Terry Mendez, CEO of Safe Harbor Financial – Interview Series

As cannabis companies become multi-million and even billion-dollar enterprises, it’s understandably vital for them to work with experienced financial advisors regarding the many pressing matters surrounding finance and banking for cannabis businesses. One such advisor who offers both detailed consulting and guidance through the difficult process of cannabis companies finding financial services is Terry Mendez, CEO of Safe Harbor Financial.

What subjects did you study at the Wharton School, and what were some entrepreneurial endeavors you had while still enrolled?

At Wharton I started a business called “Budget Computer Technologies,” building computers from my dorm room and distributing to several campuses across the country. It was a significant way to learn what it meant to run a business and offered me the chance to make some mistakes when I had nothing much to lose. The biggest lesson I learned was to stay away from long-term contracts on technology so you can adopt change faster. Also, don’t give college kids your phone number like I did when I was an RA. You will become all-day and all-night technical support. 

What topics were discussed in the advanced courses you took in applied materials (AMAT ), statistics, finance, and economics? Those sound like pretty extensive courses. 

I earned a Bachelor of Science in Economics with a concentration in Accounting. My coursework included everything from applied materials where I did papers from the materials that supported stealth technology, to the tax policy differences between Bob Dole and Bill Clinton, and the impact the evolution of the Paris sewer systems had on societal societal healthcare. Most importantly, I learned how to rapidly assimilate across a spectrum of topics, and how to deeply and critically evaluate the performance of an organization or a community.

What were your regular duties when you worked with Deloitte, and what were some notable projects you worked on while with the company? Given the giant size of Deloitte as a company, I would imagine those projects would be far-reaching and also quite expensive. 

I was part of the technology media and telecommunication group out of the New York offices, where I focused on technology and telecom – particularly satellite communications. I worked with companies experiencing “moments that matter” or inflection points that required rapid transformation. Companies like Symbol Technologies, Computer Associates and Comverse Technologies, each had unfortunate executive fraud that caused an inflection point causing a need for transition support. I also took several companies through the public offering process. I particularly enjoyed working with the middle market – those who are hyper focused on changing the world. 

What went into the audit and advisory services that Arrow Electronics (ARW ) offered, and what were some common issues you observed during your time serving in that role?

I was the chief audit executive of more than 50 countries, engaging customers and vendors globally and positioning myself to potentially replace the then-retiring chief financial officer. It was a highly acquisitive time for Arrow and we had a team that oversaw everything from forensic analysis to Sarbanes-Oxley compliance. The takeaway? I was surprised that the same issues that plague a small company also affect larger companies – they just have more resources to deal with the issues like disparate financial systems, challenges with information communication, challenges being nimble and the like.

What initially interested you about working in the cannabis industry as a whole? Were there specific sectors of the industry you wanted to work in more than others? 

Cohn Reznick approached me to partner with one of their clients to help them understand why they weren’t making money when the price per pound was in excess of $2,000. We identified areas with room for improvement or transformation, solved the challenges and turned the company around and left the owners with a healthier company. It was truly tons of hard work, but the same strategies I used with Deloitte apply broadly across multiple industries. Understand your customers, your vendors, your competitive environment, your threats and your alternatives. 

Throughout all of the giant companies that you’ve been employed by, what would you say have been the most transferable skills and management styles when it comes to working in the cannabis industry?

Outside of leadership, which is key, I have most leveraged transaction advisory, everything from supporting debt and equity plans, acquiring and divesting businesses, understanding business valuation techniques, knowledge of regulations around publicly traded and private companies and forensic assessments.

How would you describe working in the Michigan cannabis industry specifically, and what are the overall strengths of the industry? And what were the most commonly occurring problems facing the Michigan industry? 

Michigan is a challenging situation given that it is an unlimited license state and has geographical challenges impacting distribution capabilities – and for those that are not vertically integrated, there is tremendous pressure given price compression coupled with rising input costs. 

What caught your interest about working for Safe Harbor Financial, and how does Safe Harbor provide financial services to cannabis businesses in ways that other financial institutions, especially those that are FDIC-insured, cannot?

The core business protects the US banking system by providing high quality compliance services on behalf of licensed and chartered banks and credit unions; everything from mobile banking to moving money between customers, employees and vendors. We have processed $25B in depository transitions over the last decade. This information can – and should – be leveraged into new business channels. Through partnerships, Safe Harbor can now offer a full suite of financial services from bookkeeping to audit and advisory services. Our current partnerships have already expanded our lending capabilities and we’re laser-focused on reducing the cost of operations for our cannabis clients. No other competitor can do this because we bring together client trust built up over a decade, deep information about our clients and we have deep industry operations skills. I have been the CEO and CFO of both a multi-state operator (MSO) and single-state operator (SSO) – affording me the opportunity to earn experience in every aspect of this business. What excites me is the cultivation of beyond banking into actually helping our clients be more successful.

From your experience in finance and financial services, what legislative moves would need to be completed for cannabis companies to be able to reliably receive those currently prohibited FDIC-insured financial services? Would a rescheduling of cannabis by federal authorities be the only legislative move needed, or would there be some sponsored legislation in Congress or Senate like the SAFE Banking Act?       

Your funds are safe and under FDIC insurance protection today, through the financial institutions that partner with Safe Harbor. As banks come in and out of the space, it’s Safe Harbor’s job to make sure you have sustainable access to banking services at financial institutions committed to the space. Rescheduling or legalization will drive growth for our clients and thus for Safe Harbor. The STATES ACT 2.0, is the most commonsense solution, thus moving power to the states that have already invested in regulatory frameworks that are fairly refined. The STATES ACT 2.0 addresses interstate commerce, provides 280E tax relief and allows the current state regulations to stand while providing financial institutions more safety thus potentially expanding the number of financial institutions that bank cannabis. Our customers are financial institutions and our clients are cannabis operators. More financial institutions means more opportunities for Safe Harbor.

Whenever a large-scale federal reform for cannabis occurs, whether that’s an entire federal rescheduling or a monumental piece of legislation like the SAFE Banking Act, how do you envision this large-scale reform changing the operations of Safe Harbor?   

Investing in cannabis as-is requires a high risk tolerance. Either regulation will reduce risks associated with investing in cannabis, increase deal flow, decrease interest rates and drive the success of our clients who deposit their success with our financial institutions. Anything that drives the success of our clients we want to support and encourage. Today, there are federally legal industries from crypto to travel agents that have difficulty banking with the largest institutions. Regardless of the regulations, the core compliance business is still needed to safeguard the US banking system. The Anti-Money Laundering (AML), Bank Secrecy Act (BSA), and Know Your Customer (KYC) regulations are not going away anytime soon.

Thank you for joining us, Terry! For more information on Safe Harbor Financial, please visit its website.