Safe Harbor pursues reverse stock split to avoid Nasdaq delisting

Facing a stock decline of nearly 50% over the past six months and an uncertain regulatory environment, cannabis fintech Safe Harbor Financial plans a reverse stock split to avoid delisting. 

The company will hold a special shareholder meeting on Thursday to vote on the reverse stock split proposal and hear from new CEO Terrance Mendez. Under a reverse stock split, the existing shares held by stockholders are consolidated, making fewer shares overall. Safe Harbor in recent months consistently traded below the exchange's minimum stock price. 

The company on Tuesday morning was trading at less than 30 cents a share. The stock is down about 48% in the past six months and 65% in the past year. Companies must maintain a minimum bid price of $1 per share under Nasdaq rules.

Like many financial services companies that sell to cannabis sellers, Safe Harbor is looking to the new Trump administration for regulatory clarity following the lack of progress for legislation such as the SAFER Banking Act in recent years. 

With Safe Harbor's stock in free-fall, the fintech announced in late January that Mendez would be brought on as co-CEO until then-CEO Sundie Seefried retired last month. Mendez previously worked for several cannabis companies, frequently leading turnaround efforts. 

"My long-term vision is clear: Safe Harbor will transform from a specialized banking services provider into a multi-faceted fintech," Mendez said in a letter to investors released Tuesday. "By leveraging our trusted industry relationships, deep regulatory expertise and by making innovative technology investments, we expect to create greater value for our [cannabis-related business] clients, attract additional partner financial institutions and unlock new growth opportunities for our shareholders."

Safe Harbor was a pioneer in cannabis banking. Launched in 2015, it sought to help financial institutions comply with the rigorous compliance standards in place around banking marijuana under the Financial Crimes Enforcement Network guidance and meeting the requirements under the Bank Secrecy Act. The company sells compliance, monitoring and validation services to financial institutions that want to sell to companies in the cannabis, hemp and CBD industry.

The company went public in September 2022, buoyed by hopes that the Democratic Biden administration would ease regulations for banking the plant. The issue of decriminalizing marijuana was frequently discussed on the campaign trail in 2020 by Democratic candidates. President Joe Biden in February 2021 said his administration would pursue cannabis decriminalization but the furthest the president went was in October 2022 when he pardoned thousands of people convicted of marijuana possession under federal law. 

Safe Harbor's stock has slid precipitously since then, dropping from just under $11 when it went public to consistently averaging at or below $1 since January 2023. SHFS opened Tuesday at 31 cents.

The Securities and Exchange Commission issued a notice in January approving a Nasdaq proposal to accelerate the process of delisting companies that fail to meet the $1 minimum price. The new rules stipulate if companies do not meet the minimum bid price within the aggregate 360-day period, they will be immediately suspended and delisted without the option for an additional grace period. 

Furthermore, under the new guidance, if a company fails to meet the minimum bid price and has executed a reverse stock split within the last year, it will not be eligible for any compliance periods and will be immediately delisted.

President Donald Trump's stance on marijuana decriminalization has been unclear. In his first run in 2016, Trump said he supported state handling of marijuana legalization but once in office he proposed cuts to protections for state medical marijuana laws. Trump also rescinded an Obama-era Department of Justice policy that instructed federal officials not to prosecute cannabis offenses in states where the drug was legalized. 

As he has with other social issues, Trump has changed his tune on marijuana policy. In September, the then-candidate posted on his social media website Truth Social that it was "time to end needless arrests and incarcerations of adults for small amounts of marijuana for personal use."

"As President, we will continue to focus on research to unlock the medical uses of marijuana to a Schedule 3 drug, and work with Congress to pass common-sense laws, including safe banking for state-authorized companies, and supporting states' rights to pass marijuana laws, like in Florida, that work so well for their citizens," Trump wrote. 

This election led some in the cannabis industry to see potential for future opportunities. 

Mendez in his letter stated Safe Harbor has provided over the last decade "innovation, resilience, reliability and leadership in a complex industry where many have succumbed to regulatory scrutiny."

"This deep industry engagement positions us to evolve into a comprehensive fintech platform that seamlessly serves cannabis operators, financial institutions and lenders," he said.

Safe Harbor said it has facilitated more than $25 billion in deposit transactions over the past decade, working in more than 40 U.S. states and territories that have regulated cannabis markets.

Last week, Safe Harbor modified its debt with Partner Colorado Credit Union unlocking $6 million in cash flow that otherwise would have gone toward principal amortization. Under the agreement, there will be a two-year interest-only period (including February and March 2025), maintaining a 4.25% interest rate for the remainder of the term.

"As one of the largest shareholders, we realize that Safe Harbor's success contributes to the success of our members," Doug Fagan, president and CEO of Partner Colorado Credit Union, said in a statement. "We expect this debt modification will provide Safe Harbor with the financial flexibility needed to pursue new opportunities. This agreement underscores our commitment to supporting Safe Harbor's long-term success and stability."