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 $21B in deposit transactions for businesses with operations spanning over 41 states and territories in regulated cannabis markets.

As competition continues to accelerate within the cannabis industry, Seefried pointed to Safe Harbor Financial’s reliability as a key differentiator for the firm. “What has always worked for us in the past is still working for us now and that is the reliability of our services,” she said, “We are expanding our services to meet the needs of the industry and we are keeping track of what client needs are.”

The CEO added the company is also able to provide clients with multiple bank accounts through one platform, creating a unique offering. “It is of interest to a lot of them simply because they want the insurance coverage by utilizing multiple financial institutions, and this coverage should be effective, especially after SAFER, to cover their deposits,” she said.

ORIGINATIONS: In March, Safe Harbor Financial announced that it originated a $4.6M credit facility for a Michigan cannabis operator secured by a four-dispensary real estate portfolio. The facility will allow the vertically integrated operator to expand its cultivation and retail operations in the Great Lake State. “One of our fast-growing income elements is interest on loans,” Seefried said. “In the past, we have always relied much more on depositary fees, so our objective in the last year and presently is to grow the loan base to diversify our income in different areas.”

Growing that base allows the company to be more competitive with pricing at a relationship level, she said. “It really is in our best interest to not only keep long-term client relationships, but for Safe Harbor Financial to offset the interest income against relationship fees, depository fees or other program fees of which companies take advantage,” the CEO said. “It becomes a very sticky product for us and clients and it keeps that desired long-term relationship.”

The company also announced in January that it originated a $9M loan to fund the refinancing of a major Colorado cultivation facility in Denver. The $9M loan, which will refinance existing debt, is being funded by Safe Harbor Financial and its partner financial institutions. “I was really pleased to make that loan because I actually met the guarantor on that loan way back in 2015,” Seefried said. “It’s a very, very seasoned client of Safe Harbor Financial. We knew him, we knew his reputation and we knew the facility very well.”

She noted that Partner Colorado CU board members, at which time she was the CEO creating the program, visited the facility back in 2015 for education on cultivation, manufacturing and distribution. “With that type of relationship and history with somebody, it’s really a good thing to be able to make a loan,” the CEO said. “And of course, $9M again, produces a substantial amount of interest income to Safe Harbor Financial as well as creates a diversification of income.”

Additionally in December, the company announced it originated a $1.17M loan for the acquisition and construction of a new adult-use cannabis retail store in Bridgeport, Connecticut. The store will be operating under the Higher Collective brand, a Connecticut-based social equity joint venture. “Any of the loans that we are putting on the books are leading us to a more diversified income revenue source, which is long-term,” Seefried said. “You can gain a depository relationship and it can be gone in six months if things don’t go right. To get a lending relationship, you are looking at a five-year relationship. Any one of the loans that we put on the books, it is relationship-driven, it’s income-driven to the bottom line and it is diversifying our income.”

She added these three recent originations are in three different states as Safe Harbor Financial looks to diversify geographical locations. “We like a diversified portfolio and we are reaching out to clients all across the country,” the CEO said.

LOAN PRODUCTS: Safe Harbor Financial continually makes efforts to expand its suite of financial solutions for the cannabis industry and has been focused on launching lines of credit for clients since the fall, Seefried said. “Cannabis businesses are highly taxed and it is difficult for them to always meet their obligations,” she said. “A line of credit has not always been readily available to them.”

The company is looking at its present client base to understand their deposits and proactively offer them lines of credit, the CEO said. “Then they have a backup credit line in order to meet monthly obligations,” she said. “It is based upon their relationship with us and their depository base. The compliance level that is required in order to bank these companies, understand their money and their flow of money is very important to the financial institutions with who we do business as well as Safe Harbor Financial.

GUIDANCE: In a March investor presentation, Safe Harbor Financial reported 2023 unaudited revenue of $17.56M, beating its second quarter revenue guidance ranging from $15.3M-$16,3M. “Because our investors were asking for some information, we did put the unaudited revenue number in the presentation,” Seefried said. “We wouldn’t have done that if there was going to be a material difference between unaudited and audited, and the most important point is that we did beat our expectation,”

The company was able achieve better-than-expected revenue due to significant growth to lending income as well as the rising rate environment, the CEO said. “The rising rate environment worked to our favor in 2023, because not only did we have higher loan rates, we also earned more interest on our deposits,” she said. “A couple of years ago we were lucky to earn maybe 25 or 35 basis points on deposits, but in 2023 we were earning between 4.5%-5% on those deposits at certain points in time. So that was a great income driving factor for us.” Safe Harbor Financial will report financial results for the full year 2023 on Monday, April 1, after the close of the market.

SAFER BANKING: In September, a U.S. Senate committee 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. “I’m still pretty optimistic that we would see something move in 2024,” Seefried said, “Probably much more so than I was in any previous year because it is an election year. I think it is going to boil down to how big this industry has grown in the past years and how many voters they have to actually cast votes. That is going to make a difference to people who are expecting votes.”

