In the latest episode of the Cannacurio Podcast from Cannabiz Media, I speak with Tony Repanich, President and Chief Operating Officer of Shield Compliance, a comprehensive compliance management platform for banking cannabis-related businesses.

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Cannacurio Podcast Episode 33 Transcript

This is the Cannacurio Podcast by Cannabiz Media, your source for cannabis and hemp license news directly from the data vault. 

Ed Keating: So welcome to the Cannacurio Podcast powered by Cannabiz Media, and I'm your host Ed Keating. On today's show, I'm joined by Tony Repanich, President and Chief Operating Officer of Shield Compliance. Welcome, Tony.

Tony Repanich: Hi Ed, good to talk to you today.

Ed Keating: Yeah. Welcome, welcome. So what we'd like to do is learn a little bit more about your background as well as the background of the company. The first question I had is, you were a banker for many years, how did you come to join Shield?

Tony Repanich: Well, I was a banker for many years. I spent 25 years in community banking and I loved it. And so when I decided to move on from that, I started doing consulting and working with other community bankers, but also got introduced to Shield as somebody trying to serve the banking market around cannabis banking. 

We hit it off and within a few months, Noah and the team over there asked if I would come and be there full-time. So we were able to work that out about two years ago and we've been running ever since.

Ed Keating: Excellent. So I've got to ask, what was the culture change like? Because I think people have an impression of what banks are like, what startups are like. I used to work in a Fortune 500 company, and then, I went to a little tiny public company, and the changes were vast. So what was that like for you?

Tony Repanich: Well, I have to say I was really fortunate at the bank to get to work across many lines of business. And so every few years kind of felt a little bit like a startup as we went into new lines of business. 

However, probably the biggest takeaway from the banking side was that we worked with tons of small businesses all the time. And so now, to be on sort of the other side of the table and to be a small business as a startup, number one, I think I'd be a better banker now. I'm a lot more empathetic to some of the challenges of running a small organization. 

I mean, the culture change is huge. As a FinTech startup, we're raising money, we're running really fast, we've got a small lean team, and everybody gets to do a little bit of everything. But the fact that we got to work with so many different businesses when we were on the banking side gave me a good perspective of what I was stepping into.

Ed Keating: This is sort of an obvious question, but is this considered high risk banking? Because there's a lot of compliance issues in place here. Is it different than sort of the "standard" type of businesses that you would work with in normal, let's say community banking?

Tony Repanich: Yeah. So for our financial institutions, which are community banks and credit unions, when they decide to enter into this portfolio, it is high risk banking, and it's high risk in the fact that these customers represent an increased risk of Bank Secrecy Act and money laundering challenges that occur within this industry. 

Then you compound that with the fact you've gotten federal law different from state law. And so that adds a different level of risk and uncertainty. And one thing I know from being a former banker is bankers don't like risk [inaudible 00:03:09]. So when you combine all those together, it is high-risk banking. 

And so what we're doing is working with those financial institutions to help them manage that risk and streamline the operational components of taking on this portfolio of customers.

Ed Keating: It makes a lot of sense. I mean, what are other high risk industries that would kind of fit in that bucket?

Tony Repanich: Yeah, for sure. So kind of this whole bucket of money service businesses fits into that. If you look at... There's only a handful of banks across the country that will sign up. There's a certain amount of risk and oversight that's required when you're a banking industry that has so much cash involved in. 

And so you've got casinos, payday lenders, check cashing organizations, all of those sort of fall into those high risk banking. Some payment providers fall into that high risk category, international money movement. So all of those where you need additional oversight as a financial institution to really understand the nature of the transactions and that they fall with all of the parties involved in the transaction are legal players in that given market.

Ed Keating: That makes sense. Yeah, well, it's interesting. It makes me think of when we started getting some of the licenses in Florida, where they permitted CBD retailers and wholesalers, and there's like 5,000 of them. 

