“If you can't get the loan to purchase that starter home, or if you can't get the working capital loan to grow your business, then your ability to grow wealth over time is undermined for that reason.”
Seke Ballard is the Founder & CEO of Good Tree Capital, a financial technology firm that grants loans to vetted, licensed cannabis companies. After graduating from the University of North Carolina, Seke spent two years as a Peace Corps Volunteer working with small businesses in the Republic of Georgia. After leaving the Peace Corps, Seke earned his MBA from Harvard University and subsequently spent years working for Procter & Gamble and Amazon. In 2015, Seke started Good Tree Capital, based upon his proprietary loan algorithm and with a goal of balancing available economic opportunities for qualified borrowers.
When Ballard’s father went to banks seeking a loan in order to expand his local logging business, he was rejected by every bank, not because of the business fundamentals but because of the color of his skin. This motivated a desire to develop a more equitable model of evaluating applicants to remove the biases that have existed. “The people who are ultimately declared to be credit worthy (using this new model), which are the people who ultimately receive the financing they start to look a lot more like society at large.”
LISTEN AND SUBSCRIBE
SPEAKER
Seke Ballard
Founder & CEO
Good Tree Capital
MODERATOR
Anthony Scaramucci
Founder & Managing Partner
SkyBridge
EPISODE TRANSCRIPT
Joe Eletto: (00:07)
Hello everyone. Welcome back to SALT Talks. My name is Joe Eletto and I'm the Production Manager of SALT, which is a global thought leadership forum and networking platform encompassing finance, technology, and politics. SALT Talks is a series of digital interviews with the world's foremost investors, creators and thinkers. And just as we do at our Global SALT Conferences, we aim to both empower big, important ideas and provide our audience a window into the minds of subject matter experts.
Joe Eletto: (00:35)
And we're very excited today to welcome Seke Ballard to SALT Talks. Seke is the Founder & Chief Executive Officer of Good Tree Capital. A financial technology firm that grants loans to vetted, licensed cannabis companies. After graduating from the University of North Carolina, Seke spent two years as a Peace Corps volunteer. Working with small businesses in the Republic of Georgia. During his time in Georgia, Seke became passionate about the role of capital and the creation of wealth and economic development.
Joe Eletto: (01:03)
After leaving the peace Corps, Seke earned his MBA from Harvard University and subsequently spent years working for Procter & Gamble and Amazon. In 2015, Seke founded Good Tree Capital with a goal of balancing available economic opportunities for qualified borrowers. Moderating today's interview is Sarah Kunst, who actually just had her SALT Talk last week with Anthony. Sarah is the Managing Director of Cleo Capital. Sarah founded LA Dodgers backed Proday, and has served as a senior advisor at Bumble where she focused on their corporate VC arm Bumble Fund.
Joe Eletto: (01:38)
Sarah has been named a future innovator by Vanity Fair, Forbes Magazine 30 under 30 and a top 25 innovator in tech by Cool Hunting. She has been recognized for her work by Business insider as a 30 under 30 Woman in Tech and Top African-American in Tech & Pitchbook Top Black VC To Watch. She's also honored as a top woman in STEM, by Create & Cultivate and Marie Claire Magazine named her a Young Gun to watch. Marc Andreessen named her one of his 55 Unknown Rock Stars in Tech. If you have any questions for Seke during today's talk, please enter them in the Q&A box at the bottom of your video screen and now I will turn it over to Sarah to conduct today's interview.
Sarah Kunst: (02:18)
Thank you. Thanks Joe. I'm so excited to be back here and to be talking with Seke about all things, wealth creation, debt, the economy, and my favorite coping mechanism besides wine during COVID, weed. So, with that Seke, why don't you, we just heard your background which is amazing, but why don't you kind of give it to us in your own words, how you ended up starting your company?
Seke Ballard: (02:46)
Absolutely. I'm a product of rural North Carolina. My hometown has a population of 800 people, and I came from a huge family. And I always looked up to my sister who was kind of a boss when we were growing up. She was MVP of her high school basketball team three years in a row which is crazy to me. It's like you come on as a freshmen and then sophomore year you're just beating on all these people. And while she's doing that, she also graduated valedictorian. So it's like what's not to love. And so, she went to Governor's School, I went to Governor's School, she went to University of North Carolina, I went to University of North Carolina, and that's pretty much where our paths diverged. From there as Joe mentioned in the introduction I joined the Peace Corps and the Republic of Georgia.
