As a banker in Portland, it wasn’t unusual for Robert Kerr to field inquiries from dozens of cannabis industry executives. After all, Oregon was the first state to decriminalize possession of small amounts of marijuana and among the first to legalize the sale of it. But as a lender at Opus Bank, he couldn’t give them a penny.
Traditional banks can neither accept money from nor loan to marijuana-related companies. The federal government considers marijuana to be a “Schedule 1” drug, in the same category as cocaine, even though 33 states currently offer a legalized version of the cannabis product. Laws vary depending on the state, but none of them offer an easy banking solution to growers or retailers. All the while, sales of the cannabis plant and its end products continue to soar.
Taking note, Kerr left his post of 20 years and began gathering savvy investors (some of which he calls “alternative sources”). “The need for capital was quite high and they lacked someone with capital, but they also lacked someone with knowledge,” he says. So he founded eQcho (pronounced “echo”) Capital and now from his home office in rural Washington near the Oregon border, he lends to this “underbanked” industry. But not just in the Pacific Northwest. “Anywhere it’s legal – medicinal or recreational – we can work with them,” he says.
His clients, 99 percent of which are in the cannabis or hemp business, are typically referred to him by banks or other lending agencies. They most frequently require real estate or heavy equipment loans, particularly the growers or those running an extraction facility. “Our investors understand that owning the real estate makes sense,” he states.
Kerr has seen his share of truly green (no pun intended) business people trying to get rich quick, both on the retail and the lending side. “There are pretenders,” he laments, but Kerr positioned eQcho in a different light. Clients are not just loaned money, they gain a financial advisor in Kerr’s two decades of lending expertise. “I have a fiduciary responsibility to them. My job is to do what’s in the best interest to them. I understand what a lender wants to hear, that’s my value,” he says. “You take on a client over a period of time. You’re trying to help supply all of their financial needs. You become an advisor and help them grow.”
Kerr walks clients through a myriad of banking processes and even advises them on issues like escrow. He knows the future of cannabis lending will require more than just deep pockets. There are varying restrictions to keep track of in each state and the federal 2018 Farm Bill that legalized the cultivation of hemp, an ingredient in Cannabidiol or CBD oils.
“Time is of the essence,” he says of the rapidly growing industry. “Everyone is racing to see who will be the players in this space,” but Kerr reminds his clients and investors that big ships like the U.S. government don’t turn fast and neither do traditional banks. Still, there is an urgency. eQcho was created due to the lack of funding resources, and quite honestly, I have to create a portfolio of accounts or I’ll get squashed.”
The next evolution of eQcho? “Instead of using other people’s sources of capital, we will have our own source of capital,” Kerr says.
Becoming a direct lender is his ultimate goal and he’s considering mergers or other collaborations. While multiple groups have shown interest in backing eQcho, Kerr knows the most valuable asset is himself.
“The cannabis industry needs someone that can understand their space, understand who they are and what they’re about, but at the same time also understand lending.”
Kerr is that person right now, bridging the gap between capital investors and the marijuana business in some very large California-based transactions.
He predicts the cannabis industry will resemble the beer industry in about five years. There will be major players like Anheuser-Busch or Coors and there will be smaller providers like today’s microbreweries. “The players that decided who their end consumer is are more successful,” he points out. Those who haven’t mapped out their demographics are ones Kerr isn’t excited to do business with.
It’s actually the companies that want to improve natural remedies that he is most passionate about. “I’m a big believer in medical cannabis,” he says. “I’m a big believer in the medical benefits of the plants.”
He cites advances in marijuana-based treatments for epilepsy and cancer. “If groomed correctly, these companies can really take a big bite out of western medicine.”
An educator at heart, Kerr also wants to better his client base. He’s working on a series of four to seven videos to help cannabis companies better understand and prepare for working with banks. Each will focus on subjects like how to fill out lending applications and personal financial statements.
“They’ll break down how a lender thinks,” says Kerr, who has a Master’s Degree in Education. “This way, the industry can learn and be better about speaking the lenders’ language.”
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