A cannabis financial services firm will soon reach the public markets through a special purpose acquisition company (SPAC) merger worth US$185 million.
Last Monday (February 14), Northern Lights Acquisition (NASDAQ:NLIT) confirmed the terms through which it will combine with Safe Harbor Financial for a split payment of US$70 million in cash and US$115 million in shares.
Sundie Seefried, founder and CEO of Safe Harbor, will be the company’s front-facing executive. Safe Harbor, which is currently owned by subsidiary of Partner Colorado Credit Union, offers banking and financing solutions for cannabis corporations; this will be the core of the business and the driver of the public company.
In an interview with the Investing News Network (INN), Seefried said the SPAC method will allow the company to go public after being operational for seven years.
Financial services company to hit the public market
Safe Harbor offers financial services to cannabis companies in the US and has banked US$11 billion for cannabis businesses since its inception. The firm counts about 600 clients within its ranks, according to the executive.
“For us, it’s really about the growth of legalization, and the growth of the market and the opportunity that exists to serve it,” Seefried said.
The US cannabis marketplace is a testing ground that has faced nebulous and fractured regulations. Since the plant and related businesses are still considered illegal at the federal level, states have set up programs with their own rules and restrictions surrounding the drug.
This situation of state rules versus federal rules has left financing regulations in a bit of a gray area.
“Financial services have not kept pace with the industry growth, because financial institutions don’t want to move into the space as long as (cannabis is) federally illegal,” Seefried told INN.
In fact, she said that as of today, the company and its executives could be charged in the eyes of the federal rulebook. However, this doesn’t happen due to current market sentiment and growing cannabis acceptance.
SPAC model gains traction in cannabis space
The investment landscape has seen a quick rise in companies listing through the SPAC method.
SPACs are companies that raise money from investors and then go public with the intention of heading out into the market and merging with another business through what is known as a qualifying transaction. A deadline for the qualifying transaction is a part of the company’s launch, putting pressure on the business’ leaders to find a partner — money is returned to investors if a partner isn’t found before the deadline.
This trend hasn’t evaded the cannabis marketplace, with several companies using this mode of listing.
But despite their popularity, SPACs have had middling to poor results, causing many to become disenchanted.
The leaders of Northern Lights told the market that they see Safe Harbor as a scalable operation with a unique position in relation to potential future US cannabis policy changes.
“Safe Harbor is one of the only multi-state financial service organizations to successfully navigate the highly regulated cannabis banking industry, providing services that operators in other industries take for granted,” John Darwin and Joshua Mann, co-CEOs of Northern Lights, said.
After the merger was announced last Monday, the company closed the day at a year high of US$10.12 per share.
“Safe Harbor is the most compelling investment opportunity we have encountered in the cannabis industry as both operators and investors,” commented the executive duo from Northern Lights.
As of last Thursday (February 17), shares of the company were up 0.8 percent over a year-to-date period with a closing price of US$10.10.
US rules offer “mixed messaging” for companies
When it comes to solutions for financing options and more uniform business options, Seefried told INN policies such as the SAFE Banking Act will offer relief in some forms, but shouldn’t be viewed as a one-time fix.
“(The SAFE Banking Act) isn’t going to solve the banking problem,” Seefried said. The executive explained this policy would really only remove the federal crime aspect of the cannabis business.
The policy would deem it permissible for Safe Harbor to conduct business as it already has been doing, but wouldn’t legalize the financing of this drug market.
Seefried pointed out that mixed messaging is inherent to the cannabis industry in the US.
“That’s the biggest barrier that will keep financial institutions from jumping in, because the resources necessary to build a bank’s secrecy function is extreme, and it’s expensive,” she said.
Seefried told INN the most important rules for a company like Safe Harbor to follow are performing extreme due diligence for its clients and following the money to guarantee legitimacy.
“I have to make sure that I know the company and its business well enough to make sure that money coming in is legitimate money, that it’s being taxed, that it’s being reported,” the executive said.
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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.
The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.