Business has boomed for cannabis companies over the past several years as more states have legalized its use, yet these businesses remain largely locked out of traditional banking services because of the drug's remaining federal classification.
A San Francisco startup is creating tools to help make these types of businesses less risky to financial institutions.
StandardC is developing software that creates a unique identifier for high-risk businesses, which it calls the "StandardC Credential," after collecting and verifying both public and private data from a business. It also handles anti-money laundering and know-your-customer protocols for regulatory compliance.
It then contracts with financial institutions like banks, credit unions and insurers to onboard their high-risk customers.
"Banks know how to do their piece of the risk assessment, but we bring it all together for them," co-founder and CEO Robert Mann told me.
Mann founded the company in 2017 with CTO Pooya Sarabandi and Richard Laiderman, and on Wednesday, StandardC announced that it had raised $4.75 million in a seed round. Its investors include Hard Yaka Ventures and individual angel investors.
It operates in all 50 states plus Canada, though Mann clarified that doesn't mean its customers have clients in every state.
21 U.S. states and territories plus D.C. have legalized recreational marijuana, according to NORML, also known as the National Organization for the Reform of Marijuana Laws, and 41 states and territories plus D.C. allow medical use.
The plant is still classified as a Schedule I drug at the federal level alongside heroin, LSD, ecstasy and peyote. Legislation that would deschedule the drug is pending in the U.S. Senate, but political observers say it currently lacks the votes to pass.
But in a sign of how much public opinion has shifted on the issue, President Joe Biden has directed his administration to expeditiously "review" that classification. Biden announced the directive on Oct. 6, when he also issued a blanket pardon for anyone with a federal conviction for simple marijuana possession.
However, the president has not advocated for full legalization and was the only Democratic presidential candidate in 2020 to not support federally descheduling the drug.
StandardC said its number of customers it has is in the "double digits" and that their combined number of business clients is in the hundreds.
It charges its institutional customers customized subscription rates based on their needs and usage. A sole proprietorship law firm, for example, could be charged $10,000 annually while a large public company could be charged $250,000 annually, Mann told me.
While cannabis businesses are the primary users of its services, StandardC is not building solutions exclusively for that industry. Other high risk industries that it could work with include crypto and other types of payment transactions businesses.
The "C" in StandardC also doesn't refer to reefer, but there is a double meaning.
First, it's a literal reference to the company's goal of creating a standardized credential, or passport, for identifying and verifying high risk businesses. Second, it plays off of Standard Oil — the oil monopoly broken up by federal antitrust regulators at the beginning of the 20th century.
"When Rockefeller founded Standard Oil, he did so because kerosene was uneven, it wasn't regulated. People would go and buy kerosene for their home and it would explode," Mann said, "and (Rockefeller) said, we're going to test it all, we're going to standardize kerosene for the home. And that really inspired me to try and standardize the way that businesses — financial institutions — evaluate risk, how they evaluate customers, and how they proceed going forward. Because right now, it is not standardized at all."