Seke Ballard: (03:45)
And for those who are as geographically challenged as I am, Georgia's sandwiched between Russia and Turkey with the Black Sea to the West. And I was stationed in this place called Batumi. Which I might get beat up for this analogy but Batumi is like the Miami of the former Soviet Union. Which is pretty cool place to be. And while I was there, I convinced the organization that I was working in to do this idea that I pitched them that was really a rip from something that I learned in college the Carolina Challenge but we called it the Batumi Challenge. And really what we did was we went out into the community and we prospect it for great companies.
Seke Ballard: (04:37)
So we were in the bazaars talking about entrepreneurs and really getting a sense of who the highest potential companies were and then we gave the money. And when we saw that money come back to us, it really sparked this curiosity around. What does it mean to find the most efficient, most profitable destinations for capital? Deploy that capital and then see the wealth that's created at the place where you've deployed it as well as when it's returned to the investor.
Seke Ballard: (05:13)
And so we ended up scaling that to Armenia and Azerbaijan but I was really interested in how I scale it to be much larger than that. Because to me this is one of the fundamentals of capitalism. And so to answer that question and lots of other questions, I went to Harvard to earn my MBA and it was a phenomenal experience. And really taught me how to structure my thinkings around these systems that are in place to suss out where those best opportunities are both on the debt side and the equity side. And after about five years in Corporate America most recently at Amazon I started my company. And yeah, I guess I would say the rest is history from there.
Sarah Kunst: (06:09)
I love it. So tell me the Miami of the former USSR. The mind really actually boggles at that one. Intresting, no more questions about that one later. Amazing background wild backstory I actually, fun fact right after this, am sitting in and doing a HBS Harvard Business School class around VC and PE and the lack of diversity. And so, I will be in your old stomping grounds virtually soon.
Sarah Kunst: (06:47)
But can we talk a little bit about just the fundamental importance Of enroll like access to capital as a means of wealth creation, economic growth, the way that we buy nice things, like why does money matter? Tell a bunch of people who probably like me are totally money obsessed.
Seke Ballard: (07:07)
Right. I mean, it's the lifeblood. It really is. When money freezes up economies collapsed. We saw that during the great recession and the way I structure it in my mind, you've got capital up here and one column of that is debt, and the other column of that is equity. My corner of the sandbox what I've spent the last five years of my life really working on is on the debt side of the equation.
Seke Ballard: (07:32)
But when I think about the fundamental sort of any efficiencies in terms of how capital is deployed, I think the same fundamental problems exist in both except they manifest themselves in different ways. I'll touch on equity really quickly before we go to debt. One of the most interesting statistics I've heard is around where capital goes in equity. So you got private equity under that, you've got venture capital firms, you've got these investment banks, that they represent a pretty diverse source of capital. But if we narrow in on one part of that which is venture capital, this is your world so I know a whole lot less about it. But if we narrow in on venture capital, 98% of all the billions sloshing around in venture capital go to men. Which to me is really interesting because what it says is-
Sarah Kunst: (08:26)
Sorry. Just clarifying a point, but what color are those men?
Seke Ballard: (08:31)
They are white men.
Sarah Kunst: (08:32)
Just say that.
Seke Ballard: (08:36)
Yeah. And I was going to touch on that. But when I think about it what it really says that the inverse of that is you've got 10 companies in front of you. And instead of reviewing all 10 of those companies you're really myopically focused on half of them and really missing the opportunities that the other half might present to you. And then if you put that to the side, another really awe-inspiring statistic is that 80-90% of all returns in venture capital accrue to the top 20 firms. There must be hundreds maybe thousands of venture capital firms, family offices out there. Half of them, they ought to return more than one X what their limited partners invested with them. And so what that tells me is that the existing model is clearly not serving investors.
Seke Ballard: (09:28)
And to me, it almost represents a breach of their fiduciary responsibility to their limited partners that they've really taken this siloed approach to investing rather than expanding the aperture of deal flow to really taking in half the population which is women taking in 30% of the population which is people of color to your earlier point. And maybe, just maybe when you look at everybody you might make your LP some money. And so, I am really encouraged by the constellation of venture capital firms such as, Cleo Capital, such as Harlem Capital, such as Backstage Capital. That's really trying to serve this underserved market. And my hope is that one day you all are eating these bigger guys lunch. But yeah, I really see the fundamental problem existing in both debt and equity and I love what's going on in equity and I'm sort of working in my corner of the sandbox to figure this problem out on the debt side as well.
