By Ray Birch
ARVADA, Colo.—Expanding its marijuana business services to include lending will bring Partner Colorado CU at least $10 million in additional loan dollars this year, a conservative total the credit union projects could easily triple based on demand.
But the $506-million Partner Colorado, a pioneer among FIs in serving legal pot businesses, is proceeding cautiously in moving into lending to cannabis businesses, as the move m
akes an already intricate business line more complicated.
As CUToday.info reported earlier, Partner Colorado recently introduced its first lending program for cannabis private banking clients. The credit union operates the CUSO Safe Harbor Services, which offers cannabis banking solutions to other credit unions.
“Now in our sixth year of cannabis banking, we now have the experience and knowledge required to evaluate lending risk,” said Sundie Seefried, CEO of Partner Colorado CU.
The first loan products are real estate loans for properties that contain an existing structure, including new loans and refinances.
The credit union is making the loans to those pot businesses it knows best—its 500-plus private banking clients that have a combined cash flow of over $200 million per month.
‘More Demand Than We Can Handle’
Partner Colorado President and CFO Doug Fagan said the organization has “more (cannabis) loan volume than we can handle. We have a waiting list of applicants and we're looking at some of our Safe Harbor affiliated credit unions to see if they want to partner with us on loan participations. We have the capacity to take more of this business, but we're going into this very conservatively—not taking a big risk at the outset. We’ll do this for about a year and reevaluate this business before we take on any more risk. Right now we could easily triple our volume.”
The risks that come with lending are similar to those with banking pot business money, according to Fagan. He explained the credit union has to know where the money is coming from to pay the loans, to make sure the funds that cover the monthly payment are not from illicit sources. The credit union also faces additional risk from lending to marijuana businesses, in that forfeiture and seizure laws come into play.
Seefried explained since the credit union is lending money to a marijuana business it can be seen as helping that business to grow. And if the pot company is involved in illegal activity and is convicted, the forfeiture and seizure laws the marijuana business would face could also be directed toward the credit union.
Careful Vetting
“That is why we are very careful with the cannabis businesses we are lending to right now,” explained Seefried. “We are choosing the ones we first started working with six years ago, the ones we know best. This is a very stressful business that takes a lot of resources, energy and time and constant monitoring—making sure you know these companies far better than you know any of the other business members.”
Any cannabis company that does business with Partner Colorado has been carefully vetted over the years, added Seefried, who said the working relationships are close, and processes and procedures are in place to follow the money that comes into the marijuana business.
“We know exactly where every dollar is coming from and where it is going,” stated Seefried.
To make sure loan payments are made with “clean money,” the credit union only allows monthly payments to come from the deposit account the pot business already has in place at Partner Colorado.
“We know full well that the money in those accounts is clean,” said Fagan. “We have accounted for every one of those dollars already.”
Seefried said the credit union understands the forfeiture and seizure risk, and has accounted for that exposure with additional dollars in its provision for loan losses.
‘Solid Footing’
Sundie Seefried
Seefried said that with Partner Colorado now lending money to legal cannabis businesses, the local companies are now on even more solid footing. She explained to secure funds to grow, many pot businesses have had to give up equity in their organization to others, and that money has to be watched very carefully by the credit union.
“Now with them getting money from the credit union, we know those are solid funds. We don’t have to worry about where the money they are getting to grow is coming from,” she said, adding that marijuana businesses can now avoid predatory lenders, as well.
“And during the pandemic, legal marijuana businesses were not allowed to participate in the Paycheck Protection Program,” said Seefried. “So, this is another good reason for us to get into lending, as we are helping some of these companies stay in business.”
Additional Expertise
Fagan said Partner Colorado had to bring in additional expertise before it entered into marijuana business lending.
“We did use some external resources, to assist us with our loan applications,” said Fagan. “There are additional covenants in these loan documents that we don’t have in our traditional loan papers. These are not traditional commercial loans, there is additional risk. So we ask for additional guarantors and additional pieces of documentation, which increases the security of the collateral. It’s important to have this expertise, to understand what your recourse avenues are if things go bad.”
Where Not to Begin
Seefried emphasized credit unions starting out in serving pot businesses should not include lending at the outset.
“Start first with establishing those good, solid account relationships,” she said. “Get to know the businesses and the owners well. Know where the money is coming from. You don’t just jump into lending here. But I think it’s time more credit unions that are ready to lend to legal marijuana businesses do so. It’s time to normalize banking services to these companies, because they have been taken advantage of when it comes to obtaining money to grow over the years.”