Lending in frontier segments, with Todd Kleperis

Not all bankers wear suits - some, like Todd Kleperis, are built for frontier markets. It has been a decade since Washington and Colorado legalised the use of marijuana, and 17 States have followed suit, but with federal legalisation not yet on the books, most banks in the United States remain wary of the $33 billion industry.

This, in turn, leaves the fast-growing sector starved for credit. Forged out of frustration with this status quo, Todd and his team built Payzel to fix this by offering funding to cannabis businesses, new and established. More on Payzel can be found at https://payzel.com/ or on LinkedIn at https://www.linkedin.com/company/river-florida/

And it turns out, cannabis isn't the only industry considered too risky to touch, so Payzel have expanded into other frontier market spaces. The Sea Pods we spoke about have just been launched this week, so head over to https://oceanbuilders.com/ for some modern living design inspiration

You can learn more about myself, Brendan le Grange, on my LinkedIn page (feel free to connect), my action-adventure novels are on Amazon, some versions even for free, and my work with ConfirmU and our gamified psychometric scores is at https://confirmu.com/ and on episode 24 of this very show https://www.howtolendmoneytostrangers.show/episodes/episode-24

If you have any feedback, questions, or if you would like to participate in the show, please feel free to reach out to me via the contact page on this site.

Regards,

Brendan

The full written transcript, with timestamps, is below:

Todd Kleperis 0:00

You can see clearly that, over the last couple of years, including with the pandemic, there has been no downturn in the cannabis industry. It's actually been growing exponentially.

We're in a financial marketplace for the industries that are what we call frontier: hemp, hydroponics, cannabis, CBD. We have multiple banks, we can introduce them to and then, on the backside, where we make our money is in the lending process. So when somebody like Brendan wants to expand his store, or he wants to go grab some inventory, or he wants to buy some lights, and he needs to finance it.

Brendan Le Grange 0:31

The fact is, I am not going to be able to monetize this episode, for reasons that really underline some of the points that Todd Kleperis raises in it - it may have been a decade since Colorado and Washington first legalised the recreational use of marijuana, and many states and territories and indeed many other countries may have followed since, but the people in businesses working in what is now a $25 billion legal cannabis industry still struggle to access financial services.

Payzel is a FinTech that is dedicated to putting that right, and indeed to serving all high risk frontier industry segments. Welcome to How to Lend Money to Strangers with Brendan le Grange.

Todd Kleperis, founder of Payzel as well as a few other businesses, actually, I'm delighted to be chatting to you today. You are not a traditional banker, I think it's fair to say certainly, you're not somebody who's going to be doing something, just because that's the way we've always done it in the industry.

So before we find out what you're doing today, would you mind introducing your background and the sort of experiences you've had that have shaped you into the type of FinTech entrepreneur that you are today?

Todd Kleperis 1:54

Well, thanks, Brendan. I appreciate that. And I'm absolutely not a banker, I'm a technology person that stumbled into banking.

About seven years ago, a retired police officer at the time he called me and asked me to put some technology on one of his armoured trucks. I didn't know why he had said, 'geez, the armoured truck smelled like cannabis' and I went 'what?!' and that was the start of what was then, and still is, an armoured car company called Hardcar - which was the cannabis industry's first real transportation company, move money one way and move product the other way.

I got involved because of the technology side and then I quickly understood that the banking industry was not even existing seven or eight years ago. So we got the first bank which is called Technicolour, which is a credit union down in Burbank. And if you remember a thing called Looney Tunes, well Looney Tunes was a cartoon, but in the background, you saw something called Technicolour, well technicolour was actually the credit union for all the Hollywood stars. And believe it or not, they like cannabis! And so they wanted their own banking programme, they created that programme.

We then pushed all the money to the Federal Reserve. I wrote the first white paper for the NCIA, which is National Cannabis Industry Association with over 2,000 people. I had 16 lawyers that helped me craft the white paper which was, and still is, used by bankers today to help them get into the cannabis banking industry.

What I realised was that the banks themselves are really lost in terms of cannabis banking. In my experience, I've just used technology, I kept leaning on technology that was going to enable the banks to move quicker and safer and do things in compliance, that would enable them to be able to bring on more accounts. And then what we realised was, we were able to expand into other industries. So now we're into everything from sustainable ocean based housing to carbon credits from an ESG firm, to robotics, autonomous systems, all kinds of things that are really frontier spaces, frontier markets.

