Mike Kennedy
Co-founder and Head of Product, Green Check Verified
Age: 29
Industry experience: 10 years
While working at a software firm that helped community banks and credit unions manage Dodd-Frank requirements, Mike Kennedy heard from executives who were looking for niche market opportunities to grow deposits and remain competitive against larger banks and fintech providers. At the time, the cannabis companies across the U.S. were often unbanked, and Kennedy became interested in how to guide financial institutions through regulatory requirements so they could work with the cannabis industry. The result was Green Check Verified, a New Haven-based software company Kennedy co-founded in 2017. Green Check provides banks and credit unions with an automated account-opening process that complies with appropriate state requirements, ongoing transaction monitoring oversight, and regulatory reporting.
Q: How did you get together with Green Check Verified’s other co-founders?
A: Our CEO, Kevin Hart, is my college roommate’s dad. I’ve known him over a decade. His background is in enterprise software, and he was approached to build a point-of-sale system for the cannabis industry. He saw firsthand the challenges cannabis businesses had in not being able to access the financial system. I was in the banking world stumbling on this problem, but from a different perspective. I’m seeing this growing need from the financial system for these cannabis deposits. So, we put our heads together to try to come up with a solution.
The rest of the founding team gravitated around that core mission. As we built out our team even further, we really had to make sure that we didn’t just have the technology experts and the folks on the software side but also the subject matter experts who can help inform and guide the development of our products.
Kevin and I are a generation apart. He has a proven track record of success whereas I’m at a different point in my career. I think that’s worked really, really well for us – being able to blend new perspectives with existing experience and understanding of certain market dynamics.
Q: How has the industry reacted to Green Check?
A: We had assumed that selling to a traditionally risk-adverse market segment in financial institutions would be difficult. Layer on the visceral reaction some people have whenever you say the word “cannabis,” and we thought we were facing an uphill battle. What we found was there is a much, much higher demand than any of us had originally anticipated.
The inevitability of your institution coming into contact with a cannabis business or a cannabis-related business is very high. So, whether you’re trying to prevent those funds from entering your bank or taking advantage of the opportunity, it is a very real hot topic, and that has been very good for us. We’ve been able to expand to almost 20 financial institutions in just a little over a year.
Q: Green Check this month launched a new consulting service for financial institutions looking to enter cannabis banking. What brought that about?
A: We were getting clients coming to us with programs that were “developed” by other consultants – maybe they were compliance specialists in another domain, maybe they were just trying to get out ahead of an emerging market – but the resulting deliverables were just not up to par. Some of the policy templates that we saw and some of the workbooks put together for these banks and credit unions didn’t account for the necessary regulatory requirements. They didn’t provide for realistic oversight given the constraints many banks are under.
We decided that we were going to formalize the work that we were already doing and use it as an entry point for some banks that were maybe canna-curious: They’re thinking about getting into the industry, but they aren’t quite ready to make the jump to contract with a software provider like Green Check.
You could have a strong cannabis banking policy and all the right account opening documents and a good risk assessment, but if you have a commercial account-opening policy totally separate from that program that has a line such as, “We won’t open accounts for any federally illegal business,” you’ve now just created a conflict in your own policy. So we’re looking beyond just the narrow view of, “We’re going to bank cannabis so we need these documents and these controls in place” to “We’re going to bank cannabis so we need to look holistically at our compliance function and determine if there are other areas throughout the bank that need to be revisited as a result of this decision.”
Q: What’s the biggest challenge for banks and credit unions?
A: Education, definitely. I think because this industry moves so quickly, there’s a large opportunity for signals to get crossed, information to be misunderstood or misconstrued, assumptions to be made. Because cannabis as a whole has this negative connotation to it, it does create this sort of invisible force that holds a lot of bank boards of directors from openly talking about it at a board meeting.
In all reality, many banks are banking the cannabis industry in some form or fashion. Maybe it’s not a business directly, but maybe they bank a plumber that services the dispensaries in their state. There is a very real possibility that every financial institution in some form or fashion has cannabis-related funds flowing throughout their institution. The reality, though, is that too many boards and executive teams are leery of talking about it, let alone addressing it head on. And that’s really where the risk comes in. Because if you’re not openly talking about it and developing a program, then how are you able to effectively mitigate the risk that your institution is being used to facilitate illicit transactions.
Q: What are some opportunities with cannabis banking?
A: There are models emerging that make lending, particularly on the real estate side, more feasible for cannabis businesses. The primary objection many bank and non-bank lending institutions have is: How do you collateralize a loan against a federally illegal business if there’s a risk that that property could be seized by the federal government? What does that credit risk rating model look like? We’re working on a number of different strategies to create a more mature lending landscape. Because the result of banks not offering lending services are outrageously high interest rates that are being provided to cannabis business from private lenders.
Lending in general is the next frontier to be explored. With markets continuing to grow, businesses will fail undoubtedly. But those that are successful will want to double down on that success, take on some outside capital and expand their operations. I think that’s a real opportunity.
Kennedy’s Five Favorite Woods to Use When Building Furniture
- Walnut
- Sapele
- Jatoba
- Cherry
- Mahogany