And when we got the list and it was enormous, we started to look at it. And what we noticed were a lot of convenience stores, a lot of gas stations, lot of supermarkets. And as we pieced it together, these are companies that already sell kind of high risk, highly regulated products, lottery tickets, gasoline, tobacco, and CBD. It sort of fit in there. 

So I guess there's sort of these different ways that people can group these industries together, and a risk profile is certainly one of them.

Tony Repanich: Yeah, for sure.

Ed Keating: So in terms of Shield Compliance, what services do you offer to the industry? Tell us a little bit more about the company for those of our listeners who might not be familiar.

Tony Repanich: Yeah, so we have three legs to our company. One is Shield Engage, and that's how we help our banks onboard these clients. So if you think about taking on a high-risk client, you have to do a pretty significant underwriting and really understand not only the business itself and the licenses that's obtained from the state to be able to participate in this market, but you also have to go one step further and understand the owners that are part of this business. 

Because if you think about the Bank Secrecy Act risk that occurs within the cannabis industry, aside from that federal state indifference that we talked about, is that you've got a business that has existed long before legalization. So you've got legacy funds that are running around. They kind of want to find their way into the legal banking market.

You've got a product that can easily move from the legal market to the illicit market. When you've got that sort of scenario combined with high cash intense businesses, you have the risk of unsavory individuals wanting to attach themselves to these businesses. 

So at the front end, the banks got to really work through, what's the source of funds for this business? Who are the people involved and what are they authorized to do at the state level? So it's an in-depth underwriting of these customers. 

Once they do that and they take the customer on, then they've got to monitor all of the activity that occurs to make sure that it continues to fall within that legal market, and understanding that legal sales activity and how that correlates to the deposit activity that's occurring on those accounts.

And as you probably know, there's a lot of government reporting around suspicious activity with this subset of customers, and so helping to automate those reporting pieces so that you gain greater efficiency as the financial institution. 

And then lastly, we have some payment tools to help our bankers offer digital payments to their customers. So the typical Visa MasterCard that they would roll out to their customer today is just not an option. So these other options, Coinbase debit, ACH-based solutions, or ways to offer digital payments to their customers, generate revenue, to stay within the compliance realm.

Ed Keating: Makes sense. So that's certainly a lot for companies to have to contend with, but I think you've outlined the substantial risks and also that regulatory oversight that really, I don't know if they cast a shadow, but it certainly consumes, I would imagine, a lot of the compliance resources that any player has to contend with. 

Now, one other question I had is, is Shield solely focused on the cannabis industry or are there other of those high risk industries we've talked about before that you also cover?

Tony Repanich: We were purpose-built to serve the cannabis industry. So there are a lot of BSA AML risk management solutions in the market for our banks and credit unions to manage the broader BSA AML risks that they have. 

But the sort of unique constraints of the cannabis industry and the additional data that's required in order to monitor these businesses, we really honed in on that so that our bankers can have something that maps the exact work that they needed to do. And so right now, we're solely focused on that industry.

Ed Keating: And I would assume that your clients would appreciate that you are... The way I segment the market is, are you canna-serious, canna-curious or canna-clueless? And the canna-serious people... Our two companies are focused solely on one market. And does that help when you go in and say, "Listen, this is all we do all day every day."

Tony Repanich: Absolutely. I mean, no pun intended, but allows us to get into the weeds. There's a lot of unique details. And if you think about cannabis in particular, it's, what, 35 different markets. Each state has its own rules, some constructs whether it's adult use or medical, and even within those states that have those programs, there's differences from state to state. 

So bringing that level of expertise, the knowledge, I think our bankers appreciate, and it helps us to differentiate when our bankers say, "Well, I already have my big bank system that does BSA and AML piece.” It helps us to talk about the specific things that we're able to help solve for. 

And one of the things that we're trying to help solve for, and your listeners would appreciate and so many of them are cannabis industry folks, is really making sure that the banking experience, good customer service and good compliance don't have to be at odds with each other. 

And so it's also making sure that the technology that we help our bankers deploy, allow them to meet their compliance obligations, but not at the expense of providing good service to their customers.

