This week, Mark welcomes Scott Jordan from the Alternative Finance Network to explore the unique landscape of alternative lending in the cannabis industry. Scott shares insights from his career journey, breaking down who the key lenders are and what makes alternative financing work for this fast-growing sector. From discussing the legal challenges at state and federal levels to predicting the industry’s growth to $100 billion by 2027, Scott offers a deep dive into cannabis financing and what the future may hold for businesses and lenders.

IN THIS EPISODE:

• [2:20] Scott shares a bit about himself and his career journey
• [4:41] Scott explains who the lenders are in the Alternative Finance Network and the risks and perceived risks
• [9:36] Who are the customers of Alternative Finance Network, and discussion and examples of exit strategies for those businesses
• [14:23] Discussion of federal and state legalities for providing financial services to the cannabis industry
• [20:30] How the lending environment changed since the availability is more widespread
• [23:25] Scott gives his predictions of where the cannabis business is going from the business and financial services side 

KEY TAKEAWAYS: 

• Alternative financing for cannabis-related industries comes from diverse sources, including cannabis-friendly banks, credit unions, leasing companies, and specialty lenders. Many of these funds ultimately trace back to banks or wealthy private investors, creating a network that enables specialized lending.
• In alternative lending, high interest rates can't compensate for risky investments with low repayment potential. Successful lenders look for market mismatches, where perceived risk is higher than actual risk, creating opportunities for smart, lower-risk lending.
• Scott predicts continued growth in the cannabis industry, predicting it will reach $100 billion by 2027. He anticipates gradual state-by-state legalization and eventual federal regulation, especially for safer, cashless payment solutions. They’re optimistic about expanding services, including mainstream credit card options and international market entry, and see social equity initiatives as pivotal for industry inclusivity and growth.

RESOURCE LINKS

Mark Ritter - Website

Mark Ritter - LinkedIn

Scott Jordan - LinkedIn

Alternative Finance Network - Website

Scott Jordan - Email

BIOGRAPHY: 

I created the Alternative Finance Network to serve marijuana and hemp business owners by providing one-stop shopping for all your cannabis loan needs. Whether it is financing real estate, equipment, working capital, or accounts receivable I have a funding source who can fund that loan AND get you the best possible rate and terms for your needs.

Mark Ritter: Hello, this is Mark Ritter, your host of Credit Union Conversations and CEO of MBFS. We are a business lending CUSO with clients all across the nation and we're owned by 13 credit unions who we really appreciate helping them out in a wide variety of business lending. And I've been involved with credit unions for 25 years now.

We like them, and we can't help them out for whatever reason, whether it's industry, structure, location, size, uh, whatever. So, I wanted to bring in somebody to talk about the rest of the world outside of traditional bank and credit union financing. So, joining me today is Scott Jordan of the Alternative Finance Network.

Scott, how you doing today?

Scott Jordan: Doing great, Mark. It's a great day here in Colorado. Thank you very much for having me on the show.

I like this show to be about people. So tell people a little bit about yourself and your career journey and what you're up to today.

Scott Jordan: Sure. Well, um, I live in a suburb of Denver. I'm a single guy, uh, two kids that are grown now. First grandchild on the way. Oh, congratulations. Hopefully January. Yes, I'm all excited about that.

Uh, cannabis being the, you know, the one that predominantly we talk about, although we talk about other things as well, crypto, uh, et cetera, we started off based 100 percent on cannabis. And now probably about 75 to 80 percent of our business is cannabis. And we're looking at doing some other things in real estate and other, um, asset classes as well.

Where we can utilize the same lenders and funding choices that we have just will do different things like hemp, for instance, you know, we, uh, we've just did, uh, looked at doing a couple of hemp deals, so that's kind of what we're up to.

You know, the one piece that I, that I don't understand a little bit about what, and I'll call it the non bank, non credit union lending, uh, the regulated financial industry, you know, where, Where does the money come from? And you don't have to go through every individual lender, but what are the types of sources of funds where the money comes from, where businesses can go to get the financing that they need?

And then, um, they want to lend out at a margin to other businesses that will relend that money out. So a lot of times it's all traced back to either a bank or a company that does lines of credit. For specialty lenders, uh, and then we've got what I call Mo and Joe money, you know, where there's a couple of rich guys or they have a family office or they're like, Hey, we've got a hundred million dollars sitting here.

We'd much rather it earn eight or 9 percent and have to do a little bit of work, then put it in the bank at four and a half percent. And so that's a source of funds as well.

Um, you know, and I do realize at some point, Some price, uh, you know, for, for almost everybody, there's willing to lend them money at some interest rate, but, uh, for, for most of the people that you deal with, are there, what are those, what's the box?

