Cannabis Banking Comes Down to Compliance | Scott Miller, United PrairIe

We sat down with Scott Miller, CEO of United Prairie Bank, for a conversation that gets into the realities of cannabis banking in Minnesota.

This was our first time working directly together, and it was clear right away that the focus is on doing things the right way. Supporting operators, understanding the risks, and building systems that actually hold up.

One theme came up throughout the conversation.

Compliance.

As Scott put it, if you don’t get compliance right, regulators can step in and shut things down. 

That reality shapes how banks approach this industry and what operators need to be prepared for before they ever walk through the door.

We also talk through:

• Why some operators hear “no” early in the process (“dream crushing”)

• The three things banks look for: commercial experience, working capital, and business acumen

• How United Prairie approached cannabis by building compliance first, before opening accounts or lending

• Why cannabis banking is ultimately a risk management decision

This is a straightforward conversation for people who are actually building.

Appreciate Scott and the United Prairie team for taking the time and being part of it.

Transcript

SPEAKER_00 0:01

The thoughts, views, and opinions expressed on the CannaConnect show belong solely to the individuals and do not reflect those of Canaconnect and its affiliates, sponsors, or partners. Canaconnect does not promote or facilitate any activity that violates state or federal regulations. Everything you hear here is strictly for educational and entertainment purposes. It is not legal advice. It is not financial guidance, and it's definitely not medical direction. Seriously, don't take our word for it. Even if someone on the mic sounds like they know what they're talking about, and they're probably crazy smart too. Regardless of how legit our guests may be, you should always do your own homework, consult with your attorney, and understand the risk you're taking before you do anything when it comes to cannabis. Our intention is to keep it real. If you've got a problem with anything we've said, take us to court.

SPEAKER_02 1:05

Yeah, me too. I'm like a part of this.

SPEAKER_01 1:07

Awesome. Has banking changed and how much has the need for marketing and media changed in your in your years as an executive? You know, it's now are you talking specifically about cannabis or just in no just like marketing, you know, and and digital marketing, I guess you could say.

SPEAKER_02 1:25

Yeah, it's I think it's changed significantly. I mean we've gone from relying on people to walk in the branch or you know, to have people-to-people contact. Um we continue to take getting deposits, for example. We have companies now that that um will use everything from social media, which is easy, to other kind of geo, um geotype to get to get the word out. We do a lot of social media, but the problem is they people already followed us, so they already know us, right? It's how do you get to that group that doesn't know us? And it frankly, it's these kinds of things I think that make a difference.

SPEAKER_01 2:06

That's right, that's right. Um, so for folks that don't know you, uh and United Prairie, tell us a little bit about you in the last two years and and how United Prairie is approaching the cannabis industry.

SPEAKER_02 2:17

Yeah, so just a short snippet on me. Um, I spent 20 years in banking and then I spent a little over 20 years in consulting and um was looking for something else to do. I I retired, but I didn't really want to retire. Okay. Then COVID hit, so it was March of 20, and um some road trips with my wife, and we just you know pivoted a little bit.

SPEAKER_01 2:37

Were you were you retired at March 2020? Had you I was at March.

SPEAKER_02 2:42

Well, the end of March is when I retired from the firm. I was looking at some other things to help some other companies out or kind of have some fun, and um anyway, yeah, you know what that was like. And then I was on the board at United Prairie. There was a CEO change, okay, and um things worked out, and I became president of CEO. Uh what's it like serving on a board? So the the board itself, community bank boards really vary, and we have an excellent board chair, and she's put together a very professional board um for a bank our size. I mean, we have an IT expert, we have credit experts, we have three CPAs. I mean, we've she really has built out a good board. So I came on as sort of the credit expert. I had I'd run the consulting group, national consulting group for 20 years. Um, and so that was fun, and it kind of led into I'd always wanted to be a bank president, but honestly, at that stage of my life, it was gonna have to be the perfect storm, and it turned out to be the perfect storm. Sure. So yeah.

SPEAKER_01 3:39

Um, so it's what is the what is your day-to-day role as a as a bank president?