Ed Keating: Makes a lot of sense. Absolutely. Now, in terms of getting into the operations of Shield, you touched on this a bit, but how many States do you operate in? 

Because, as you said, there's about 35, 37 states. We sometimes joke about them as they're their own sovereign nations because your product can’t leave the borders, and they have their own rules and regulations. And it's great if you're an MSO, but even then, there's a lot of duplication of operations. 

So anyway, which states do you operate in or what percentage of the marketplace you're now?

Tony Repanich: Yeah, so we have banks that are in 10 states today. And then we have some payment companies that are operating in all of the legal states. So the payment companies are providing high-level monitoring of the organizations and the cannabis organizations that they're providing services for. 

And then for our bank partners, we're going all the way down to transaction monitoring and government reporting. And so we've been predominantly focused on states where adult use legalization has occurred, mostly because as you know, the size of those markets is significantly greater that the available banking market there is just greater in those states where legalization has occurred at that level.

Ed Keating: Yeah, that makes sense to me. When we look at states in terms of those that we monitor from a data standpoint, I think one of the numbers we have as a walking around figures, five states account for about 80% of the licenses. Now, one is a med state, which is Oklahoma-

Tony Repanich: Oklahoma.

Ed Keating: ... but that's sort of a rec state with training wheels, or it's going to get there, we think, eventually. So yeah, that makes sense that go where the money is. 

So going a little bit further now, what is the onboarding process like for a bank or credit union to come onto your platform? Because as you said, they've already got compliance tools that help them in other markets and this is a unique solution. What does that process like? And how do you take clients through that?

Tony Repanich: Yes, if you think for most of these banks and credit unions that get into cannabis banking, the gap that's created between their core banking systems and the actual requirements that make this industry has basically been filled with brute force labor, Excel spreadsheets, and PDFs. 

And so what we do is we work to gather all that information together, understand the policy and how they define the ways that they're going to mitigate risks. We also bring some of our best practices to the table. And then we configure the systems to start eliminating all of that extra work. 

What we believe, and I believe from my time as being a banker, is the risk is in the judgmental decision-making. And so if bankers are spending tons of time looking at 100% of everything to try to find the item that requires their judgmental decision-making, by the time they find it, they're exhausted.

And so how do we use data and technology to help sort things out into the right buckets? Things that are good, let's not spend time on those. Things that are clearly bad, let's disposition those and do what we need to do with that. And then let's let our bankers spend their time on the judgmental items, where they can bring the knowledge of their local market, their relationship with their customer. They can bring all of that information to bear on the information and the data that we've pulled together for them. 

And so the process of onboarding for our customers involves everything from connecting to the core banking systems to identifying all of those customer touch points and looking at how we wrap automation around it. And then within the individual states, making sure that we're bringing together seed to sale tracking data, the licensing information from the individual state, and our other data services so that they get a full and complete picture of their customer.

Ed Keating: Great. Great. Now, taking this back a step and up a level, in order for, let's say, you to operate in a state, you've got to deal with a collection of stakeholders like banks, regulators, trade groups, yourself. How does that work? I assume that there's some process when a state is going legal, like New Jersey or Arizona. What happens at Shield and how do you interact with all these other parties?

Tony Repanich: Yeah. Well, I would say first we're fortunate that across most of the states, they've adopted one of three seed to sale tracking systems. So that becomes a starting baseline for sort of the reporting structure within a given market. 

So you've got a market like Oklahoma now that's finally going to go on to Metrc, for example, at the end of April. But for most parts, most states have that framework in place. That's a starting point. 

The other thing we do is we talk with cannabis regulators about what prevents banks from entering this market. And I think for a lot of them, they believe that it's strictly, well, their bank regulators say you can't do it, and that's not actually the case that FinCEN guidance provides an outline and a playbook, has now been developed for bankers to provide services to this market.

It is not without effort, and it is not without needing specialized tools like we offer, but it can be done. It is easier for banks to say yes and credit unions to say yes to this market when cannabis regulators provide a few things. 

