Candace Franks is matter-of-fact about the conflict between federal and state laws regarding marijuana. “We could use some help,” the state bank commissioner said late last month.
And help may be on the horizon — albeit still years away. On Feb. 13, the Consumer Protection & Financial Services Subcommittee of the U.S. House Financial Services Committee held its first hearing on issues surrounding access to banking services for MRBs — marijuana-related businesses.
In the meantime, a Little Rock company that originally planned to offer medical marijuana consumers a cashless method for filling their prescriptions has broadened its scope to include financing for MRBs.
Originally known as MediPays, the company has rebranded as Abaca.
“When we came up with MediPays, we thought we were tackling a payment problem, but it is really a financial services problem,” Dan Roda, chief legal officer of Abaca, told Arkansas Business.
The payment problem was this: Marijuana is illegal under federal law, and banks insured by the Federal Deposit Insurance Corp. aren’t supposed to provide services to illegal businesses, creating an industry that was almost all-cash, with the problems and temptations that creates. With no appetite for decriminalization by the Republicans who controlled Congress, the Obama administration created a burdensome work-around, but few banks and credit card issuers were willing to take the risk.
The arrival of the Trump administration — and especially Trump’s marijuana-averse first attorney general, Jeff Sessions — meant the Obama-era forbearance might not last forever. It was into that environment that Roda and fellow investors Brian Bauer, John Foley and Greg Ellis incorporated Rockview Digital Solutions LLC and announced in December 2017 that it would do business as MediPays.
They had lined up an Arkansas-chartered bank — still not publicly identified — to provide deposit accounts to patients who opted to use the MediPays app for transactions with dispensaries that chose to participate in the payment plan.
By that time, more than a year had already passed since Arkansas voters approved a state constitutional amendment legalizing medical marijuana, and the rush was on to get in on the ground floor of a new industry. “Something like a marijuana fever spread across the state,” Roda said, noting that some 400 parcels of real estate were optioned as scores of applicants for cultivation or dispensary licenses got their ducks in a row.
But the wait for legal sales to begin was not even half over. While Arkansas was “foot-dragging” and Democrats were gearing up to resume control of the U.S. House of Representatives, Roda spent four months in Colorado participating in a business accelerator program specifically for MRBs.
► Licensed Marijuana Cultivators in Arkansas, with investors ranked by ownership stake.
Roda called Colorado “Silicon Mountain,” the place where technology businesses and the country’s most mature cannabis market converge. There he became convinced that the need for lending to the marijuana industry was at least as great as the need for bank accounts, and the scope — and name — of MediPays changed.
MediPays will still be the name of an application that patients with a doctor’s prescription can download to their smartphones and use to pay for medical marijuana. As legalization of marijuana, for medicinal or recreational use, has spread rapidly, debit card networks have become more willing to work with MRBs, so Roda said MediPays would also offer customers a debit option for cashless transactions.
“It’s one thing if you have a building full of marijuana and another thing if you have a building full of marijuana and a couple of hundred thousand dollars in cash,” Roda said.
Credit card issuers are still hesitant to extend merchant accounts to MRBs, he said. And Roda is not at all confident that Congress will protect banks by enacting the Secure & Fair Enforcement (SAFE) Banking Act.
“It’s got a shot in the House, but it doesn’t seem to have a chance in the Senate,” he said.
So Abaca is lining up additional services for MRBs. The company will provide deposit accounts and arrange secure transporters to move cash from dispensaries directly into the Federal Reserve System while being credited to the company’s account at the partner bank.
Arkansas transporters that Abaca is working with are Safe Path Transportation LLC of Greenbrier, led by John Irvin, and Liberty Defense Group of Fayetteville, founded by Ryan Hansen and Jonathan Reeves.
Making loans to MRBs is an even squishier proposition for FDIC-insured lenders than accepting their deposits, so Abaca is also lining up nontraditional “hard money lenders” willing to make loans carrying interest rates in the high teens with maturities of about two years.
“Think of it as Lending Tree for cannabis businesses,” Roda said.