Sarah Kunst: (10:35)
Awesome. And so, talk to us a little bit about ... we think we have a general idea of how it's working in private markets, venture PE, you give money to more diverse managers and they invest in more diverse companies, and that's sort of the flywheel public markets with the push towards more diverse boards and more diverse company leadership. That's also starting to happen. But debt feels like, and that sort of trickles down into hedge funds as well or up hopefully, but debt is like this other area.
Sarah Kunst: (11:11)
So what does debt kind of currently look like? And what are some of the ways broadly maybe, and then we'll zoom in a little bit more to you specifically. But what are some of the ways broadly that change can happen using debt capital, both everything from individual loans, all the way up to the big huge providers of debt. How does that start to change? And what does that look like right now?
Seke Ballard: (11:35)
So I'll answer this question with an experience. Back in 2015, and this was actually the catalyst to me starting my business. A guy named Dylan Roof, went into Mother Emanuel AME in Charleston, South Carolina, and sat for Bible Study for an hour before opening fire on the nine people who were in attendance killing them all. My mother's side of the family, they traced their roots to Charleston. So this is pretty close to home for us. And so my dad thought it'd be a good idea if we took a road trip to pay our respects to the victims and during the drive, I guess I would say just grounded by the gravity of the moment the question that I asked him was, "How did we end up here?" To me it felt very regressive, it felt as a country we were taking steps backward not forward.
Seke Ballard: (12:32)
And his answer to that was really interesting. He said, "Seeking any marginalized group of people in America, can't as a matter of pragmatism, expect to sustain social and political advances, unless those social and political advances are built on a firm economic footing." And he used his own sort of experience and as a case in point. So when I was a kid he owned a logging company and people would pay him to clear commercial residential property, he take that lumber sell it to the local paper mill, and he had your quintessential American, small business, very successful. And he wanted to expand outside of North Carolina to surrounding States but in order to do that, he had to modernize his equipment. And so he went to all these banks in the area applying for loans to modernize his equipment, and he was rejected by every single bank for every single loan.
Seke Ballard: (13:32)
And his hypothesis was that this didn't have anything to do with the merit of his business but instead of had everything that you want the color of the skin. And it's very well known that there are two primary ways of building wealth in America. It's either through home ownership or enterprise, small business ownership. If you can't get the loan to purchase that starter home, or if you can't get the working capital loan to grow your business, then your ability to grow wealth over time is undermined for that reason. And so I went back to Seattle, I was employed at Amazon at the time. And I did some research and found that he's exactly right.
Seke Ballard: (14:12)
The federal reserve bank of Boston has some pretty excellent analysis on this question but if I go into a bank Sarah, and a white guy goes into a bank and we are exactly the same from a balance sheet perspective. So same assets, same cash, same money coming in, same debt levels, we're literally the same person on paper. We were only controlling for my race. If we apply for a small business loan, I'm two point seven times more likely to be rejected for that loan.
Seke Ballard: (14:42)
And if I'm fortunate enough to be approved for that loan, I'm going to pay on average 180 basis points more interest. And this is true not just for small business lending, it's true for mortgages, personal loans, car loans, and it's also true for women to a slightly lower degree. And so the root cause of this problem which gets at the heart of what we do, the root cause of this problem is that when my dad, or when Sally goes into that bank to apply for the loan they're sitting across the table from a loan officer who's bringing to that encounter all of his conscious and subconscious biases.
Seke Ballard: (15:17)
So they're not just looking at my dad on paper and evaluating from based on that. They're also judging the way he speaks English or the way he dresses because he looks like a trucker. And then they make decisions based off of subjective information that really has no bearing on whether that person my father, or the woman sitting across the table from them are going to service the loan.
Seke Ballard: (15:39)
And so our critical insight was what happens when you remove the human from the equation and you replace that human, that loan officer with a model that is evaluating credit worthiness based exclusively on observable financial and operating performance data about the company. And then once you use this data to make the decision then really the playing field levels out a lot. And the people who are ultimately declared to be credit worthy, which are the people who ultimately receive the financing they start to look a lot more like society at large. And so my work for the last five years has really been built around building that capability and evaluating credit worthiness and then deploying that capability specifically in cannabis for now.
Sarah Kunst: (16:35)
Cool. Kind of reminds me of in Pretty Woman, where Julia Roberts goes back in and it's like, "Do you work on commission? Big mistake."
Seke Ballard: (16:41)
Big mistake.
