A North Little Rock enterprise, launched in the Little Rock Technology Park and given flight with venture capital from Colorado, keeps pioneering its way into the burgeoning billions of cannabis commerce.
“We’re financial services guys solving a niche problem in an explosive industry,” said Dan Roda, co-founder and CEO of Abaca. “We’re the only ones we know of who are doing what we’re doing in this niche industry.”
The Abaca cannabis banking platform is focused on lending, deposit banking and payment processing services. Its lending menu premiered in January 2019 with real estate/mortgage loans, equipment financing, inventory credit lines, purchase order financing and receivables factoring.
“At this point, our (annual) run-rate is about $1.5 million,” Roda said. “Instead of talking about raising capital, we’re talking in terms of gross revenue and net income.”
For now, the company’s clientele is devoted to growers and dispensaries in Arkansas, Oklahoma, Missouri, Illinois and North Dakota. But with medical marijuana legal in 28 additional states, the opportunities for a growing book of business abound.
“There’s a narrative we see repeated, and that is the industry is unbanked,” Roda said. “That’s not really true. It’s underbanked and complicated.”
The complexity is courtesy of the divergent stance toward cannabis of the federal government and 33 states. That differing legality hovers over regulatory compliance for banks. Abaca bridges that chasm of federally regulated lenders doing business with medical marijuana companies that are complying with state laws but technically violating federal law.
The company serves as the middle man, so banks don’t have to deal directly with regulatorily problematic cannabis businesses.
“We work with a small handful of independent banks in different areas,” Roda said. “They’re scattered geographically.”
Lorrie Trogden, president and CEO of the Arkansas Bankers Association, shares the group’s take on the cannabis conundrum.
“Arkansas is one of the 33 states (covering 68 percent of the nation’s population) that have enacted legislation that allows for the production and sale of medical cannabis for adult use, and Arkansas bankers respect that decision,” Trogden said in an email.
“This issue continues to grow, as it could appear on as many as 10 state ballots this November, leaving banks trapped between their mission to serve the financial needs of their communities and the threat of federal enforcement action. Violation of federal law could subject a bank to a loss of its charter and other federal sanctions, thus banks are forced to refuse services to a significant legal sector of their local economies.”
Abaca is a member of the Illinois Bankers Association, and the company is awaiting written confirmation of the verbal affirmation that the Missouri Bankers Association has indeed approved its membership.
“We offered to join the Arkansas Bankers Association, but certain associations are more interested in financial service providers joining than others,” Roda said. “We were not offered membership.”
He is optimistic that whatever changes occur on the regulatory-legal front, Abaca will have an established foundation of business relationships to build on.
“It’s more of a question of when and what flavor will the changes take,” Roda said. “The answer is ‘it depends.’ We could have a lot more competition for lending, but there will be a tidal flow of business. We’re positioning to be part of the wave.”
Roda marks Abaca’s formal start of operations with the formation of Rockview Digital Solution LLC on Sept. 6, 2017. Founded as MediPays, its first financial services relationship was established with a lender three months later.
“But the first actual live customer was in July 2018,” Roda said. “Our first plant-touching customers were in Oklahoma.”
The slow start to the legal medical marijuana market in Arkansas was a factor in the early months, as Oklahoma hit the ground running with its rollout along with Missouri’s legalization.
“That fell into our lap as an opportunity next door,” Roda said. “Illinois was on our radar because of its proximity and its big population center in Chicago. Customers in Oklahoma led to our work in North Dakota because they had interests in licenses up there.”
Armed with $830,000 in venture capital last year, Abaca geared up for more opportunity beyond its Arkansas home.
Abaca’s fundraising ability was enhanced with its graduation in the Summer 2019 cohort of Colorado’s Canopy Boulder accelerator program geared toward products and services in the legal cannabis industry.
WelCan Capital of New York, the lead investors of AFI Capital Partners of Santa Monica, California, and Canopy Boulder were joined by a handful of individuals representing a mix of local and out-of-state financial backers.
“You have to stop starting the business and start running the business,” Roda said. “We’ve turned the corner in our revenue, and we’re looking to expand our business lines.”
In addition to Roda, the core leadership team includes Brian Bauer, chief strategy officer; John Foley, chief financial officer; and Greg Ellis, chief technology officer.
Ellis provided space to begin operating in downtown North Little Rock, but Abaca outgrew the location zoned for office-residential use at 715 N. Main St.
“Nobody was living there, and it was essentially unfurnished residential,” Roda said. “In fact, we had neither room for a couch or a bed.
“Three people were working out of what would’ve been the bedroom, four were working in the living room, and I think one was in the kitchen. We needed to find a bigger place.”
Abaca recently moved four blocks south to 317D Main St., with an option to lease adjoining space. The crew consists of 10 staffers now, and the total is expected to increase to 16 by year’s end.
“It’s nice to have the room to grow,” Roda said. “We’re all pretty excited to be in the new space. We look at our venture as living proof that a fintech company can take root here.”