She said if SAFER was to pass, it may bring more banks into the industry, but issues will remain that could make financial institutions shy away. “It is not just about not getting prosecuted, which SAFER would eliminate, the real problem of getting into the banking environment in the cannabis industry is that it is a cash-intensive business,” the CEO said. “It’s like banking casinos, it’s not an attractive thing for the financial institutions to do because of the compliance related to the Bank Secrecy Act, which states you must make sure not one illicit dollar floats into the financial system. That objective requires a lot of compliance, a lot of people and a lot of attention. It’s a difficult regulation that only gets more complex every year for financial institutions.”

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. “Rescheduling is a great thing, it needs to happen and I’m really excited for the industry if it does, but I am probably more positive about SAFER Banking passing,” Seefried said. “Rescheduling involves so many federal agencies and SAFER Banking only has to do with Congress and the Senate for the most part. For rescheduling, it must jump II and go to a III, which must be part of the discussion. It would be a terrible thing if they come back and decide to throw the industry a bone and reschedule to a II instead of a III. It is not going to do anybody any good at that point in time.”

She added if cannabis gets to a schedule III, the 280E obligation from the IRS would be eliminated. “That will free up cash flow within the industry, because the tax obligations that cannabis companies would be facing would be more like a normalized business,” the CEO said. “Because they are treated like a more normalized business, I think they will see more capital flow in, which is to the benefit of the industry and the benefit of Safe Harbor Financial, who is serving these businesses.”

Seefried emphasized the number of agencies involved in the process does create a roadblock. “You have the DEA in the middle of this decision, as well as the DOJ, FinCEN, and the people who are making the recommendation, Health and Human Services,” she said. “There are so many agencies that have to agree to reschedule.”

CHALLENGES: When asked about the largest hurdles facing the cannabis space, the CEO pointed to the ability of smaller businesses to operate long-term. “The biggest challenge is for those mom and pops or boutique shops to continue to survive long-term without some type of 280E relief,” she said. “That is why rescheduling is such an important thing to be able to maintain smaller shops across the country, so they don’t feel that they have to exit and be acquired. That is going to be the biggest challenge is to not have conglomerate control nationwide.”

OPPORTUNITIES: As the cannabis sector develops, Seefried said she expects multi-state operators to continue to take advantage of growth and acquisition opportunities. “The upside is there are a lot of people that have been in business since 2009 and have fought an uphill battle for so long, it provides an opportunity for them to finally exit in a good market,” the CEO said. “The other opportunities are on a global level and that will come to the point of rescheduling. That is the best opportunity the industry has to be able to compete globally.”

Looking at Safe Harbor Financial, the CEO said the company is excited for the continued broadening of the market. “We’re excited for the industry to be expanding across the states,” she said. “It is simply a matter of seeing the expansion of the market and being prepared to handle it.”

CANNABIS/PSYCHEDELIC STOCKS: Publicly-traded companies in the space include Acreage (ACRHF), Audacious (AUSAF), Atai Life Sciences (ATAI), Avant Brands (AVTBF), Ayr Wellness (AYRWF), BZAM (BZAMF), Cannara Biotech (LOVFF), Canopy Growth (CGC), Chicago Atlantic (REFI), Clearmind (CMND), Clever Leaves (CLVR), Cresco Labs (CRLBF), CordovaCann (LVRLF), Cronos (CRON), Columbia Care (CCHWF), Compass Pathways (CMPS), CURE Pharmaceutical (CURR), CV Sciences (CVSI), Cybin (CYBN), Delic Holdings (DELCF), Delta 9 (DLTNF), Entourage Health (ETRGF), Fire & Flower (FFLWF), Flora Growth (FLGC), Trees Corporation (CANN), Goodness Growth (GDNSF), Greenlane (GNLN), Green Thumb (GTBIF), Hemp (HEMP), Heritage Cannabis (HERTF), India Globalization Capital (IGC), Indiva (NDVAF), IM Cannabis (IMCC), Innovative Industrial Properties (IIPR), InterCure (INCR), Wellbeing Digital (KONEF), Khiron Life Sciences (KHRNF), Lotus Ventures (LTTSF), Lowell Farms (LOWLF), Lucy Scientific Discovery (LSDI), MediPharm (MEDIF), MedMen (MMNFF), MindMed (MNMD), NewLake Capital (NLCP), Numinus (NUMIF), Optimi Health (OPTHF), Organigram (OGI), Planet 13 (PLNHF), Red White & Bloom (RWBYF), Reunion Neuroscience (REUN), Revitalist (RVLWF), RIV Capital (CNPOF), RYAH Group (RYAHF), Safe Harbor Financial (SHFS), 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).