One is good, transparent information about the applicants, ongoing information about the status of the licenses and any enforcement actions, and that they are consistent in their enforcement. 

And so you've seen places like California that have had varying degrees of banking availability. And I think over time, things like enforcement have gotten better, use of seed to sale tracking and enforcement around that. 

And now even with AB-1525, required data sharing from the cannabis regulators, you're seeing more and more banks and credit unions saying, "I understand this market. I have faith in the regulatory structure for the cannabis market, which makes it easier for me to meet my bank's regulatory obligations."

So we continue to encourage bank cannabis regulators to do that work. Our state banking associations have been great partners in terms of helping to educate their members about that playbook that exists and the additional work that's required. And so when a new state is coming online, we spend a lot of time providing free education to those bank trade associations to bring their members up to speed. 

And so I take a state like Michigan, where the community bankers of Michigan have been fantastic partners of spending lots of time educating their members. And that education has resulted in probably the best banking availability in the country for the cannabis industry, when you look at the number of market participants relative to the number of license holders. Combine that with a state that's got consistent enforcement and good data sharing, you've got the perfect recipe for access to banking. 

And so if you can duplicate what places like Michigan and Washington have done, even Colorado, you're going to have better access to banking ahead of more sweeping change at the federal level.

Ed Keating: Yeah, certainly makes sense. And the transparency issues, you're definitely preaching to the choir as the chief data officer. We run into these issues all the time where states change their rules, or one month they decide to send us information, the next month they decide to redact information. So it's definitely been a challenge. 

And the violations one has been particularly interesting where most often we need to write to the state to get that data. And in the case of New Jersey, we've had to pay them to do the research, to tell us what they find, and then we're going to have to pay them again to actually get the documents that are responsive to our requests. It probably costs us several thousand dollars to get that information, whereas other states just make it available to the public because it's public information, but-

Tony Repanich: Right. I think as we continue to... I think that's the educational work the industry can continue to do with individual state regulators. I think it's important to those state regulators on the cannabis side, that their license holders have access to banking. 

If for no other reason, these states want access to their tax revenues. That's where they get their tax revenues, is to make sure that, number one, the industry has the controls in place. Then the proceeds get banked and then electronically zipped that money off to the regulators for their tax receipts. No cannabis regulator or state treasury department wants cannabis operators showing up with bags of cash on the front door.

Ed Keating: Exactly. And even the IRS, I think, is now sort of dealing with some of those same issues, I think, or at least in the Biden administration, they've talked about that, just not a great situation. So hopefully that's one that will change.

Tony Repanich: For sure.

Ed Keating: No, we talked to about going into states and onboarding and bringing on banks and credit unions. I'm curious from a client standpoint, as you look at states, from a go-to-market strategy, are you trying to align with the multi-state operators versus the single state operators, or how does that work and what kind of determinations do you all make from a sales strategy standpoint?

Tony Repanich: Yeah. So for us, it's really about helping to enable our banks to follow those customers and make sense for them. I will say, and you've seen it, I think we'll talk about it a little bit later. There's been a lot of consolidation already occurring within this industry. And many of the banks and credit unions that were early entrants into cannabis banking are small relative to the big financial services marketplace. 

And so they have been the beneficiaries of accounts that in a normal market, they would not have access to. $100 million a year company is not generally banking at the little credit union down the street. It's been a tremendous opportunity for these credit unions and banks to level up and to figure out how to serve customers and have that kind of volume and need. 

However, as consolidation continues to occur and the path forward from a federal standpoint and less and less uncertainty about where we're going with this industry, I think we will, what we see is the market's going to need larger financial institutions that are interested in serving it.

Generally, if you look across the country in any industry, you've got banks that sort of match up with their customers. And right now, I would say there's a mismatch between… look at those multi-state operators as a good example and the access to banks that they are generally able to access. 