Scott Jordan: So what you have to realize is, is that a high rate cannot make up for a bad investment where people don't pay, you know, if normal rates are, let's say 15%.

For the high quality marijuana cannabis companies. And so companies that were smart came in and made loans because again, it was this terror of, Oh my God, the feds are going to come in and seize assets and put people in jail. None of that happened. It was all rubbish, as the, uh, English would say, and it was like, uh, Y2K, it never happened.

People were afraid of it, the risk never materialized as people thought it was going to be.

And they were turning away. You know, either intentionally or unintentionally good quality businesses. What was that alternative space like during, uh, what I'll call the liquidity crunch of 23?

Scott Jordan: We didn't notice that much difference other than some lenders were out of the market because of, of the way that we run our business.

And because of our business model, um, we're the best source to whether. You know, changes in the marketplace because we have 112 different lenders. We usually have between five and 10 different sources for each type of loan. So whether it's an equipment lease for 250, 000, or it's a term loan for a million dollars, or it's a line of credit for, you know, a half a million dollars.

Mark Ritter: If a credit union has a business where just for whatever reason, uh, seems credit worthy, but they just say, we're out, let's just, you know, keep an easy option and say, we don't lend to that industry.

What's the ideal process like For working with somebody like yourself, when do you want to see an alternative lender start to get involved?

And so if you want what I call, you know, a bank like rate or a better rate than a cash advance. You need to submit P& L, balance sheet, other documents that a lender, uh, wants to see in order to evaluate the riskiness of it and be able to lend to you.

Mark Ritter: I, I'd imagine some borrowers, it, it, it initially, it may be a blow to them that You know, maybe their local credit union or their local bank says, no, we don't lend to this industry.

Scott Jordan: That's a good uh, that's an interesting point there in the cannabis industry Most people know that the bank that they're banking with is not probably lending to them as well Um some do but most don't and most If they lend they're only lending on real estate and most of the time people need working capital or equipment lending You So they come to me and, um, the process is we have a conversation.

And so, um, we've had that happen. We've had three successful exits. One of them by going with debt instead of equity for a 2 million raise that they were going to use for op X, we made that company 150 million more because when they went to sell, they sold for a billion and a half dollars, that 10 percent was worth 150 million, so it can be very, very consequential.

The higher evaluation is and the less equity you're going to have to give up. And that's what we're all about. Cause equity is like your virginity. Once you give it up, you can't get it back. It ain't coming back, baby. So that's what we try to do.

Mark Ritter: So I'm going to get into some of my dummy questions. So you're going to have to bear with me for a little bit.

And some of this is for the education of all, all of our listeners are generally involved in the credit union space.

Scott Jordan: That's what it's about.

What is the state of the world legal status on a federal and state level for providing financial services to the cannabis industry?

Who knows, you know, the race is way too close to call at this particular moment. We don't really know and I'll just leave it at that. So where it is today is it's legal in, I [00:15:00] think 38 states medically and I think 24 for adult use and more and more states are, you know, regulating it and legalizing it. All of the benefits that it provides a lot of jobs, a lot of taxable income, a lot of tourism, a lot of other things that, um, the marijuana industry has created positively for the country.

And we'll continue to create and we'll see what happens in terms of legality and what that looks like. I can't predict that heck. I can't even predict, you know, whether it's going to be Harris or Trump. We're a president don't know, stay tuned. We'll know in three weeks, two weeks, by the time,

Mark Ritter: by the time people listen to this, we will know for sure.

So maybe we could, we could record two episodes with each one winning out.

They, meaning they want you to deposit your money and checking account, et cetera, et cetera. In their bank or credit union in order to be able to get a loan and they want to, you know, monitor and see your, you know, your activities and see that you're handling your account. You're not over drawing it.

You're not doing other things that are going to cause a problem, but if you follow the guidelines, you can get a bank account in any state, probably have a half a dozen, maybe more in some states choices of banks. Didn't used to be that way. It was horrible at the beginning.

No,

Scott Jordan: the big banks are not, are not interested, you know, chase wells. None of those guys are interested in the tiny little bit of money that's there for the risk that they have in the compliance issues that they would have yet. We're seeing Some large banks like, uh, you know, we're seeing for, um, what'd you call it?

Um, uh, for citizens, you know, making a play, they're making a play for your deposits, they're making a play on hemp. They're still not landing. Again, hopefully by the time you read this broadcast, that'll all be old news. Uh, and in the past, but they're not currently landing, uh, for THC, uh, plant touching, you know, businesses.

No revenue generation, 600 grand in, um, lines of credit and term loans. So, and they don't have to worry about losing the deposits to us because we don't take deposits. So we're the perfect solution for banks, I think, and credit unions, because we're not going to compete with them, we're never going to take away that, uh, that customer.

