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The Cannabis Conversation, a European perspective on the emerging legal cannabis industry.
Okay. Welcome to The Cannabis Conversation where we explore the new legal cannabis industry by speaking to the professionals that are helping to shape it. Today's another holiday episode. So let's get straight into it. I'm joined today with co-founder of Solvent, Brian Meyer, who is from Maryland in the U.S. Solvent are a payments company, specifically for the cannabis industry. Brian's going to help us understand a bit about the banking and payments problems that cannabis companies have in the U.S. and in Europe. Welcome Brian.
Thanks for having me, a huge fan of the podcast.
No problems. Thank you for joining us. It's good to have some North American insight here. So thank you. I think a good place to start would be just a bit of a 101, maybe some basic of banking and online payments and how they generally work.
Sure. Yeah. So let me start off by saying payments is actually a product of Solvent, but we're more of a product for the banks. And so what we like to say is that Solvent empowers financial institutions to be the authority on identity. And what that means is in high risk industries and industries like cannabis specifically, they don't have any transparency into their ecosystem and so at the end of the day, they don't really know what's going on. And so in cannabis specifically, it is still federally illegal, but state legal in many of the states.
And in 2014, the federal government came out with some legislation that very vaguely provided guidelines for institutions to bank cannabis. Again, the guidelines were very vague and two, there really wasn't and still really isn't any technology that allows them to follow those guidelines confidently. And so what's currently happening is that there are institutions in the U.S. banking cannabis. Most of them are credit unions and then small community banks. So if you're a federally insured institution, you can't bank cannabis because of the risk.
However, the ones that have offered banking are very limited, and it's very costly. And the reason is because, again, with the growth of this industry, from a technology perspective, it's been hard up until the day to keep up with the changes and the regulations and what's needed from a technical perspective. And so a lot of the process and these programs are being handled by humans. Human resources are costly. And so we're finding, we've found that in many of the states, the limited opportunities that exist, it's very costly to just simply have a basic checking account.
So basically being able to go to a bank, credit union and give them your money, which in a lot of cases, you're having to pay the institution to put your money in a bank account, which is crazy. And that's the problem exist. And then again, at the end of the day, these are legal businesses and they're not getting the banking services that they need to appropriately grow their company.
And so enter Solvent, we, again, empower those institutions to give them visibility in their ecosystem, through our technology that brings more confidence to them and to allowing services like payments, like loans, like wires, because what they need is KYC, know your customer. And so KYC is very limited right now. And so we're evolving what KYC means. And so you'll know your customer, know your merchant and also know your product. And so we're combining all of those together, and at the end of the day, the banks now have the visibility they need to allow payments, loans, and what have you to the merchants.
The listeners that are probably a little bit unfamiliar with the situation in the U.S. federal level by across the country, cannabis is still illegal and a Schedule I substance, but individual states have legislated in a different way that under state law, cannabis is legal to a different extent in different states. They all have their different rules.
Yeah. So that's the current landscape. It's funny whenever I'm sure you have someone come on here and talk about the legalization and when it's going to happen, everyone's going to have their own answer. But before that happens, the legislation that is being talked about at the federal government is the SAFE Banking Act. And so that on a high level, if passed, which it has strong bipartisan support, so it could happen this year, or it could happen next year. But what that basically does is it allows these states to continue creating their own laws behind cannabis without the federal government being able to come in and intervene.
And that's the biggest thing right now is that these institutions still have that fear that the federal government and regulating bodies can come in and shut their entire, not only cannabis program down, but their entire bank down because of the risk involved. And a lot of that is, again, the fraudulent activity that could be happening in their ecosystem. And so technologies like Solvent are coming in and helping mitigate the risk for institutions so that they don't have that fear anymore, and that they can support these industries that need banking with confidence.
Right. Okay. So it's a fear by banks that are regulated at a federal level that they might get in trouble by having cannabis companies as their customers.
Where do you think that fear comes from? Is it the legacy of cannabis being an illegal drug, and people are just worried about the association, et cetera? Or is it just legislation taking a long time to catch up with the reality of commerce and business being active in this area?
I think that's it. If you did a survey for most of the American public and their thoughts about cannabis, now more than ever most people are favorable about the legalization of it. But as you've seen with politics and legislation, it's hard for them to keep up with that pace. We're even seeing now with the laws that are in place, that even when they do pass laws or put amendments in place that it takes time for those to actually go into action.
