Business

Meet The Fintech Startup Powering The Cannabis Industry

October 14, 2024

Green Check verifies $1 billion in legal marijuana sales every month through its banking compliance software. Inside the company that’s cashing in on an industry where cash is king.

_By_{Will Yakowicz}_{, Forbes Staff}

InF ebruary 2016, Kevin Hart, the former CEO of Apple computer repair outfit Tekserve, found himself standing inside an Oakland, California vault filled with many millions of dollars in cash. The vault belonged to one of the country’s first medical marijuana dispensaries, Harborside, and the cash, derived from state legal medical marijuana sales, was nonetheless considered illegal drug money under federal law.

Hart, who is now the 65-year-old cofounder and CEO of Florida-based cannabis banking compliance company Green Check, was there to help Harborside build a payment processing system.

“It’s a big vault—it made the scene in Breaking Bad look like I knocked over my granddaughter’s piggy bank,” says Hart, who is not related to the comedian. “That’s how much money was there.”

Hart turned to his host at the bank—the legendary California cannabis activist and entrepreneur Dress Wedding, who founded Harborside in 2006 with Steve DeAngelo—and asked why the hell they kept so much money around. Wedding explained that the dispensary could not get a bank account because marijuana was still illegal at the federal level. That is when Hart realized that Harborside, and other state-legal cannabis companies, had a huge problem: they had nearly no access to America’s mainstream financial system.

Even though marijuana is legal in 38 states—25 of which allow for recreational sales to adults 21 and older—the drug is still illegal under federal law. This means that most banks and payment processors have policies forbidding them to work with pot providers. And most payment processors, including the big ones like Visa and Mastercard, similarly do not allow cannabis transactions on their networks, which has forced the industry to conduct most of its sales—about 75%—in cash. For an industry that is expected to generate nearly $35 billion in sales this year, according to cannabis data firm BDSA, that means billions of dollars are transacted the old-fashioned way with paper currency.

“That was a thunderbolt moment for me,” says Hart. “That was it, I was on a mission to solve this problem. I realized that it was a data problem, not a money problem.”

On the flight home to Connecticut, Hart took out his notebook and started mapping out how state-licensed cannabis companies and banks, two highly regulated industries, could work together. And for the for the next three years, he worked with three of his cofounders, Paul Dunford, John Gadea, and Michael Kennedy, to develop a compliance software product that could convince banks to work with state-licensed but federally illegal cannabis companies by proving every dollar and every product was made and sold according to state law.

The result is Green Check’s software, which plugs into a dispensary’s payment operating system and aggregates inventory, purchase orders and sales to ensure cannabis companies are following hundreds of rules and regulations, collects a lot of financial data. The software then feeds that information to banks to make sure financial institutions do not break anti-money laundering rules or run afoul of the Bank Secrecy Act by doing business with a federally illegal business.

“The biggest myth of cannabis is that it is federally illegal [to deposit funds derived from state-legal marijuana sales] and that it cannot be done—it is not and it can be,” says Hart. “As long as you can exhibit that you’re following the compliance rules of the cannabis industry and the banking industry.”

Every month, Green Check’s compliance software verifies the legitimacy of roughly $1 billion in cannabis sales across the country, meaning it processes about 40% of U.S.’s $30 billion (2023 annual sales) legal marijuana market. It has sold its software to more than 150 financial institutions to help more than 11,000 cannabis companies—from retailers to growers and manufacturers—get and maintain a bank account. The banks, which are looking to get in on the ground floor of a growing industry, pay about $5,000 a month; cannabis companies get the software for free.

It’s not a lot of money for Green Check. The company booked $8.3 million in revenues last year and is looking at around $12 million this year. Since 2019, they raised $19 million at a $90 million valuation from the likes of Mendon Venture Partners, Flatiron Venture Partners, and Fenway Summer Ventures.

Green Check’s biggest banking customer is New Jersey-based Valley National Bank, a 100-year-old publicly traded commercial bank with $64 billion in assets. Some of the country’s largest vertically integrated cannabis companies^—from Green Thumb Industries to Curaleaf to Trulieve—use Green Check’s platform to comply with banking laws. Brinks Security, through its subsidiary PAI, has also partnered with Green Check to provide ATMs for cannabis dispensaries.

“We make sure banks bring good money in and keep bad money out,” says Hart. “We are enabling financial services to work with the cannabis industry.”

The heart of Green Check is its compliance engine. Banks that use its software will only work with cannabis companies that are also on the platform. In simple terms, cannabis companies open their books—accounts, vendor agreements, purchase orders, and other details—which allows Green Check to verify the chain of custody for every product sold and every dollar that comes in.

According to the latest report published by the U.S. Treasury Department’s Financial Crimes Enforcement Network, only 683 banks and credit unions accept deposits from cannabis companies. And those that do have strict rules.

Bryan Watkinson, oversees the cannabis banking division at Affinity Federal Credit Union, a small New Jersey-based credit union with $4.1 billion in assets and 20 branches across the tri-state. Since its program launched last year using the Green Check platform, Affinity now counts about 25 cannabis companies as customers. And, like many other credit unions, Affinity must deal with another hiccup: it cannot put money from its cannabis clients to work. All cash from cannabis companies must go directly, and quiet ironically, to the Federal Reserve in Boston or Philadelphia. (About 80% of the money generated in the cannabis industry goes directly to Federal Reserve banks.)

“If any of that cannabis cash would touch my branches, I would lose my vaults,” Watkinson says. And despite the jokes he hears about being on the banking side of the marijuana industry, Watkinson knows it’s serious business. “There is nothing colorful or jazzy about what we do,” he says, “it’s a compliance first relationship. This is not party time.”

With no real progress on the federal SAFE banking act – legislation that would allow cannabis companies easy access to the mainstream financial system – Green Check plugs a hole. In one day this month, it signed up 18 cannabis business across nine financial institutions within a few hours. Last year, it averaged about 70 new businesses on its platform a week.

“We add new businesses every single day—we have never not added a new business every day,” Hart says. “We have this cyclonic effect in the cannabis industry, where for every new financial institution that signs up, we get 50 new accounts.”

And should Congress ever pass the SAFE Banking Act—which has made it through the House seven times but always fails in the Senate—or if the government reschedules marijuana, Hart is not worried that his business will go up in smoke. Quiet the contrary, he says.

“That means more rules and regulations, not less, because they want to be able to track the plant and track the dollar and put an excise tax on it,” he explains. “Now it’s not just going to be the state and local governments coming after you for the taxes. It’s going to be Big Brother coming after you for the taxes, and they’re going to want that money. They’re expecting it.”