So we think there is a set of super regionals or national banks that will come into this space that will match up better with those customers as consolidation occurs. Now, still going to be plenty of opportunities for those small banks and credit unions. There's individual farmers in states, there's product manufacturers, there's great retail operators, just like in lots of other industries.

So as the market starts to come into its different elements of size, I think they will eventually sort out to the financial institutions that match the size of their organization. To make that happen, we've got to extract financial institutions that match up to where the industry is going from a size and scale standpoint. 

And so part of our goal is continuing to support our small banks and credit unions and helping them succeed, but also helping to educate larger financial institutions about the opportunity for them to enter this market and the playbooks for executing on entry to this market.

Ed Keating: Sure. I mean, you definitely hit on the theme that we've talked a lot about on this podcast about how this concept of multi-state operation, not just a multi-state operator, transcends cannabis companies. It's true for software companies. Can you work in more than one place? 

But also from a banking standpoint, because I would imagine that there are certain banking functions where treasury, for example, you need to be able to operate smoothly across states. You don't necessarily want to have a bunch of money piled up in 50 different states if you don't want it. It's just not efficient, I would imagine. I mean, this is your area, not mine, but just from what little... I know, it doesn't seem like that's a great situation.

Tony Repanich: I mean, Starbucks probably has multiple banking relationships, but those are probably consolidated and they are using those traditional treasury services to collect those funds from individual stores and locations, bring that money, consolidating it back into corporate headquarters. And so we see that. 

Trust me, Olive Garden is not walking down the street with their deposit to make a deposit at the local bank. They're using a bank that matches up with the size and scale of their business, and they can help them to consolidate those balances and those store operations across their footprint.

Ed Keating: Yeah, absolutely.

Tony Repanich: And I think the same thing will happen in the cannabis industry. The other thing I think we'll see is, I mean, if you think about the cannabis industry, what's really cool about it is, it is not just the dispensary that the average consumer sees on the street corner. It starts all the way with agriculture, product manufacturing, distribution. 

So there's also banks and credit unions that focus on that portion of the market. And so there's many banks that don't bank farmers, and there's other banks that specialize on agriculture. And as those specialty banks begin to look at this market, I think they'll also start carving out pieces of the market for themselves.

Ed Keating: Yeah. Yeah, certainly, it's a standard market segmentation. When we started this company about six years ago, I remember explaining it to people back then when it was still something new and sinister, people were, they would make a joke about it until they thought about like, "Hey, that's a good idea." 

But we started to see this notion of things just getting a bit more normal and accepted. And sometimes I'd explain it to people who are from the content industry saying that we just happen to work in the most highly regulated agricultural vertical, because cannabis really isn't an ag vertical, there's tobacco, there's those crops that are grown for beer and spirits. I mean, it sort of fits, and obviously, it just has a lot more regulation around it, but there's a lot of similarities. 

So I think there's certainly lessons to learn, but a lot of the lessons, books have been written, courses have been taught. I mean, this is not new to a lot of people. So I think that we should be able to get through these challenges as an industry.

Tony Repanich: Right. Absolutely. And so I think it's going to be really interesting to see, number one, how banks continue to... The banks got in early and won this business, how they continue to evolve to keep these customers. And we continue to work with them to make sure that they stay competitive. 

And then, which of the larger financial institution providers will step up and into the market and see an opportunity. As you know, being in this business, there's incredible business people that are running many of these organizations, many of whom did not come from the traditional or the legacy cannabis business. They came from traditional businesses in product manufacturing or agriculture or retailing. And those leaders, if they weren't in cannabis, everybody’d be chasing them, at least from a financial institution standpoint. 

I'm waiting for that day. I see it coming. We're a little bit a ways from that, but I think as people get more and more exposure to the industry, it becomes more and more attractive to bank it.

Ed Keating: Yeah, I would agree. And this is a good looking forward point. We're seeing this in terms of the companies that are reaching out to us, who are trying to understand the industry. We had somebody from one of the largest tobacco companies sign up for our newsletter, sort of an easy step in tiptoeing. And they're kind of curious. Maybe they're kind of clueless, I'm not sure, but trying to understand more of what's happening there on a grander scale. 