The biggest problem today is the recent federal legalization of hemp. And so the 2018 Farm Bill was passed last year, that in essence legalized hemp, which CBD is hemp-derived. There's also a THC derived CBD. But the real problem right now is that hemp farmers, hemp merchants, CBD merchants are having hard times finding banking and are having hard times finding payment solutions. Because one of the biggest problems is that the financial institutions and regulating bodies can't verify product. And if you Google a hemp flower and a THC flower, they look pretty much the same.
And so unless you have a technology that can verify the product from the labs that do the testing, that's what happened last year, or the sorry earlier this year is that one of the big banks in the U.S. that supported a merchant service provider came in and supported thousands of CBD merchants. And then the merchants, some of them were fraudulent in that they're transacting cannabis transactions on their CBD merchant processing and they got caught and the entire program shut down. And so the past couple months legal businesses have not had the proper payment solutions to help, not even just grow their business, but sustain their business.
So just to clarify what you were saying, so were they authorized to sell CBD products, but not cannabis products, and they were transgressing?
Yeah. I mean, there's a lot of companies that have CBD products, they also have cannabis and most people were being compliant, but there were a few businesses that weren't, and unfortunately they ruined the opportunity for everyone. Part of Solvent's product is that we come in and provide that extra layer of compliance for the institution, financial institutions, with one of our products being payment processing. And so we just recently launched our program to help these legal businesses start to thrive again, because I mean, it's a booming industry right now, or sorry, last year CBD alone was a $380 million industry. Cannabis was about 8 billion.
And so, depending on what reports you look at in the next four years accumulated, it's just going to be over a $40 billion industry. And so we're only going up and we need to keep pace from a technology perspective and law perspective, because these businesses are growing, growing, growing, and they need the support and they need the guidance to have confidence in continuing to grow.
Absolutely. We live in an Amazon world, right? So e-commerce is at the center of everything that we do. And certainly as business and consumers, if you can't buy things online, that's a major roadblock for everyone I think.
It really is. I mean, the way our society is going with payments and how we shop, I mean, I don't know the exact numbers, but e-commerce is growing every day. You're seeing that in the CBD space, as well as that a lot of businesses are popping up simply providing e-commerce rather than opening up a brick and mortar store.
Yeah. So, I mean, without getting too technical, what exactly is Solvent doing to solve this?
There are technologies out there that are trying to solve the problem as well, and they do a decent job. I like to say that they're putting a bandaid on the problem. What our value proposition over everyone else's is that we're building an entire ecosystem for the institution. And that ecosystem starts at the onboarding experience. And so when a merchant wants banking, they go through an onboarding experience where they have to upload who are the owners, what products they're selling, all that. Anything that you would do normally as a business to get banking, right?
You have to go through an onboarding process. They have to do an audit on your business to verify if you're compliant, all the data points that are set. And so Solvent, our technology starts there. Once the merchants into the bank, then the bank has a true visibility into the merchant about who is part of that business, what products that the business has, and that in industries like cannabis is that government needs specific reporting. So one of them like a SAR report, another one is a CTR report that the institutions need to file. And so part of our technology does that.
But the real true value, and this is related to payments is that with the banking technology that the banks have, they can also then provide the payment services. So an example, if you walked into a dispensary and paid with your credit card, you would go up to the credit card readers, swipe your credit card and our technology, the payments side and the bank side speak to each other in real time.
And so when you swipe your credit card, our technology verifies who you are, what products you're buying and where you're buying, and additional datasets. These are the same datasets that go back to the federal government's dataset that I said at the beginning that allows institutions to bank cannabis. And so we basically, in a nutshell, mitigate the risk for the institutions before that potential fraudulent payment goes into the financial rails.
So you're basically doing the due diligence. If someone isn't kosher, then they will get smoked out basically because they won't pass the various checks and balances. Which I think is a good thing because you're clearly helping to raise the bar in the industry and get rid of the cowboys. I think in the UK and Europe, and I assume it probably in the U.S. as well, but CBD is very popular, but there's a lot of snake oil merchants out there because there's a lack of regulation at the moment. And so everyone, every responsible CBD seller or manufacturer, whatever is sort of looking for proportionate regulation at the moment, because it will weed out the cowboys.
