Bridging The Gap Between Financial Institutions And Cannabis Industry With Credit Scores

Credit scores might help add density to the somewhat depleted financial landscape of the cannabis industry, which has long struggled with access to traditional financial services as banks remain hesitant to offer loans, lines of credit or other support.

With the launch of CTrust's Cannabis Trust Score (CTS), the industry is presented with a solution designed to help address these challenges and add to the cannabis financial market maturity. In this exclusive interview, we dive into the matter with CTrust’s founder Dotan Y. Melech.

The Need For Banking Solutions In Cannabis

Due to federal prohibition, financial institutions have found it difficult to serve cannabis-related businesses (CRBs), even in states where cannabis is legal. In this context, risk assessment tools might help banks and lenders evaluate the financial health of cannabis companies. At the same time, these instruments might be of assistance to financially healthy cannabis companies in need of gathering capital.

Melech emphasizes the magnitude of what we can call a transparency problem, that translates in reluctancy from financial institutions to build instruments for the cannabis industry.

“We have seen a serious gap between the needs of cannabis businesses and the willingness of financial institutions to engage with them,” Melech said. “This isn’t just a regulatory issue—it’s about financial security and growth. Cannabis businesses need access to the same services that other industries take for granted, such as loans and credit lines.”

The point being that adding instruments may help reduce the reluctance of lenders that have punished good cannabis business.

“Banks simply don't have the tools to assess the risk associated with lending to cannabis companies. That's where CTrust comes in,” Melech told Benzinga. “We've developed a proprietary algorithm that evaluates over 1,700 correlation points across 42 business categories. This isn't a generic score; it's specific to the cannabis industry, designed to give lenders the confidence they need to extend credit.”

Read Also: Are Banks Ready To Serve The Cannabis Industry? What One Expert Says About The Future

New To Industry Instruments

The Cannabis Trust Score offers also a detailed risk report, giving banks and other financial institutions clear insights into a cannabis companies’ financial stability.

“We evaluate three main areas: asset, structure, and character. These factors, combined with data from Metrc track-and-trace and point-of-sale systems, create a comprehensive picture of the company's financial health,” Melech explains. “For the first time, lenders can base their decisions on solid data rather than fear or speculation.”

This risk assessment is critical in an industry where many financial institutions still operate under a cloud of uncertainty. According to Melech, "Cannabis businesses have always faced a cost of capital that's far higher than what's justified by their actual risk. With the CTS, we're leveling the playing field. Financial institutions can now price loans fairly based on the individual business, not on the stigma of the industry.”

Read Also: What Investors Need To Know About 2024 Cannabis Risks In Under 3 Minutes

What Credit Scores Add To The Cannabis Industry

As the cannabis industry evolves, tools like the CTS will likely become more important. Many states, including California, have faced a wave of delinquent taxes and financial strain as cannabis companies struggle to stay afloat.

Melech sees the CTS as a critical step in addressing these issues: “When banks and investors can clearly understand the risk of lending to cannabis companies, they're more willing to engage. This opens up lines of credit and makes it easier for cannabis businesses to grow and thrive.”

Looking to the future, he envisions a more inclusive financial system for cannabis companies.

“We believe that within the next five years, cannabis will be as bankable as any other industry. Banks just need the right tools to assess risk properly, and once they have those tools, capital will flow. The CTS is just the beginning—there's a lot of potential here, not just for lending but for the entire financial ecosystem surrounding cannabis,” Melech said.

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Secondary Market For Cannabis Debts

By providing transparency and a data-driven approach to risk, CTrust is adding financial density to the industry. As more financial institutions adopt tools like credit scores tailored for the cannabis industry, cannabis businesses will find it easier to access the loans and credit they need to succeed, contributing to leaving the banking crisis in the rear mirror.

“Cannabis is no longer the wild west it was a decade ago… This industry is growing, maturing, and becoming more sophisticated by the day. It's time for the financial world to catch up. With tools like the CTS, we believe we're laying the foundation for a healthier, more accessible financial future for cannabis businesses everywhere.” Melech concluded. “There are a lot of great cannabis companies that have shown they are worthy of these financial services and fair pricing.”

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