How Cogent Bank is entering the cannabis market

By Julian Hast  –  Reporter, Jacksonville Business Journal

Aug 25, 2022

Cogent Bank had been watching the cannabis market for years before it decided to enter.

About two years ago, after extensive research of the medical marijuana market, conversations with regulators, and work on behalf of the Orlando-based bank’s compliance team, Cogent’s work with companies in the space began.

“There’s clearly a growing demand in the cannabis industry, and it is underserved in the banking arena,” said Scott Flanders, First Coast market president of Cogent Bank. “And that’s not just Northeast Florida. We’re talking about the entire state of Florida.” 

While not lending directly to cannabis companies, Cogent has been allowing cannabis companies to make deposits with Cogent, and has also been lending to the companies involved in the building of facilities, such as strip centers, where dispensaries will be located in the future. They’re also beginning to look at making loans on processing facilities.

The challenge with lending directly to marijuana companies has to do with the collateral that lenders like Cogent would need to take on as security for those loans, said Chris Hartman, chief deposit officer at Cogent.

The biggest piece of collateral that many marijuana companies have is their license, Hartman went on, which is an asset that Cogent does not accept as collateral, partly because its value is so volatile. 

Beyond that, Cogent hasn’t been lending on the raw material, as the last thing it would want is to end up with the product itself.

“Obviously, a bank doesn’t want to end up with the product that they’re selling, because we can’t execute on selling it,” Hartman said. 

To help with the challenging regulatory environment, Cogent also announced last month that it was partnering with Bonita Springs, Florida-based Green Check Verified, a fintech provider of compliant cannabis banking solutions and services.

Asked why Cogent was getting involved in the cannabis market, when so many larger banks were not, Flanders said it might have to do with how easy it is for a smaller institution like Cogent to pivot when regulations change. Not only can it direct resources where necessary more easily, he said, but it also doesn’t have to worry if the program it comes up with can be duplicated across different regions. This is especially important for an industry like cannabis, where many products are legal in states like Florida but federally illegal. 

As of June 30, 2021, Cogent Bank had $692.6 million in deposits, $97.8 million of which were First Coast deposits.

“We’re in a bass boat and [the larger banks are] on an aircraft carrier, and I can carry the bass boat around much quicker than they can turn the aircraft carrier around,” Flanders said.

This has also been a competitive advantage for Cogent, which Hartman said has obtained customers from larger institutions that have chosen not to bank the cannabis industry.

Ultimately, Flanders said, cannabis businesses “deserve to be given an opportunity to be bankable, and as long as we can get them in circumstances where they meet the criteria … why wouldn’t we want to be doing business with these small businesses in the state of Florida?”