This has been going on for some time, seeing the entrance of really high-level consumer packaged goods professionals coming in from Molson Coors or from Procter & Gamble into roles at these companies. So why won't it happen for banks? Of course, it will. 

So let's stay on that theme of sort of what are some of the trends and issues that are happening. So one big thing that's going on, our new states are coming on board or they're making plans to do so. Arizona did it rather quickly. They put the applications up on Tuesday and people were selling cannabis on Thursday, pretty remarkable. New Jersey is heading in fits and starts and other states as well. 

So what do you see is that doing for the industry and the impact that that has on Shield?

Tony Repanich: Well, for us, it means we're having a lot more conversations with bankers that we've never talked to in the past. And so New York, New Jersey, a lot of conversations with bankers in those state, as they see moving from very narrow medical markets to much broader adult use markets, and now a real opportunity for them to drive balance sheet growth and non-interest income growth for the financial institution and serve a brand new market with limited competitors. 

I think the other thing we see is our bankers are starting to, they have already built a playbook, put the systems in place, half the team are saying, "Can I take this beyond my traditional brand's footprint and chase some of these new markets?" I think one thing that COVID has taught us and had already begun in the cannabis industry prior to COVID is the branch is less and less important.

There's a lot of tools in our tool belt to engage customers from cash logistics firms to help with pick up the receipt of cash, to all of the electronic payment tools that we can put in place to help organize the customer and manage money movement. 

And so I think a lot of them are looking themselves and saying, "I know how to do this. Why don't I go do that over there?" And in many markets, we have limited licensed states. So they may be looking at their current market and saying, "There's not new businesses right now for me, so why don't I go across the border or down the street and bring my expertise there?" 

So we're having a lot more of those conversations also, which has been really fun to see these bankers put on their entrepreneurial hat.

Ed Keating: Yeah, absolutely. Absolutely. Now, one of the other things that we've been watching on, probably since we both came into the industry is, what's going to happen on a regulatory standpoint, not at the state level, but at the federal level, whether it'd be 280 or the MORE Act? If there are changes to either of those, what does that mean for you?

Tony Repanich: I think it's good news for us in that the uncertainty that you can take away for bankers about the federal level will make it much easier for them to say yes. So when the SAFE Act was the big talk in 2019, there were a lot of bankers saying, "Well, I want to be ready. As soon as the SAFE Act passes, then I'll jump in because I just want that piece of uncertainty taken away." 

Think what bank regulators and bankers acknowledge is the Bank Secrecy Act risks that are associated with this industry, given those sort of legacy conditions, product that can easily move from the legal market to the illicit market, and in the illicit market that is still larger than the legal market. So incentive there that the controls that bankers have to put in place, just like those other industries that we talked about, will still have to be done.

However, if you take away that federal cloud, you've got what, 150, 175 banks around the country today that are actively willing to bank cannabis companies. Well, if that goes to 600 or 1000, it's probably good news for the cannabis industry. It means they've got choices. And with choice, that usually means the price goes down. 

But for our bankers, what that means is they have to have the operational efficiency in place to make sure that they can sharpen their pencils so they don't lose customers. So part of what we talk to our customers about is build the program today for what pricing will likely be like for your end customer in the future. We've got an imbalance of supply and demand today between the availability of banking and the demand for banking – gives bankers a lot of pricing power.

With a MORE Act or a SAFE Act, that pricing power gets eroded. Great, for the industry, not great for bankers. So bankers need to make sure they have the right process in place, because the last thing you want to do as a banker is have so much cost that you actually end up paying people, maybe not directly, but through your cost structure to bring in these deposits. 

It changes the economics of this business for the bankers. And so that's where I can bring my previous banking expertise and the decisions I had to make as a banker around product design and product management, to be able to say, "Let's talk about what that looks like for you in your cannabis portfolio – how that's going to help you to evolve over time. And so that's a lot of our discussions also is build for tomorrow, right?