Sarah Kunst: (16:46)
That's the reality. Judging people based on what they look like before you know. It's not even the content of their character let's be real, it's the content of their pocket books. You really want to make sure who has money and this is a totally different world. But even in the tech world, the average tech billionaire Jeff Bezos before the blow-up did not look like he was about to be the richest man in the world Right? Big mistake. So you never know who those people are.
Sarah Kunst: (17:14)
So, let's talk a little bit about the current state of banking. It feels like the banking world has just absolutely, I feel I'm having flashbacks since 2008 like level craziness. Like Wells Fargo seems they can't go more than three seconds with a new CEO before everything hits the fan again, I don't know what they did in the past life, but their karma is nasty.
Seke Ballard: (17:45)
They're are criminals. I always believe that.
Sarah Kunst: (17:46)
Okay, that's what they did in their past life. It's not just that, bank closures, litigation, walk us through what in the world is happening in banking right now?
Seke Ballard: (17:57)
Yeah. So I think about banking from a macro perspective. And it is one of those industries that's really ripe for disruption and a big part of why I think it's ripe for disruption is because their operating models really rely heavily on these extensive network of brick and mortar branches that are full of humans that are staffing it. Whether those humans are tellers or whether those humans are loan officers seeing people like my father and Sally. And I think what's going on is that they're struggling to adapt to how modern consumers consume financial services. I was with a borrower in Massachusetts, and we had to go into Wells Fargo in rural Central Massachusetts. And I sat there for maybe three, four hours and didn't see a single person coming into the bank the entire time I was there.
Seke Ballard: (19:00)
And obviously I'm projecting this experience generally but to me that was the canary in the coal mine. It saying, "If banks don't adapt and bring technology as sort of central to how they deliver their financial services, I don't believe they're going to survive in the long-term." And personally my view is that technology is the answer to what I view as systemic bias and the provision of financial services. And specifically what I do is really focused on the debt side of the equation. And so if you've got these massive banks like, Chase, Bank of America, Wells Fargo, all the way down to your regional local banks, Coastal Carolina Bank of North Carolina, I think you're seeing varying degrees of this struggle to adapt. And so, my view is that similar to on the venture capital side, I mentioned backstage capital, I mentioned Cleo.
Seke Ballard: (20:02)
I see the same thing happening on the debt side of the equation as well. we've got companies like; LendingClub, Funding Circle, that are really bringing technology to bear to create this digitally native experience for their customers. LendingClub, up to very recently was only a lender. They recently acquired a bank. So they've obviously got ambitions to be able to provide a broader array of financial services to people but do it in a way that is central digital and driven by technology. And so macro-level this to me seems to be a trend that is unavoidable and those who are building those technological models today, I think are going to be the ones who are providing the majority of financial services to clients in the future.
Sarah Kunst: (20:52)
Yeah. That I totally agree with you. So the last point I we'll touch on with the traditional banking piece, you always telling me the story in our prep call and I was sitting once with the household name billionaire who's a massive land [inaudible 00:21:11] billionaire pledged the whole thing. And somehow they'd grown up in the South, like in the 60's and somehow the topic of redlining came up. And they looked at me and said, "Sarah, what's redlining?" And I basically had an out of body experience because I was like, you have a 1,000 people who work for you they like tell you about issues. And so just in case we have any other billionaires in the audience who might need a quick refresher talk to us a little bit about, you touched on this earlier home ownership. But redlining, what is it? What does it mean and what has it meant for wealth creation particularly around racial lines?
Seke Ballard: (21:47)
Absolutely. So I am joining you all from the South side of Chicago. I live in Bronzeville and Chicago was one of the epicenters across the nation for redlining. And what it meant here was that you would have banks providers of capital literally draw red lines around majority black communities. And within those red lines they wouldn't make loans. And this is at a time when the federal government is providing all kinds of backing to banks to encourage the creation of the middle-class. And so when you had these communities that were as a matter of policy, both public policy and lending policies at banks across the nation as being excluded from where they would target their investments, then what you started to see was a sort of a cynical cycle.
Seke Ballard: (22:45)
These communities weren't able to get the financing that they needed. Then that meant that their property values went down, it meant that they weren't able to build and sustain their businesses over time. And so if you just sort of play this out over the long-term what you start to see are failing communities. What we start to see is a lack of investment in human potential. And it's driven by racism rather than by anything related to merit at all. And so I think that was a strategic error on the part of the country. I thought it was and I continue to think it's a strategic area on the part of finance years still to this day.
