EXCLUSIVE: Why This Cannabis Finance Exec Fears The SAFE Banking Act May Not Survive In Present Form

Leonard Tannenbaum, founder, chairman and CEO of AFC Gamma Inc AFCG, does not hold much hope the SAFE Banking Act will pass into law this year. 

In an interview with Brady Cobb, founder of Sunburn Cannabis, at the Benzinga Cannabis Capital Conference on Wednesday, Tannenbaum said the much-anticipated SAFE Banking Act does not show many signs of passing this year in its current state, even together with the America COMPETES Act.

Bridging Asset Management, Cannabis Biz: Tannenbaum is no stranger to the ins and outs of the industry. After selling Fifth Street Asset Management to Oaktree Asset Management in 2017, he said he became interested in cannabis because “no institutional lender could be in this industry.”

For him, it was an open market in which he could apply his knowledge of managing a $5-billion dollar asset manager to the cannabis industry.

“It was an industry wide open to really discovering where alpha is,” he said.

Bluma Wellness BMWLF is among the companies to which AFC acted as the lender; Cobb was the CEO of the company. 

Tannenbaum's Take On SAFE: SAFE Banking “will not pass with capital market support, which means that cannabis companies will not be able to list on [the] Nasdaq [in] New York,” he said Wednesday. 

While there are already cannabis companies listed on the Nasdaq, SAFE would give an easier passage to major stock exchanges to private cannabis companies. 

The Nasdaq-listed companies encounter another issue, he said: the suspicious activity report (SAR).

The problem with these reports is that every big institution has to file them every time they transfer money, which means shutting off access to capital, even for Nasdaq-listed companies.

Due to marijuana being a Schedule I drug, every transaction requires a SAR: for Cobb, there is a “plumbing problem” for institutional capital in its inability to clear its compliance “with everything that flows along with being a Schedule I drug.”

For AFC’s CEO, if SAFE Banking passes, it would be in the form of what he calls “bare-bones SAFE,” because its current form is “too messy to pass.”

This reduced and revised form of the act “may eliminate the SAR requirement,” he said.

Cobb responded that, if SAFE passes, it will be “some combination of administrative action paired with the current SAFE.”

Both of the speakers agreed that one of the central problems facing cannabis companies today is the sheer amount of cost that entails Section 280E of the IRS Tax Code.

The silver lining is that, even with 280E, these companies are making a profit. If in the coming years this section is modified, profits could grow even more.

The Last Word: Even if SAFE would not immediately solve all problems for cannabis companies, it would require the Financial Crimes Enforcement Network and the Department of the Treasury to update their marijuana-related business and their anti-money-laundering guidelines.

Before closing the panel, Cobb asked Tannenbaum to imagine that the SAFE Banking Act does eventually make it through: “Does that affect how you approach and deal with your current borrowers?”

Tannenbaum's answer was promising to many of the players in the industry: “If you guys can get bank financing cheaper, we will fall behind the bank … We want your cost of capital to go down [and] we want you to benefit from that”.

Photo: Dez Smith for Benzinga