29 June 2022 |
S2 E9: How NatureTrak is Turning Cannabis Compliant Through Fintech
Cannabis banking is still a baby, but Jontae James is on a mission to help banks stay compliant and safe through NatureTrak’s state-of-the-art platform.
He’s proud to be disrupting the industry and ready or not, he’s here to shake up fintech and cannabis.
A proud child of the 80s, Jontae had already grown and sold his first company at the age of 28. An entrepreneur from the start, he went from working in venture capital to creating ‘bank-to-seed’ cannabis compliance fintech for banks.
Nicole and Jontae get straight into it. You’ll hear how the incarceration of Jontae’s father for possession of weed influenced his early career choices, why stigmas around cannabis and financial services still exist, and how NatureTrak is fighting back with transparency and technology.
You’ll also hear how Jontae’s growing his company while remaining his authentic self, and the good (and bad) of entrepreneurship.
And if you love listening to Humans of Fintech, please leave me a 5-star review on Rate My Podcast: https://ratethispodcast.com/humansoffintech
Thank you so much!
You can keep up-to-date with everything Humans of Fintech at https://workweek.com/brand/wtfintech/
And if you’ve enjoyed Humans of Fintech why not try: Chicks of FinTwit, Tech Unlocked, Breaking Banks or Fintech Insider
02:19 Growing Up
07:55 Still Battling
12:48 Power of Fintech in Peer to Peer Transactions
18:37 Still Feeling Like The Outsider
23:43 Client Led Inspiration
26:57 Quirky? Embrace it
31:05 When Work Feels Like Fun
34:15 Bringing Your Authentic Self to Business
35:46 Being The Change
Compliant Cannabis Banking
Many cannabis businesses struggle to get bank accounts, vendor financing, and credit card payments. A commonly cited reason for why this happens is banks fear money laundering and other illicit activities. The common risk factors of the industry—cash-only businesses with high cash turnover, high risk of theft, or illegal production—make it difficult for banks to trust cannabis businesses.
This leaves most cannabis businesses with few options: operate on a cash-only basis or rely on services like “cash-only” banking institutions that may not be fully compliant with federal regulations and KYC (Know Your Customer) rules. In this blog post, we’ll explore some examples of non-traditional banking services in the cannabis industry and their compliance pitfalls.
Why is Banking so Hard for Cannabis Businesses?
Banking compliance is based on the Anti-Money Laundering (AML) and Know Your Customer (KYC) rules. To prevent the flow of illicit money through the financial system, financial institutions are required to undertake due diligence on their customers and report suspicious activity.
Cannabis businesses generally face two issues. First, they often operate in cash, which is a red flag for financial institutions. Financial institutions have an obligation to report suspicious activity and cash is often associated with illicit businesses, such as drug dealing.
Second, the cannabis industry is highly regulated. Financial institutions must follow complex compliance rules and choose their customers carefully. If they incorrectly assess the risk of serving cannabis businesses, they could lose their license. This creates a general hesitance to serve the cannabis industry where there is an inherent risk.
Cash-Only Banking Alternatives
Some cannabis businesses turn to cash-only or “unbanked” banking institutions. These services may be willing to accept deposits from cannabis businesses, but they’re not fully compliance. There’s no standard definition for a cash-only institution, but some examples include:
– No online banking services, no debit card, no checks, only currency transactions.
– No account numbers, no routing numbers, bank statements sent by mail. – No online deposit services, no EFT services.
– Unable to provide any information about their business operations
– No employee background checks. These banks are often called “underground banks.” They’re open to cannabis businesses, but they don’t comply with federal regulations. This means they can’t provide any written assurances of compliance or reputability to financial institutions they do business with. This makes it difficult to receive vendor financing or credit card payments.
– Vendors need assurance that they won’t become liable for money laundering. – Credit card companies need assurance that they won’t become liable for fraud.
Debit Card Warehousing/Staging
Staging debit cards are a bad idea. A staging debit card or a card with a very low limit is a temporary debit card issued by a financial institution and sent to a customer’s address for a specific transaction.
This card is for one-time use only, so it’s collected after the transaction and destroyed. If you’re a cannabis business with a cash-only option, you can use a staging debit card for vendor financing. The vendor deposits your payment into their account, and then you pick up the money by swiping the debit card at an ATM. This creates a paper trail of your transaction that can be used to prove compliance and facilitate vendor financing.
Merchant Cash Advance Fraud
Some cannabis businesses may try to use a merchant cash advance fraud scheme. These scams involve upfront fees, low interest rates, and high-pressure tactics by unlicensed lenders to offer cash advance loans to cannabis businesses. These schemes look very similar to vendor financing, but they’re actually debt-collection scams.
These lenders claim that they can bypass the need to open a bank account, but they never actually advance you any money. Instead, they charge an up-front fee that is likely not compliant with federal regulations. To collect on the loans, they pressure their customers to pay back the debt with high interest rates. This creates a debt-collection scam designed to force customers to pay back the loan with interest. It’s a predatory scam that will harm your business and violate federal regulations.
Bitcoin and Cryptocurrency Fraud
Bitcoin and cryptocurrency fraud is common in the cannabis industry. Unfortunately, many cryptocurrency exchanges don’t verify the identity of their customers. This makes it easy for cannabis businesses to trade cryptocurrencies for cash and launder money.
Cryptocurrency exchanges aren’t regulated, so there’s no way to know if the person selling you the coins is legitimate. There’s a risk that the person selling you coins is a fraudster who won’t send you the money or a law enforcement agent trying to bust illegal activity. You may be tempted to trade cryptocurrencies if you have trouble getting a bank account. However, you should be wary of potential fraud. You should also check that the exchange you use is compliant with federal regulations and KYC rules.