Seke Ballard: (23:35)
Apple as an example is under investigation by the state of New York for charging equally qualified women, higher interest rates and approving them for less and loans than quiet comparable ment. And this is, their credit card is backed by Goldman Sachs and so this is one of the most technologically sophisticated companies on the planet, partnering with one of the most prominent banks on the planet and they can't get it right. And so you just have this sense that this is one of those enduring legacies of red lining and our general approach to the provision of financial services. And if we don't correct for it then I just view it as a massive loss of human potential to be completely Frank.
Sarah Kunst: (24:30)
A massive loss of money as well. Let's be honest about what we care about here. Remind me and we're going to go into a product discussion, but remind me a little bit of we were talking about this. This summer, I watched it was called Mrs. America or whatever it's a Netflix show about Phylis Schlafly, and [inaudible 00:24:52] and good show if you're bored watch it but more importantly, more relevantly, I was shocked to hear that until like the 60s or 70s it didn't matter how rich you are as a woman. You could literally be the heir to every fortune or the heiress, and you couldn't buy your own house or you couldn't get credit cards in your own name. So walk us through a little bit of that just to like really square the circle of how deeply, deeply F some of this history has been in the very recent past. And then we'll kind of move through where we think we're going and what you guys are doing to fix it.
Seke Ballard: (25:26)
Absolutely. This to me is again one of the macro things that just doesn't make sense. Women are half the population and there was a time in history when the role of a woman had a fence around it and that fence was really the household. And so to me what that's communicating to half of the potential workforces we don't want to use you at all. It's like leaving half your starting team on the bench it just doesn't make sense. And so, you referenced that it was a time when women couldn't get credit cards in their own name, it was a time when they couldn't use capital to purchase homes or whatever sorts of assets they were interested in purchasing. And so I think as we've evolved in the right direction, not fast enough to where you have more capital going to certain demographics of people, we're able to see that human potential really start to contribute both to the micro economy in their families, in their communities and bubbles all the way up to the macro economy.
Seke Ballard: (26:31)
When women started entering the workforce, you saw this massive boon in GDP. Wonder where that came from. Well, it came from us not ignoring half of our workforce. And so, you mentioned this earlier this is a money problem. It's less about let's be diverse, it's less about let's give people a hand up, it's more about doing your job, it's more about generating returns for your shareholders and your limited partners. And so yeah. I'm again, I'm encouraged by where things are going. Never have we been in a moment in American history, I don't think where we've had more permission to think big about where things can go from here.
Seke Ballard: (27:20)
COVID was basically a wrecking ball to the economy, it was a wrecking ball to people's day-to-day lives and when we rebuild from that, we don't have to do it the way we used to it can be done in a way that's very different. And when you've got all these banks that are provisioning billions for losses in their loan portfolio, yeah. That opportunity is really there.
Sarah Kunst: (27:42)
I love it. It reminds me of in the immortal words of the very controversial Kanye West, "I'm racist and that I only liked green faces." Like what we're talking about is, diversity, gender, all these things. But what it all rolls up into is when you're only focused on investing in 30% of the population, that means you're leaving 70% of the profits on the table. And I don't know about you, but that's a lot of money to not have in my pocket because yachts do not buy themselves.
Seke Ballard: (28:10)
Right
Sarah Kunst: (28:11)
So I agree. So here's the problem you diagnosed it brilliantly and very, very thoroughly. So what is Good Tree Capital's role in fixing all of this? I always fix my life. What are you doing? How are you fixing it?
Seke Ballard: (28:27)
Not on my watch. I mentioned I had this experience with my father and I go back to Seattle do all of this research. And when I come to this realization of how the market is structured, I sit down with some data scientist developer colleagues of mine, and the question that I pose to them was, "How can we accurately evaluate credit worthiness without using the factors that typically biased decision-making that have no predictive quality?" And so we spent about a year and a half answering that question. We started by filing a foyer with a Small Business Administration and asked them for records on every loan that they'd backed since the year 2000. And that produced about 1.2 million records that they sent us on a CD-ROM thank you, SBA.
Seke Ballard: (29:25)
And we enriched that data and fed it through what's called a random forest regressive analysis. And what that told us was of the over 450 factors in any given loan profile, these are the factors that are most predictive and determining whether someone is likely to default a loan and not just what those factors are, but what is their relative importance to each other? What is the weighting of each one? And once you understand that across all factors you can build a mathematical equation an algorithm. And that's what we did. And when we tested it all those years back, we learned that we could with 98.2% accuracy determine whether someone is likely to default on a loan. And so my view really at that point was that we built a bazooka and the question was, where do we aim it?