Yeah. We're seeing the same thing in the U.S. and a lot of that has to come back to the product verification that I was talking about is that unless you're connected with the labs that are doing the testing, so every product has what's called a COA, a certificate of analysis. So those are the real testing results of that product. And so our technology verifies that product before the transaction takes place. And so that we, again, mitigate the risk of a CBD business selling THC instead of CBD. That transaction goes through the institution. Because if it went through the institution, just as the example I shared at the beginning, their entire program would get shut down if they got audited and the regulators saw that.
Yeah. Oh, that's great. Are you using any blockchain technology to support this ecosystem?
We are. So all our data lives in the blockchain, and so that is a part of it. It's not our core technology. Again, it's important because we are handling sensitive data. So it does live in the blockchain, but it is open to the point there we control. And our value proposition to regulators is that if they want to take a peek under the hood and see the positive impact that our technology is making, then we are able to provide that information for them. Not to get too technical, but compliance is a word that gets thrown around a lot. Are you compliant or are you not compliant? We're taking that to the next level to not only say, are you compliant or not, but how compliant are you?
So instead of saying yes or no, we provide a risk management platform where again, every merchant and every transaction has a risk score. And so based on specific data points that we get, we can assess a number to the person or to the payment. And so that the bank employee at any time can see what the risk profile is. If it was zero to a hundred, zero being most compliant, a hundred being you're a criminal, say you're at a 10, and then two weeks later, you're at a 40, well, you're still compliant, but why has there been a significant increase the last two weeks? The bank, the institutions can start diving into those numbers before it becomes a problem. And again, that's another way we can mitigate the risk involved in this industry.
So what do you see this industry moving on to? What are the sort of insights for the future do you think?
Yeah. Well, I mean, I think obviously the industry is still going to keep growing. And I think now that new technologies have arisen to keep up with the pace of the industry, and so what will be interesting to see what happens is with the laws changing in the industry, how has that applied to the consumer, to the businesses, to the institutions and to technologies like ours? So one example is when the SAFE Banking Act is passed, that allows a more competitive banking landscape and will provide more competitive or more affordable rates to merchants. People don't realize that yes, that opens the door for a lot of the cannabis related businesses to get banking. But when that door opens, they're still going to need to be audited as a business.
And so, again, like in California, I think the number's like 60 or 70% of cannabis related businesses still don't have banking. And so when that legislation is passed, in essence, they will have that opportunity. But then there's the whole process of like, oh, wait, we actually have to get underwritten and audited as a company. And if you have thousands of businesses lining up at the bank, well, that's going to take time. And so that's a huge issue that's going to arise, which then we enter Solvent there is with our onboarding tool, it provides a more automated, seamless experience. And so you're able to onboard institution or sorry, merchants much quicker than you are today.
Moving on a bit. One of the themes of the show, the predominant theme is obviously cannabis, but one of the themes is career change. Most people will have had to have changed from one career or one industry into this one. What's your story, and how and why did you come upon cannabis?
I went to college, it was kind of, obviously go to college, get your degree and be like, oh, what company do I want to work for? And so on a high level, my interests growing up was to work for professional sports team. I went to college at the University of Hawaii, which was awesome because I'm a big surfer, I'm a big waterman. After college, I worked my way up to get to the position of working at a professional sports team. When I got there, my whole perspective of life and what I wanted to do in life changed, and I got that entrepreneurial spirit.
So when I moved back to Maryland, I created a water sports company that offered stand up paddle boarding and kayaking experiences in downtown Annapolis. From that experience, being able to create my own freedom, create my own work life, and I really learned a lot and grew as a person, and one of the benefits, but also negatives of the company was it was seasonal. And so, we operated our main business from May through September, which gave me the other part of the year to dive into different things that I had interest in.
And that's kind of where cannabis came about is that I was introduced to a person who's actually one of the co-founders of the company who has been in the industry for a very long time, has been very successful starting several different types of businesses from growth to dispensaries and him and I created a really nice relationship. And basically for me being very curious and wanting to continue to learn, I was like, "Hey, if you ever get into anything interesting, let me know. I'd love to continue learning and I'd love to dive into this industry."
Because what's awesome about it is that even though it's more structured than it was in the past, it's still almost like the wild wild West where there's not the structure yet. And so for a person like myself, who's very driven and can understand how to scale quickly in companies, I saw an opportunity to do that here because you need very motivated, driven people to kind of create their own structure and then create their own jobs. And so my co-founder, his name's Adam, he approached me. He was like, "Hey, I co-founded a cannabis point of sale company." I immediately was like, "Hey, I'd love to be a part of that."