SPEAKER_02 3:45

You know, I I take the vision piece of it, you know, where do we need to be in five years? What what kind of things do we need to be thinking about today? Uh, it's easy to get caught in the weeds and you know, worry about how you're gonna get to five o'clock. Yeah, but we have such a great staff and we have great leaders uh on our exec team and and even even throughout the organization. So it really allows me to spend more time. You know, we decided to do this. I came on board two years ago, yep, and um we weren't the bank wasn't headed in this direction. And I came out of Michigan, so I um we kind of pivoted and and we made our pitch to the board and the owner ownership, uh, and they said, let's try it. Sure. And we built some guardrails in. We it's a big risk management play. Um, we take that part very seriously. We work with the regulators to make sure they're on board and they understand what we're doing, so there's no surprises. And we build our compliance area, which is the biggest challenge. Um, and we built that before we made a loan or opened an account. So we weren't gonna learn as we go. We felt we needed to get out in front of them. And what's the history of United Prairie Bank? What is United Prairie Bank known for? So, great question, and it kind of leads into why we're here. So uh 1972, a guy by the name of Jim Sneer, our founder, started a bank, bought a bank in Mountain Lake, Minnesota, a little town south of here. And he was a serial acquirer. So we acquired many small community banks. He sold a few, he's kind of a trader, horse trader a bit. And anyway, we grew in through the years to this$950 million community bank. It's still family-owned. Oh, it is. Um, yep. And the third generation is in our bank, okay, which is really exciting. Wow. Very, very good, um, just very good representation. The shareholder support's amazing. Obviously, you can't do this if the shareholders say, no, it's not what we do. But we are one of the largest community agricultural lenders in the country. Wow. So that's the connection. So we said, you know, this is ag. Um, if you can do greenhouse stuff, I mean, this is we're not growing roses, but um we can do this, yeah, we can lend this. Yeah. So it it kind of fit what we were doing. Okay. But we've we spent a lot of time in in making sure that we understood the industry, not just, you know, lend 75% on a piece of real estate. Yeah. But what makes a cannabis company successful, whether it's a dispensary or whether it's a girl operation or ancillary, um, you know, consulting and everything else that's kind of feeding into this.

SPEAKER_01 6:19

And do you have exposure to all facets?

SPEAKER_02 6:21

We we have uh um is that the right terminology? Yeah, yeah, yeah. I think so. We we've spent a lot of time, you know. I saw what happened in Michigan, right? They made um the dispensaries and the graparations making a ton of money. Prices went went through the floor, yeah, and it was a struggle. Yeah. And so uh we're trying to educate our customers, the ones borrowing, you know, you're gonna make a lot of money. Let's just say the first four to five, three to five years should be really good. Maybe it'll stay good, but let's plan, let's plan on what could happen if prices do fall. So so we set some minimum standards on cost uh and sales per pound to try to just to try to educate people coming in so that we're all we're all in lockstep about where this industry could do go and prove you know prepare for the worst. You know, the old adage, you know, right, hope for the best, but prepare for the worst. Yeah. And that's that's I think a big part of what we're trying to do. We we owe it to the industry, the can of and to our customers, yes, to do things right and be a leader that way. And we've done some, we've done it, we did an all-day seminar, yeah, um, to get just to get some knowledge out there for the pool. Yeah, I heard about that. Yeah, to get some knowledge out there, and um I think we're well positioned. Uh, we're still learning every day, but I think we're very well positioned to have our customers.

SPEAKER_01 7:40

There's real surprises that have come across with this stigmatized industry that that we're in.

SPEAKER_02 7:47

Not maybe not surprises, but um, I think there's been a um sort of a validation. So we knew we were gonna get corporate money, we knew we were gonna get some some people that had some liquidity and wealth to do this. Yeah, but we also knew that we were gonna get a large number of people that that had this concept that they were either gonna open a dispensary or grow, yeah, but with no idea of the kind of costs and and time it takes to do that. So um we call it dream crushing, and it's not fun when we have to say, you know what, you need to go back to ground zero, you need to do a business plan. Here's here's five consultants that can help. Okay. If you have questions, call us. We want to help you. Um, but there's a lot of things you haven't thought about. Okay. And and versus, well, we'll take grandma's house for collateral and we'll get you the money somehow. Um, we don't want to do that. That's not good for anybody, including us. And so that has been a struggle. I think the other thing is just the sure volume with so few companies, banks in the cannabis space. Yeah, it's put a lot of pressure on our on our existing systems as we try to swallow this elephant. Yeah, that's been big.

SPEAKER_01 9:03

Um United Parents seems to have a network of resources beyond just banking when it comes to the ancillary providers that uh are equipped to help the entrepreneur or the operator. Who are some of your strongest partners or referrals that that you like to that you like to connect the dots with that when it comes to we would it makes sense because you're you're in my office, it makes sense that I recommend you to this this type of person.

SPEAKER_02 9:31

Yeah, I I'm hesitant to mention name because I'll forget somebody. But if you call us or get on our website, um we we put some of the information out there, and actually that's what's beautiful about being here is we I just I just met a company that can do gap financing, so we can do the traditional stuff, okay, but they can do some of the things that stretch. Okay, that's huge here. And and assuming that you know we're gonna have a conversation next week, but I could see right, I could see that being an example of a tremendous way to um take some of these um uh grow or or dispensary folks, yeah, and and give them that extra bit of of financial help to get them over the needed right now.

SPEAKER_01 10:14

It is in this industry, it is right. So then if you if if someone is still kind of looking for the right banking partner and they're considering United Prairie, what would you what would be three things, requirements or nice to have that are turn into need to have's when the rubber hits hits the road? What is an ideal client showing up with? An ideal prospect showing up with to become a client?