Ed Keating: Yeah. And did sort of the Wayne Gretzky skate to where the puck is going to be. And I've never heard that done in terms of a cost structure, but it's totally out because you do need to think ahead. 

And also your point at the beginning of our discussion today, you talked about how people ideally want to mitigate all the risk in here too before they jump into this line of business banking, they want that risk gone. 

But I think we both know as people who work at entrepreneurial companies, if you wait too long, the opportunity will have passed you. And you'll be one of those 800 bankers, not one of the first 120 or number 122. So I think it's a choice that everybody has to make that they're comfortable with.

Tony Repanich: I think the other thing that we're seeing, which is also great news for the industry is, the economics of banking changed during COVID. Bankers were flush with deposits, not just from cannabis companies that continued to do well, but just from corporate customers that stopped spending money, all of us that stopped going out to dinner. Money started piling up in bank accounts and lending slowed down. 

And so when you look at that, bankers who previously got into cannabis banking because they needed deposits to fund the loans to other industries or other individuals had to step back a little bit and say, "I only need those deposits the same way I did in the past, because I don't have the loan demand to match up with the deposits that I need." So obviously this is the income that they earn from these customers.

But I think that really cool conversation that's happening is bankers are saying, "Well, maybe I need to start looking at this as an earning asset strategy." And what that means is, I'm willing to start lending to the industry because that's the need that I have in my balance sheet. That's where the growth opportunity is for me. 

So the same way that some bankers came to cannabis because they had a need to gain new deposit accounts, now that they have a need to grow loan balances might also bring them into cannabis or help our existing cannabis bankers jump to the other side of the balance sheet. 

And so a lot more conversations with bankers about their willingness and ability to lend. And for the industry, that's great because so many folks in the industry have had to rely on private lending, which is expensive, or for many in the industry they've had to give up equity in their businesses because traditional access to lending has not been available for these businesses.

Now, keep in mind SBA guarantees, which a lot of bankers use the small and startup businesses to mitigate risks, still not available federal program. And a lot of the farm guarantee programs that bankers use in the ag sector to also help mitigate risks are federally backed, not guaranteed. So there's still a lot of constraints. There's still a lot of considerate. 

There's still a lot of other risks to mitigate, but the conversation has gone from, "I'm never going to lend," to, "I might start lending under these conditions." And then as they learn more, and as they get comfortable with it, and as they see performance, that opens up additional opportunities. And so I think that's really exciting for the industry to have access to that kind of capital through traditional lending. And it's fun to have those conversations with bankers.

Ed Keating: Yeah, No, Tony, is hemp a stepping stone crop that gets people comfortable with banking, or is it its own set of rules? And now they're sort of loosening things on the federal side or is there a sequence there or not really?

Tony Repanich: I don't think so as much. And here's why. I think the risks are different. One is, the federal regulatory risk has sort of been worked out through the Farm Bill, even though individual states have been still filing their individual plans with the USDA. 

If you look at hemp, I think some of the bigger risks with hemp fall outside of BSA amount risk. It falls into two areas. One is credit risk. There is not a ton of hemp being planted around the country. And-

Ed Keating: A lot of it, it's still in warehouses from last season and the season before too, sadly.

Tony Repanich: Exactly. It's like, if you have too much corn or too much soybeans, what happens to the price? And so then, that's really credit risk because it's, how do you get repaid as a banker if you're lending on those kinds of farming operations? You can get through that, what if your field goes hot and all that stuff. I think that's all being worked out. I think it's really, is this applied to me and equation and right for hemp. 

I think then the other piece for bankers, and this probably is more on the payment side of the house, is all of those product claims. And do you get into a situation where you're either lending on product that has some sort of disputed product claim and now your collateral is impaired or you've processed payments for these folks and it causes some sort of charge back activity that people take advantage of a situation where FDA comes after you, for some sort of let's say-

Ed Keating: I was just about to say that Thursday afternoon or Thursday morning, I put out the letters that FDA sent out to say… All right. We actually got one last year where Curaleaf got in a little bit of hot water for something under CBD line. So yeah, definitely an issue there. 

