Bankrolling an Industry: For Abaca, Medical Marijuana a Gateway to Opportunity

Arkansans have been under the influence of medical marijuana, legally, since 2016.

In 2016, Arkansas voters approved the Arkansas Medical Marijuana Amendment with 53 percent of the vote. The amendment to the state constitution allows patients who have a doctor’s prescription to possess up to 2.5 ounces of cannabis for the treatment of any of 12 qualifying medical conditions. It also requires that between 20 and 40 cannabis dispensaries and four to eight cultivators be licensed by the state.

Patients are not allowed to grow their own marijuana, and recreational use is still prohibited in the state. Licensed sales began in May 2019, when the first dispensary opened in Hot Springs. As of 2022, the use of cannabis for medical purposes is legal in 37 states across the U.S.

The business of medical cannabis, however, goes beyond the “to legalize or not to legalize” argument surrounding the decriminalization of marijuana. Like it or not, the budding industry has created new opportunities, from farming to retail to health care, all of them largely innovative and prosperous. And it doesn’t stop there.

The financial impact of medical marijuana and what’s expected to become the ultimate legalization of recreational use for adults — like it or not — is substantial. As in, channeling Roy Scheider in Jaws, we’re-gonna-need-a-bigger-boat substantial.

However, despite the high points, not all industries are keen to get involved. Dealing in the medical cannabis industry can sometimes feel like walking a tightrope. Federal laws, regulations and politics can make for some pretty blurred lines, seemingly navigable only by someone with a law degree. Most traditional banks are wary of entering the fray until things become less hazy.

Dan Roda believes the ultimate financial impact of medical marijuana will be substantial.

Enter Abaca. Dan Roda is the co-founder and CEO of Abaca, the $2 billion financial and regulatory tech company that provides banking, payment processing and treasury management services to the cannabis industry. Headquartered in North Little Rock, Abaca services dispensaries, cultivators, processors and ancillary cannabis businesses with compliant commercial banking, payments and treasury management. The company’s clients include small businesses as well as publicly traded multi-state operators and enterprise clients.

Abaca’s services not only are helpful to the medical cannabis industry, they’re essential. Due to a heavy compliance burden, conventional banks tend to avoid serving the cannabis industry.

Abaca isn’t the only institution serving the industry in Arkansas, but is the only one focused on providing cashless options, which adds security to a very cash-centered business as well as convenience. The common misconception is that it is illegal to bank the cannabis industry, but Roda said the truth is a bit more nuanced.

“The legal environment is better described as ‘untested,’” he explained. “But the compliance requirements are quite clear, and they are substantial.”

Roda said that while the cannabis industry is certainly an “economic powerhouse,” properly and compliantly managing a cannabis banking program is too costly for most institutions to do so profitably. Which is why about 95 percent of them avoid the industry today, and he expects most of them to keep avoiding the industry after federal reform, too.

“It’s important to note that the SAFE Banking Act would effectively make the existing regulatory framework permanent, and the cannabis industry will likely be regarded as presenting a special category of risk by depository banks, lenders, payment processors and other financial service providers for many years to come,” he said. Meaning the compliance burden will remain long after both federal legalization and the passage of adult use — or “recreational” — cannabis at the state level.

It’s worth mentioning that Roda runs his business from a peak vantage point: He started out as a lawyer.

After graduating from law school, Roda spent his first years in practice dealing with the fallout of the 2008 financial crisis and its impacts on real estate, construction and banking, including representation of local banks in regulatory matters with the Arkansas State Bank Department and the FDIC.

Fast forward to 2016 when the effort was underway to pass the Arkansas Medical Cannabis Amendment. Roda reached out to the amendment’s author, David Couch, to see how he could help. They ended up working together to form the state’s first trade association for the industry.

In the beginning, Roda worked out of his office in the Little Rock Technology Park. It was there, he said, that he first began working with clients who were looking to get into the industry, which led to his exposure to the complexities and uncertainties of banking the cannabis industry.

Roda and Brian Bauer co-founded Abaca in 2016.

Abaca co-founder Brian Bauer was working downstairs from Roda at the time, running the FIS and ICBA accelerator programs at the Venture Center. The two began chatting in the halls, and Roda learned Bauer had been exploring this same topic at the request of a local banker.

“His fintech experience and my regulatory and cannabis experience have combined to form a great foundation for us to build our company, and tackle the cannabis banking problem,” Roda said.

Abaca announced in February 2022 that it surpassed more than $2 billion dollars in commerce for the cannabis industry. The company said its growth is fueled by aligning its bank-backed financial technology offering with the needs of cannabis business operators, enabling normalized financial services for an underbanked industry. Abaca’s lifetime gross transaction volume growth crossed $1 billion dollars in April 2021.

But even a success story like Abaca faces its fair share of challenges when it comes to bankrolling the medical marijuana industry.

With an office in Chicago to go along with its Central Arkansas headquarters (shown here), Abaca is adding new platforms and features to serve the industry.

“One of the biggest risks to any business is change, and we’re in an industry that is changing all the time,” Roda said. “It seems that states are passing new cannabis-reform measures every couple of weeks now, and capital is already entering the industry at an increased pace, even in advance of any sort of meaningful federal action.

“When that federal action inevitably comes, and the metaphorical dam holding back mainstream capital sources from the industry bursts away, a major inflection point will follow.”

Roda said Abaca customers’ expectations (and their customers’ expectations) will change, and market share will be redistributed across the vertical. 

“Winners will emerge, and others will get left in the dust,” he said. “Our biggest challenge is to ensure we stay in tune with our customers, so that we can meet and hopefully exceed their expectations – not just today, but into the future.”

Moving forward, it goes without saying that Roda supports the legalization of recreational cannabis use in the state of Arkansas.

“Absolutely.” And he says it’s hard for him to imagine any argument to the contrary at this point.

“But it’s also hard to imagine that we’ve criminalized the simple possession of a naturally-growing plant that helps so many people for so long,” he added.

Roda with team members (from left) Becky Cunningham, Martena Cash, Brandon Bowles and Megan Phillips.

Roda thinks Arkansas’ current medical cannabis program is “a great example” of how a well-regulated cannabis system can be launched in a state responsibly.

Abaca continues to flourish as the company is ramping up to launch with a new partner bank in California this quarter and will continue its expansion nationally. At the same time, the company is adding new features and services to its platform, such as built-in payroll processing, expanded lending options and treasury management capabilities, Roda said.

With offices in North Little Rock and Chicago, Abaca and its partner financial institutions are currently accepting traditional bank account applications in Arkansas, Colorado, Florida, Illinois, Louisiana, Michigan, Missouri, Montana, North Dakota, Ohio and Oklahoma. The company’s fintech banking platform also offers lending and payment processing services to cannabis and hemp/CBD businesses nationwide.

“We’ve got a great group of operators who are creating jobs and having positive impacts in communities across the state, and I think those who were worried that the sky was going to fall are likely pleasantly surprised at this point, to look around and see that nothing of the sort has occurred.

“The sky will not start to fall when cannabis is readily available for sale to all of-age Arkansans with a valid ID, either. And we will continue striving to improve functionality and experience for its customers here in Arkansas, and everywhere else.” 

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