All you're going to do is serve that customer better.

Mark Ritter: So just to reiterate to, for people, there are credit unions taking cannabis deposits. They're following the guidance and it's, they're, they're, they're following a little, you know, it's obviously a different structure, but they're following the guidance and they're not getting shut down.

Scott Jordan: Yep. Some people are ultra, ultra conservative.

Mark Ritter: So, I'm a lender, and, and, and I'm interested in ta from the lending side. Um, you know, I, I know people, you know, you mentioned tourism. I know people who went to, uh, Colorado on vacation. They had their fun, and I'm sure there was lots. I was actually in Colorado last week.

How has that changed the economics and the lending environment?

And then, you know, when the Washington state, you know, went legal, that was it. And unless you had a medical card, you [00:21:00] know, in the state that you were in. So I don't think it's really affected much in terms of, um, those two factors.

Mark Ritter: So I, I would, it almost sounds like, you know, if you have small town or Colorado, maybe you had, you know, in 10 years ago, there could have been a dozen stores in the town.

Now that may be tough to sustain, but they're not, these stores are now, you know, the, the, the net market is stronger than ever. And it's just moved to, Other cities and states. Is that a fair assessment?

Scott Jordan: Yes. And more people have gotten educated about the benefits of medicinal marijuana.

Mark Ritter: Yeah. It's a, and I, and I was surprised.

I was stunned with How everything worked and, you know, walk is just, I was like, okay, I got to see this and, and it was, it was like, it was nicer than a jewelry store. So

Scott Jordan: it was in Manhattan. Yes. Yeah. Yeah. They have some high end stores there. Not all of them are like that. I mean, you do have your cheap bodega, you know, Nothing fancy cheap weed, but you probably paid, you know, a premium for that.

Be interesting to, to, uh, take a look at your bill and, uh, compare that to, uh, other stores.

And it sounds like a similar, uh, setup in the cannabis business. So where do you see things over the next few years with regards to the cannabis business from their business side, but also the financial services side?

Scott Jordan: I think the industry is going to continue to grow. I think that state by state they'll legalize.

I think that they'll do something federally, but if you look at what they did with hemp, Or haven't done with hemp, you know, it's been six years, uh, and it still is not regulated and, uh, they're still doing emergency, you know, stoppage of hemp, you know, derived products. Um, I'm optimistic that they'll get it right with marijuana.

You know, three 50 plus whatever else it costs. And, um, a lot of people are not willing to pay that, um, you know, for the convenience, I think that, uh, we'll start to see, um, more international, um, uh, opportunities open up. Uh, the domestic companies are starting to look at Europe right now. The smart guys that, uh, left Colorado, as soon as the East coast opened up, you know, Massachusetts was really the first East coast state that kind of opened up and a lot of expats went there.

Since, you know, we're really in the early, early stages of seeing what that would develop into. Um, and, uh, I'm greatly optimistic that, uh, more and more people will get into, uh, the industry and, um, it'll be a hundred billion dollar industry. Not too soon. Not, not too long from now, I would say three years from now, we're going to eclipse a hundred billion.

Mark Ritter: I, I just think from a safety and soundness standpoint, the government has to allow and regulate cannabis banking and financial services, so that way it's accessible to everybody. Because you mentioned the cash side of this, that's not [00:26:00] safe.

Yeah, that, that is not safe for, for people to have this cash of intensive businesses with all the technology that we have available. Uh, you know, if I was working in there, that these places, and there's how much cash available, uh, sitting in these drawers in the safes. Uh, I, I would not want to take that risk, but that's just me.

So I really am hopeful that our Congress and the regulatory agencies modernize this and come up with some common sense rules for everybody. I agree. So, so Scott, thank you for joining us. Joining me today is Scott Jordan from the Alternative Finance Network. Scott, tell people where they can connect with you if they want to talk a little bit further.

Equity is tough right now. Debt is easy. Um, you know, come see me, let's take a look at your options. I also connect with many of the VCs and other, you know, angel investors and other investors. So I may be able to steer you. If you've got something particularly compelling, but there is money available and, um, you can get your business started or, or, you know, you can grow with debt.

Don't. Think about always giving up equity because as I said before, it's like your virginity. Once you give it up, you can't get it back. So I'll just leave, uh, your listeners with that thought, unless there's something else you'd like me to answer, Mark, that may have come to mind.

Please, uh, reach out to Scott if you have any business members in your community interested in, uh, looking for financing. And thank you for joining us and I will talk to you soon.

Narrator: Thank you for listening to the Credit Union Conversations podcast. Have a question? Visit markritter. com for more information.