SPEAKER_02 10:39

So um there's three, you know, it's funny you picked three things because we start with three things. Okay. Um, one is uh uh commercial grow experience. Have you grown commercially before? And if you haven't, have you found a partner, a consultant, somebody that has worked and can help lead you through that? We also need to have working capital. Things don't always go right in a new business. This is a portfolio of startup companies, which should scare the hell out of any banker, right? So you got to have people that have um liquidity, yeah. You got working capital. Um, and then business acumen. You know, just if you've never run a business, you know, you think about just paying taxes and insurance and all the little stuff that that the average person has never had to deal with. So again, you don't have to have it on your team as a as an employee, right? But you need to link up with with a trusted advisor that can fill that role. So that's our starting point. If you have those three things and you have a plan, even if you don't have it completely worked out, yeah. Um, you get in from there, we want to know how you're growing, we want to know what media you're in, and not that we're gonna say it's good or bad, we want to really understand what your plan is. And then, of course, solid projections that and a lot of the projections are maybe a little optimistic, shall I say? Yeah. And so we we take some some loose standards and we'll run them through kind of our I say model, but it is not complicated. Yep. And if they can still cash flow um doing that, excuse me, then you know, we feel we feel like we have a uh viable operation.

SPEAKER_01 12:18

And the KYC element of of banking in the cannabis industry, how how thorough do you have to vet your clients when it's because there, let's be honest, there's a lot of folks that have been doing this before it was legal, not necessarily in Minnesota, potentially. However, it's just it's it's it's part of the facts. You know, this this plant has been demonized, stigmatized, made illegal compared to heroin. It is in the eyes of the federal government, it's far worse than the realities of of what might be in my backpack, right? So how do you how do you KYC? How do you know your customer? What what all goes into that?

SPEAKER_02 12:58

Yeah, so we partnered. I will give I will give a shout out to Green Check. We we partnered with Green Check early, and we would not have done this without Green Check or a similar company, and there are others out there, and the others we looked at are good. So I don't want to yeah, uh, but but Green Check has been a great thing about Green Check, yeah. And so we have set up a process that they run through um their program and they accumulate the data, and you know, people go into the portal and fill it out, and that provides the basis really for us to be able to move forward. If you can't get through Green Check, then we don't we there's nothing we can do, and that helps us file SARS, suspicious activity reports. I won't go into all the please do. Yeah, I won't go into the yeah, we got five minutes. Okay, I won't go into all the details, but uh but it but that came out of 9-11 and uh and all of the uh terrorists being funded by Al-Qaeda or yeah, by uh essentially money laundering. Okay, and this was this came out of that. Um, and this is a um uh considered a very risky business, high risk. Right, yeah, yeah. And so we and so we need to continually report SARS so the government um can track any anything that they think might because they may see things from other banks and through Fence and um you know, pretty sophisticated, right? But they'll tie that through. I don't think we're gonna see that at this level. Um, but the regs are there, we have to go by the rules. Yeah. Uh and it's expensive. We've had to hire, we've had to pay for the software, there's monthly charges, and we've had to hire people. Really? Um and I think the biggest threat to banks. I'm sorry, Dad. Yeah, go ahead.

SPEAKER_01 14:31

But compliance. Hey, let's let's look at metric, for example. Some of your clients need to have their own compliance person on staff to handle metric. It's it's very similar on your end. We, as a United Prairie, have to have compliance people, and that's an added cost on our end. But it's because of the high-risk industry that there needs to be compliance on both sides to check for checks and ballots.

SPEAKER_02 14:57

Yes. And it's it's expensive. I mean, it's I there obviously we could make bad credit decisions and that would affect us, but I think the biggest threat to lending in this industry is you don't get the compliance right. The regulators come in and say stop, and then you have a hell of a mess. Wow. And everybody in our organization knows that there's only one thing we're gonna do right, and we'll I think we'll do everything right, but there's only one thing we'll do right is gonna be compliance. So amazing. That's the key.

SPEAKER_01 15:29

Uh at the end of your 10 year, what what do you want to be known for as it relates to your legacy with with United Prairie Bay?

SPEAKER_02 15:38

Yeah, yeah, that's a great question. I I would like to be known for a compassionate, caring leader that has sound vision, that's willing to listen to everybody around him, right, and uh make good decisions. And to keep this bank independent, which means we have to have quality earnings, we have to keep our shareholders happy, we have to keep our well, all of our stakeholders happy, the regulators, our employees. Right. And um uh, you know, I hope that in the next five to seven years when I turn the reins over, yeah, I'm really hopeful that um that cannabis and whatever the next thing is, yeah, uh that we're we're doing it and that we're always thinking far enough ahead.

SPEAKER_01 16:23

All right, everybody. That's our interview with Scott Miller, United Prairie Bank. If you're interested in a banking partner, reach out to United Prairie, visit them online, and let them know you found us on the Canada Connect Show.