Because those are the hardest typically to find banks that will say yes to so things like hydroponics. Now you and I know hydroponics as the stores where you can go in and buy things for blueberries or for avocados or for tomatoes, but they're also the store where you can buy things like grow medium, or nutrients. And those nutrients can be sold to anybody, arguably, but one of the hardest segments to justify is the banking side. So we push forward in that segment. And we've been very fortunate and happy doing it with one of our largest clients, which is a couple billion dollar client in our space. So it's been good.

Brendan Le Grange 4:26

Yeah. And one of the things that I really love is their tagline of yours "forged out of frustration and built on trust", which I think is the perfect entrepreneur tagline in a few words there.... but what is that story behind the frustration?

Todd Kleperis 4:42

American Express cancelled my credit card after 30 years - I was a platinum member. Ford cancel my credit cards after I had I had six armoured trucks. In the industry and having been in the cannabis industry for quite some time. All of that was powerful. It was weird, was very disheartening, because you know you don't want your credit cards cancelled and you don't want your bank accounts changed. But what happens is the banks themselves really were unfamiliar with the cannabis space.

And so 'forged out of frustration' is just because we were really, really frustrated dealing with the banks that we had.

So we went out and found more banks. We actually have what we consider to be the largest network of cannabis-friendly and/or frontier market friendly banks. And now we've pushed forward and we've got great relationships all throughout the United States, we can manage any cannabis company that wants to get bank accounts or lending all throughout the United States.

And now we're tackling other industries with the same platform, a FinTech enabled platform to be able to bring the process the onboarding, the credit selection, the determination factors and originating loans, all that stuff.

Brendan Le Grange 5:43

You're in a few of these frontier markets, but I think for the man in the street, the cannabis industry is probably the most visible of those from an outsider's point of view. If I think about what I know about cannabis legalisation in the US, the first of the current wave came in, say, 10 years ago with Colorado and Washington. And there've been states coming in ever since.

But what does that market look like the legal cannabis industry today in the States?

Todd Kleperis 6:10

Well, it's billions of dollars that's been growing - actually exponentially - throughout the pandemic, and through every single hard push that has tried to keep the industry down.

The challenge I find, Brendan, is I'm 50 years old and when I look at the cannabis industry, I go, why has this not been legalised for the last 40 years, and it really is the bastard stepchild of pharmaceutical world where they're now pushing for a lot of different companies in different industry segments to get involved in this space. Now, we're seven years into prohibition, I mean, in California, the largest market was opened up for recreational sales. And we still have literally only 1,000s of stores.

By the time this thing becomes federally legal globally - I don't mean just in the United States, countries like Thailand have now gone recreational, Mexico itself went fully recreational - the more and more that people realise that the actual medicine can be used to treat things like kids with seizures, they've got PTSD related information for veterans like myself that are able to get around taking heavy doses of medication, I mean, the cannabis industry should have been recreational long time ago. It's not, but what we're doing now is we're pushing the banks. The ones that are really, really into the segment itself, are normally the banks that are a little bit more forward thinking.

Why is that important? Well, because most banks have a certain profile, they will do certain things and they won't do others. There are banks in the US and then globally, that will do markets like gambling, maybe guns or online gaming and or cryptocurrency for instance, and there are other banks that will not. The Bank of America does not have a cryptocurrency policy today, that's just not going to happen.

So will the digital currency industry ever interact or intersect with the cannabis? That's been brought up a lot of times, even on one of our major customers, the CFO is on the phone with some of the banks and and said, 'do you have a crypto policy'? It was one of the first questions that a CFOs mouth and I kept thinking man, this is a multi billion dollar company and this is the CFO, and he's asking them if they have a crypto policy. So I knew that it was going to be an issue to them specifically to take payments and to do some of the things in currencies like that. But I can introduce you to five or six banks.

And I do believe that there will be an intersection. I just think it's toxic right now because there is very limited visibility into where the money has originated from that makes it a challenge in our space. But I think in the cannabis space, it's going to be verboten for the next two to five years at a minimum.

Brendan Le Grange 8:36

Yeah, I'm going to do the dangerous thing of speaking about two things I don't know much about at all, but yeah, the knee jerk criticism of cryptocurrency has always just been used to finance drug deals. So if you're not trying to give the people that are resisting legalised cannabis any more ammunition it is just as an awkward fit.

Todd Kleperis 8:57

But we just set up an ocean sustainable house firm called Ocean Builders. There are ocean based homes that you can buy with cryptocurrency. The market for banking and/or Financial Technology Services is expanding rapidly.