And so I dove head deep into the industry last year. And the point of sale industry is very unique as well. It's very complex that it's not simply a point of sale if you went to a coffee shop and you pick, hey, you want to purchase a coffee. That's going to be $4. From cannabis, the point of sale is connected to each state has a traceability system, so it's called seed-to-sale. So each state tracks every movement of the plant from when you plant it all the way to sale. And so the point of sales have to be connected with that. Also in states where it's medical, you have HIPAA compliance, right? So you have very sensitive information from patients. So there's that whole perspective. And then you have your whole loyalty marketing.
And again, it goes back to this industry is growing rapidly. It's really hard for technology to keep pace. And so I learned so much from that experience, that one of the two biggest things, while at that company that I realized the problems that exist in the industry are banking and payments. And so not to go too far deep, but I ended up myself and Adam ended up leaving that company and then forming Solvent with three other people. And so we officially started the company in January of this year, but started the idea process late last year.
But because of our industry experience in cannabis, in building enterprise level technology and payments and sales, we've been able to accelerate the growth of this company much quicker than what people normally can do. And so, yeah, I mean, at the end of the day, it's just making things happen. That's one of my biggest quotes in life is don't let it happen, make it happen.
That's good. I mean, it's a great story. I like the fact that you got the entrepreneurial bug. That's funny, I talked about it this morning, but you sort of correctly identified the fact that no one really knows what they're doing yet. So there's loads of opportunity. Certainly what attracted me to it. Cool. Well, and now onto my customary last question. What did your family say when you said you were going to move into the cannabis industry?
I was actually adopted as a newborn and when I was in college, after I graduated college, I reached out and found my birth parents.
And so that's actually what spur me to move back to Maryland. I had no intention of ever doing that. I was living in Hawaii, living the good life, but yeah. So after that whole meeting my birth family, I decided to move back to Maryland, got a job, worked my way up to a work for professional sports team. And then I got the entrepreneurial bug. So what was interesting about that is that my family that raised me was a hundred percent supportive of all my decisions. I wouldn't be here today without them, because they always allow me to think independently and be free. And that whether they supported the idea or not, they would still support it because they allowed me to be that person growing up is to be independent.
But the interesting thing that was part of my birth family from my mom's side, they're very structured. They have a political presence in the state. And so from the minute I started my first company, there was pushback from them. And then especially when I got into the cannabis industry, there was pushback, but what's interesting is once they see the hard work that I've been doing and the success of the company so far, their mindset's changed. And so it's been interesting and almost it's helped me work harder knowing that I have people that I need to prove that what I'm doing is legit.
Because like, again cannabis can have a both positive and negative meaning to people, whether you use a product or not. I mean, obviously with media nowadays, it's really hard to have a real vision or voice because what's shown online can be vastly different than what the real meaning is. And so part of the family was just, they were so negative about the culture of it, that they didn't take a second to understand what we're actually doing in the industry and providing real legal businesses a real opportunity to help grow their business, right? I'm sure it's like, what's interesting now is just with the overall culture is turning more positive because people, it's more of when legalization is going to happen than if. And so now pretty much everyone is very supportive of what I'm doing, because they've seen the success we've had so far.
Good, good. Well, good on you, man. I think that's right. I think the cultural aspects often will put people off, but I think if in a legal world, you're not going to just transpose that old world culture into the new one. It will evolve and develop into a kind of sophisticated marketplace. So there's an exciting future ahead, I think.
Yeah. I'm really excited to see where it goes.
Thanks for having me on.
It's been a pleasure speaking with you.
Yeah. Well, thank you. Yeah, it was really good to chat to you. I look forward to when you guys come over and launch in Europe. Thank you, Brian.
All right. Thanks for having me on. Take care.
Take care. Cheers.
This week, we’re celebrating our 25th episode! We’re joined by Brian Meyer, Co-founder of Maryland based startup - Solvent.
Solvent empowers banks and credit unions to be the 'authority on identity' to confidently ensure all payments in cannabis are legal and compliant. Together, we examine the banking and payments problems which have arisen within the US cannabis industry.
Show notes: www.cannabis-conversation.com/blogs/episode25shownotes