So one other sort of big topic is, M&A in the industry, especially actually this week. So we saw Akerna buying Viridian, Dutchie buys Greenbits and LeafLogix, and they partnered with Hypur. So this increased investment in the industry. How might that impact banking? And will there be investment in the banking software space too perhaps?

Tony Repanich: Well, we raised new capital last year, lots of interest, and now we're actually oversubscribed. I know some other folks in the compliance space have also been actively raising funds, but I think there's a lot of interest. And I think there's also... I think that consolidation just tells you the strength of the market, that people see that we're not going to revert, we're not going backwards, we're moving towards a day where 280E goes away and where legalization continues to march on. 

I think even down at the Wyoming State Legislature, put up a bill, I mean, not a lot of people would have guessed that in their bingo card. And so I think it just demonstrates the strength of this market and the normalization that's occurring. 

And so people are starting to roll up those companies that make sense, and they can offer services, again, that match up with the scale of some of these businesses that are being created. The direct license holders, as their businesses consolidate, they need service providers that match up with the scale and size of their business.

Tony Repanich: And so I think, again, that as you start getting those brand names out in the market, whether it's on the direct cannabis license side or in the service provider community, those brands help bring banks to market. 

I'll give you an example. There's a lot of banks who will only lend to hotels if they're flagged, meaning they carry the Marriott brand or one of those big national brands, because they know the power of the brand and the business that it drives and the controls that are put in place. 

So I think as these brands are created, and these flags are out there, that continues to also pique the interest of bankers who, let's face it, nobody wants to miss out on a good opportunity.

Ed Keating: Right, right. Yeah. And in terms of that M&A activity, it’s something that we've been spending a lot of time on the last five, six months. And we're now starting to work in our Database that, let's say, I'm going to buy your Florida operations, Tony. Our database is now starting to show that these six licenses are in play, Tony owns them now, Ed will own them soon. And so we are showing that visually on the map and you can sort of heat map and see, "Well, where are all these acquisitions happening? Wow, Florida, California, et cetera.” 

So we see a lot of that happening, which leads me to an important question I wanted to ask, which is, how does your team use the Cannabiz Media platform? You've been a subscriber for a while, and we'd love to hear how you're able to use it, hopefully to achieve some of these goals you've talked about.

Tony Repanich: Yeah. So you talked about it earlier. There's a lot of states that make it very difficult to get information about the licenses that they've issued and the enforcement actions that they've undertaken. And Ed, you and your team have done a great job bringing together that information and having the diligence around filling in those gaps. 

And so for us, where we can get direct state integration to get data, we do that, but where we need that additional uplift in terms of sort of boots on the street or boots on the phone and the keyboard, getting that information from states that are more difficult to deal with, we rely on the Cannabiz API to bring that information into our platform. So it's an important part of our license verification and our licensed data set.

Ed Keating: Great, great. Well, I appreciate that. I have a team meeting today and I'll let the team know like, "Hey, here's how our customers are using this data and why they rely on it." So last looking forward question, any new initiatives you could share that are in the works that we should keep an eye on in terms of Shield?

Tony Repanich: For us, it's really our new onboarding solution that we brought to market at the end of last year, has been a huge focus for us. And it's really helping our bankers streamline that onboarding process and creating a much better client experience. 

And so we're really excited to get that out in front of more bankers this year, even some of our existing bankers are not yet on the platform. So it's also bringing them onto this platform so they can create that experience for their customers.

Ed Keating: Excellent. Excellent. Well, Tony, thanks so much for joining us today. It's been a delight talking to you and learning about your business and your background as well.

Tony Repanich: Well, Ed, thanks for the time. We really appreciate it.

Ed Keating: Excellent. So thanks so much for joining us on today's podcast. I'm your host Ed Keating. Stay tuned for more updates from the data vault.