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Until cannabis is legalized federally in the U.S., financial services will be handled by local providers at the state level, creating an opportunity for smaller credit unions such as Partner Colorado Credit Union.
The Denver-area credit union stands to expand its share of the legal cannabis market from its collaboration with AeroPay, a Chicago-based digital payment company that recently completed a $5 million early-stage round led by Chicago Ventures.
"Credit unions will likely be the first movers in cannabis banking," said Stuart Larkins, co-founder and general partner of Chicago Ventures. "Everything in cannabis is being done at a local level and not by national players because of the state by state nature of cannabis."
Even if pot is legalized nationally in the U.S., Larkins says there will still be space for alternatives to credit cards, as there is in other merchant categories. "The merchants will need to move away from cash, because there is a lot of cost in handling cash."
AeroPay facilitates payments and manages compliance and bank technology through a partnership with Safe Harbor Private Banking, which is a division of Partner Colorado. AeroPay will use the funding to recruit new talent and add features to its payment product as it looks to widen its market share in the cannabis market.
"We still have a task down the road to support access to financial services for cannabis, but this type of solution could gain momentum," said Sundie Seefried, CEO of Partner Colorado, who has held that role for the past 20 years. A 28-year veteran of the credit union industry, Seefreid is also the
Seefried on July 21 will become CEO of Safe Harbor Financial, which will combine Partner Colorado's cannabis banking with the Safe Harbor credit union service organization. The credit union will still manage cannabis-related funds.
Seefried's outlook is similar to that of others building financial services for cannabis merchants. Like
The story of mainstream financial services firms
"Don't believe it until you see it [regarding] federal legalization," Seefried said. The upside, she added, is that smaller firms can battle for state cannabis dominance while the large organizations like Visa, Mastercard and the biggest banks stay on the sidelines waiting for the national government to act. "We can see lower-cost tech like AeroPay and other other fintech providers getting good market share against the major credit card firms," Seefried said.
Chicago Ventures was drawn to AeroPay because of its collaboration with multiple partners that have existing connections to cannabis retailers and suppliers in specific markets. And the credit union's traditional model stresses local businesses and long-term relationships.
Chicago Ventures' portfolio includes Sunbit, a buy now/pay later firm that, like AeroPay, positions itself as an alternative to traditional credit. Sunbit's clients include
The market for legal cannabis has grown over the past few years, creating a potential opportunity for mainstream financial services and payment technology providers to address the
"The cannabis industry is an ideal testing ground to prove our model," said Dan Muller, CEO and founder of AeroPay. "In the past there were a lot of workaround solutions for that industry, and without collaboration among a lot of firms there were pain points for cannabis that developed over time. And the dramatic move to digital that's happened during the pandemic has created a train away from cash in all sectors that can't be stopped."