The slowdown in the FinTech space is only because you've had a lot of neobank, or challenger banks have raised a lot of money, but have not really delivered an awful lot of results. Whereas we have one of the largest customers in the entire industry as our main customer. We've got lots of other customers that are coming through our platform. And we're doing the work now, where we see a lift for, you know, the next 10 to 15 years of increased lending increased ability to get liquidity for all these companies to grow and expand. It's great. It's good. It's a good segment to be in.

Brendan Le Grange 9:42

Yeah. And when we first met in the real world, it was because of this idea of folk in the cannabis industry who couldn't have access to traditional credit. And if you're an orange farmer or a lettuce farmer, you're not going to have a problem getting a bank account. I looked at a report the other day from Leafly which put cannabis as the fifth biggest crop in terms of value in the US at the moment.

Why do cannabis growers and others in the in the industry is still struggle to participate in financial services?

Todd Kleperis 10:13

Well, it's becoming more and more prevalent. There are a number of banks that are opening up quickly. There's companies that have gone public, like safe harbour financial services, which has gone public recently, that's going to be opening up a lot of accounts. There's other banks that are bringing in accounts as quick as they can. It's just the larger banking population, the United States has been so risk averse, because it was federally illegal for them to bank the cash and then to know your customer, or KYC, the money upfront was almost impossible.

So you'd have people walking into a cannabis store, buying everything in cash and then leaving. If the federal government had been wise enough to figure this out, one of the easiest pinpoints they could have stopped or started was, hey, let's just allow credit cards. It would have enabled them to know who the patients where, it would enable them to see how quickly they were making the payments. But everyone said no, no, no credit cards can't use those. Can't use banks, those banks are not gonna be able to take it.

So all the banks that we work with, I mean, every single one of them, we have a $60 billion bank is probably our biggest bank and even that bank is hesitant, because they're just fearful that they may lose their charter, they may have a lawsuit. It's never happened. There's been infractions. There have been banks that have had sanctions put against them, because they did shoddy KYC work, but they would have gotten in trouble if they were in any industry. It's not just the cannabis industry.

So I think the banking is coming.

The lending is really where the push is. Exactly what you had said Brendan was 100% accurate. Most of these companies don't even have a soft credit profile. You know, the reporting was 'hey we're hiding money under the under the bed or they're putting money - I saw barrels, this is no joke, I was up north, I saw actual 55 gallon barrels stuffed with cash in the ground.

That's the way this has been for the last 20 years in the United States. And it's only the last five years that things have really kind of changed. Unfortunately, we've been at the front of it, we're enabling the bank account opening. So a bank account origination for any companies within the United States that are looking for bank accounts, either in hemp hydroponics, cannabis, any kind of frontier industries, those kinds of markets are very difficult for those guys to get bank accounts, we have multiple banks, we can introduce them to and then on the backside, where we make our money is in the lending process.

So when somebody like Brendan wants to expand his store, or he wants to go grab some inventory, or he wants to buy some lights, and he needs to finance it, you'd come back to Payzel after you've gotten your bank account all squared away, and you'd say and I'd like to have some access to some lending. And then we present you with multiple lenders, which then you can choose your selected routes, we're in a financial marketplace, for the industries that are what we call frontier finance.

Brendan Le Grange 12:42

I guess the received wisdom in the industry that these are risky markets, and maybe see them as scary, but what are you seeing in terms of real risk? What is the risk actually like lending to these businesses and providing finance and this frontier space?

Todd Kleperis 12:56

Well, I think any lending is risky to a degree, depending upon what you're lending against, right? And if there's assets, or if there's no asset, it makes a bigger difference. If there's just financial data, and somebody wants to get a lease, that's a different kind of conversation.

And there is risk, but it's not as high as say, for instance, you know, hard money lending where you have somebody that's just going to give you 20% a month there, you know, these are, these are real banks with real rates. So we have as low as like 8% to 6% on some loans 12% on others, up to 18%, you know, but not into the 20s and 30s percent where it's excruciatingly painful for companies - because you got to understand, I was and still am a cannabis guy, like I started a cannabis distribution armoured car company, I was the guy that did all the insurances, so I know what the pain points are of a lot of these companies.

You know, interestingly, Brendan, you'd think that a lot more more people would do their due diligence and really look at whether or not some of the industries they're investing in is specifically to banks are even recession proof. Now, if you look at the cannabis industry, and you seen the numbers, you can see clearly that over the last couple of years, including with the pandemic, there has been no downturn in the cannabis industry.

It's actually been growing exponentially. If I was a betting person, which I'm not if you had to lay a wager on whether or not more and more people would see this, they will and they have to because I mean, these are publicly traded companies that have to have the right financials that have to have the right backing that these things can go through squeaky clean, and they get bank financing.

