re focused on being there for the industry, being reliable and having good, solid banking options for all of our clients in conjunction with our financial institutions.”

CANNABIS/PSYCHEDELIC STOCKS: Publicly-traded companies in the space include Aleafia Health (ALEAF), Acreage (ACRHF), Atai Life Sciences (ATAI), Audacious (AUSAF), Aurora Cannabis (ACB), Avant Brands (AVTBF), Ayr Wellness (AYRWF), Awakn Life Sciences (AWKNF), Body and Mind (BMMJ), BZAM (BZAMF), Cannara Biotech (LOVFF), Canopy Growth (CGC), Chicago Atlantic (REFI), Clearmind (CMND), Clever Leaves (CLVR), CordovaCann (LVRLF), Cresco Labs (CRLBF), Cronos Group (CRON), Columbia Care (CCHWF), Compass Pathways (CMPS), CURE Pharmaceutical (CURR), Curaleaf (CURLF), CV Sciences (CVSI), Cybin (CYBN), Delic Holdings (DELCF), Delta 9 (DLTNF), Entourage Health (ETRGF), Enveric Biosciences (ENVB), Fire & Flower (FFLWF), Flora Growth (FLGC), General Cannabis (CANN), Goodness Growth (GDNSF), Greenlane (GNLN), Green Thumb (GTBIF), GrowGeneration (GRWG), Hemp (HEMP), High Tide (HITI), India Globalization Capital (IGC), Indiva (NDVAF), Innovative Industrial Properties (IIPR), InterCure (INCR), IM Cannabis (IMCC), Wellbeing Digital (KONEF), Khiron Life Sciences (KHRNF), Lowell Farms (LOWLF), Lotus Ventures (LTTSF), Lucy Scientific Discovery (LSDI), MediPharm (MEDIF), MedMen (MMNFF), MindMed (MNMD), NewLake Capital (NLCP), Numinus (NUMIF), Organigram (OGI), Planet 13 (PLNHF), Reunion Neuroscience (REUN), Revitalist (RVLWF), RIV Capital (CNPOF), Relmada (RLMD), RYAH Group (RYAHF), Small Pharma (DMTTF), SNDL (SNDL), Sproutly (SRUTF), Skye Biosciences (SKYE), Stem Holdings (STMH), Sunniva (SNNVF), TerrAscend (TRSSF), Tetra Bio-Pharma (TBPMF), Tilray (TLRY), Trulieve (TCNNF), Tryp Therapeutics (TRYPF), Verano (VRNOF), Village Farms (VFF), Wesana Health (WSNAF), Zynerba (ZYNE) and 4Front Ventures (FFNTF).