So it's actually believe it or not, from a logistics perspective, if you can get around the industry, if you can get around the risk of the industry. It's very, not recession proof. But recession enabled has that because people will always go out and buy certain things. And cannabis is one of those things that once people have it they typically don't want to give it up.

Brendan Le Grange 14:45

Yeah. So it's quite interesting to me because this we first met there was this group of people who are now operating in legal businesses and are still finding themselves removed from the from the ecosystem. How do you go through those checks? How do you bring them in and open their accounts? What sort of data are you looking at to be able to do what others haven't been able to,

Todd Kleperis 15:07

we've put in an awful lot of systems, everything from even looking at how long they've had their SIM card in their phone to how long they have had their rent to how long they've been at their existing location, what we have to do an awful lot more due diligence, and we actually have site visits will actually go and make sure that the bank is happy will take location based information.

Brendan Le Grange 15:29

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Todd Kleperis 15:58

One of the funny ones that just came up this past year, was bank related finance for mini grids. So solar mini grids in the cannabis industry were not being financed. We had a bank that we had helped get $150 million line into and they said geez, we'd love for you guys to help us with this solar finance over here for mini grids. And I would have never even thought, Brendan, at that was even a possibility. But it is now and we have the ability to offer those to cannabis grow sites, cannabis manufacturers, cannabis operators anywhere and they can reduce their overhead costs by just adding one of these, you know, systems onto their building. So there's going to be multiple opportunities that come from the banks themselves that will bring the good back into the companies, which is great. I think that as you see this industry progress within the next two to five years, you'll see even more opportunities where before you couldn't even get a home loan. Two years ago, three, almost three years ago now. I had a guy from Maine, like really far up in Maine, and he calls me up and he says, Look, I'd like to get a home loan. I've been working for a cannabis company for two years, and I can't get a home loan, none of the banks will give me a home loan. And I said, Well, what are you looking for? He said, $70,000, he told me he went through six banks, they couldn't get back to it. And he went through two banks of ours and he got the home loan squared away.

And you know, we didn't there was there's no money in it for paisa. We did it because we just support our industry. We like the people in our space, right? It'll all come back to us, we're doing really well.

We've got a credit builder programme now where we can actually help people build up their credit, if they have no credit history in the past, our loan builder programme has done exceptionally well. So we can actually parachute in and get people their information, right so that when they go to a bank, they can actually get the loan process going. A lot of these companies don't realise you can't sell your company to someone else without the right books. They're in business. They're entrepreneurs. They're out there they're doing every day they possibly can.

But when you go to the owner, and you actually sit with them, you say, Brendan, in five years time, do you want to sell your company? And the guy says, oh, yeah, I would love to sell my company in five to 10 years, and I think I'll be able to sell it for x. But you realise you can't do that if you don't have the right financials and you don't have the right information, right. And they all go, oh, yeah, you can't write that better.

So it's kind of a cart before horse in some degree. But it's been going really well. We've been very fortunate.

Brendan Le Grange 18:07

Yeah. Well, there's been a few opportunities to make jokes about green finance, I think that there's a nice overlap there with sort of the traditional green finance space. How does that side of the business work?

Todd Kleperis 18:19

They reached out, believe it or not, we've had other companies that have reached out with some really wild technologies. And I love that. I'm an explorer. Like I said before, when I first started, I'm a technology guy, I was working in robotics on the ocean 15-20 years ago, before it was even a thing, right?

So I mean, I've always seen new technologies. When I had the armoured car company, we were bringing out robots to patrol, you know, outside of cannabis locations with a company called Sharp electronics, I've always leaned towards, you know, unique new technologies to autonomous vehicles is something that I really think is right around the corner and autonomous vehicles couldn't get leasing, and we got an autonomous vehicle company leasing.

I mean, it's just one of those things where you plug and play with the banks, and you make the right matches, and it's just working exceptionally well for the lending process with new innovative industries. A recent one, you might like this is a wireless recharging station for drones. Now, where did that come from? Well, that's because one of the companies we were working with works in the military, and this wireless recharging station is going to be used for some of those applications. And that just kind of all fell together. That is a wild segment.

That is not something that would typically get banks to look at their financing and say, oh, yeah, we're going to wireless recharging for drones. Sure, we'll do that. Go bring that to chase, go bring that to Bank of America, go bring that to HSBC, they're going to say no, unless the chairman or someone in the bank goes, whoo, I really liked that segment.

And that's the way this goes. Some of the banks will reduce their risk when they know that the segment is something of value for them towards the future. And that's what we've been able to leverage which has been great.

Brendan Le Grange 19:49

It's quite an interesting one because so low in terms of the public opinion is obviously very positive towards the green side of that and the banks can leverage that to show the their green credentials and get a bit of kudos. But the cannabis has maybe been suffering from the other. Although I'd argue all that stats show that there's really no negative perception in the public at large but solely in the cannabis space. And it seems like the cannabis side overrules that. And then the financing disappears again. So public opinion energy said that maybe it's more of a fear of the regulator and the fear of the the other rules that might catch them up.

Yeah, I think that mortgage example is a good one of that way. You've got a house, there isn't a house in the world these days that isn't gaining value every month. Do you think that's a no brainer? Right? Yeah, great to hear that you are stepping in here and helping these businesses get up and running. And as they're getting into positions to borrow in the future, to build a credit.

Todd Kleperis 20:47

How do you lend to strangers, right, that's the tagline for most of your work.

And in doing so, these these are really stranger people. These are these are people that you know, come to us right off the net, or they'll come from a referral, or typically, we only work off referrals now, because we just we've got inundated, and with our customer dropping an awful lot of business with us, we work really hand in hand with people like the accounting firms all throughout our industry will refer to us in a better world, we'll be able to handle everybody.

But right now as a startup and growing as fast as we can, we can handle the business we have. We're adding on rapidly and we're growing into 2023, I believe we'll probably doubled our business in 2023, just because of what we've been able to accomplish this year, really exponential growth coming. And we're very fortunate that you know, we're in the space we are right now.

And we'll see that more and more companies are able to grow their businesses in the segment. The hydroponics business as an industry is gigantic. The cannabis industry in itself is dwarfing, most other let's call it nascent industries in the United States. I mean, what is the number one drug worldwide that governments love? Taxes, because once they get their hands on taxes, Brendon, they just never want to let it go. And that's exactly what's happened in the cannabis space is they've got their tax revenue coming through. And a lot of these guys will never ever let that go.

Brendan Le Grange 22:07

And though you're not able to take on too many new customers, but if people are listening and are interested in that journey, maybe how they could learn better to some of these frontier industries, where can they go to learn more about basil or maybe learn more about yourself and their projects that you have going on?

Todd Kleperis 22:23

Well, www.payzel.com is an easy way.

That's simple. There is a way that if somebody was listening here and they needed to get a referral, they could easily come to you or they could come through another cannabis company or somebody in the industry we've already helped would make it a lot easier for us to be able to work with someone if they're a brand new company.

It's just it's a harder road because there's just so many companies that are hitting this right now. I mean, you've got in Oklahoma, the expansion was astronomical and other states like Arizona, they're coming online right now there's there's big growth, it's going to be hitting in every one of the new states that are coming online. The older states like California, Colorado, Oregon, to a large degree had been sorted out, they most people have figured out workarounds to their system. Some of them are still using what I might call legacy banking, where they're hiding in plain sight. Those are the companies I would address quickly and say, you guys need to change that.

Anybody that's in the industry, if you're listening in this, and you're on this podcast, and you're using a bank that is not a friendly bank, we have the ability to help those companies and you can reach out through any one of our referral partners, any one of the local national agencies NCIA, the CCA in California, the Coachella Valley Cannabis Association, we're associated to most of the associations in the United States. So there's an easy way to reach out if we have the right people with the right mission, right.

We're trying to help everybody. But we can only help on a certain basis just because of the amount of traffic we're getting right now. But it's good. I mean, we are we are moving very quickly, Brendan to help as many people as we can. 2023 2024 will be much better off, we'll be adding on a lot more employees, if people wanted to become part of basil that we are doing, we are hiring. And we're looking for really strong people to help us grow the company out all across the United States, and then hopefully internationally in the next couple of years. Because we do have those goals as well.

Brendan Le Grange 24:08

Yeah, well, I wish you the best of luck for that. So yeah, www.payzel.com

Todd, I'm gonna definitely keep an eye on the work you're doing there as well as in the oceans and the solar. In terms of my LinkedIn feed. You're one of the people who I'm always having a look at what you're putting forward because there's always something different. And it's always something interesting. So yeah, I wish you the best of luck and thank you for making the time.

And thank you all for listening. If you enjoyed that, please do rate and review on your preferred podcast platform and share widely including on LinkedIn. And while you're there, send me a connection request. The show is written and recorded by myself Brendan le Grange in Brighton, England. Show music is by Iam_Wake, and you can find full written transcripts, show notes and more content at www.HowtoLendMoneytoStrangers.show

And I'll see you again next Thursday.