Seke Ballard: (30:18)
The initial approach was to sell this to banks. I thought to myself I've got this amazing capability it's innovating on the bulk of your business model, it's more accurate which is really important. But it's also faster and cheaper to scale. So I just thought it would be a win-win for all parties involved. But I was meeting with these banking executives here in Chicago, primarily, and really what I was trying to sell them was sort of in one ear out the other glass over eyes I just didn't find a whole lot of luck. And so my view was I was sort of at a fork in the road. I could continue trying to sell these very conservative banks. You have this long sales cycle, or I could do something different. And to me cannabis represented a really interesting opportunity unto itself.
Seke Ballard: (31:11)
It is an industry if you look nationwide across all the people who've gone through the very sort of tedious process of acquiring a license from their State, 80% of those operators who touch the plant don't have bank accounts. Which to me is insane. Billions and billions of dollars 80% of that is a sloshing around in the economy in a way that's not really trackable. And so if you think about it, if you don't have a bank account that means you also don't have access to things banks provide such as loans. And so I thought if we put our model to work in the cannabis industry, not only are we in a market that is largely underserved, so it's a ton of white space because banks are on the sideline. But cannabis represented that sort of intersectionality of the access to capital and the ability to build wealth as a result of that access to capital.
Seke Ballard: (32:06)
Let me just give you one short anecdote. If you think about the people who born the brunt of cannabis prohibition, the people who've been locked up for having a dime bag, they have a felony on their name, now they can't get a job or a house. You think about that group of people historically and then you think about the other group of people who own the licenses nationwide there's virtually no overlap between the two it's like 4% overlap actually between the two. And really what this is it's a big problem of access to capital because it's an expensive industry to be in. And so my view was if we use our technology to evaluate the most credit worthy entrepreneurs and businesses in the cannabis space, then we can provide these talented entrepreneurs who are looked over by everybody else with the ability to really grow and scale their businesses and prosper in this industry.
Seke Ballard: (32:58)
And therefore take a larger chunk of what will be a massive wealth creation for this country. Think about it, think about where alcohol was prior to prohibition and where it is now that's cannabis today and we're still in day one. So I just think it's a really critical period. And we've seen with our portfolio companies just how that wealth creation mechanism works. One of my borrowers in Massachusetts, again in Massachusetts just had a big, we're about to have a big grand opening. And it's just a signal of what is possible when you really reimagine and rethink how you evaluate credit worthiness and where capital goes.
Sarah Kunst: (33:39)
Absolutely. And before we jump into some questions, if you haven't dropped questions into the Q&A please, please do. Because we'll have a few minutes for those. But talk a little bit, you touched on this when you mentioned the guys who were in jail for dime bags. And I think for a lot of people it's a little bit hard to wrap your head around sort of how targeted the war on drugs was. And it wasn't so much a war on drugs as it was on like hippies and then just sort of flat out black people. The stark comparison that most of us have heard of although we've been, I off the top of my head, can't recall it maybe you can, is sort of the difference between the sentencing guidelines for crack versus Cocaine, which like is any good child of the 80's knows they're the same drug.
Seke Ballard: (34:29)
Yeah. Absolutely. You're hitting the nail on the head. It became a really big strategy under Nixon. He wanted to attack his two biggest enemies and his two biggest enemies were hippies and black people in his own mind. And in order to do that he thought let me crack down on cannabis, let me focus enforcement and communities of color. And so what you ended up with was really a sort of a reality nationwide where although African-Americans consume roughly the same, slightly lower on average cannabis than white people, African-Americans nationwide are four times more likely to be arrested for it. And then once arrested for it more likely to be convicted and sentenced to longer sentences. The same basic dynamic is true for crack Cocaine and Cocaine where the sentencing guidelines pre-Obama was 20 X.
Seke Ballard: (35:35)
If you were caught using coke and you know coke is a rich man's drug. If you're caught using coke which is the same exact chemically drug as crack Cocaine, you're going to get one 20th, the sentence as the person who gets caught with crack Cocaine. And so you see these kinds of imbalances and how the laws are enforced where the laws are enforced, and then what downstream impacts that has on the ability of these communities to become self-sustaining, to become economically vibrant. Again it just feels like we're shooting ourselves in the foot with these poor policy decisions.
Sarah Kunst: (36:16)
Yeah. This was not an endorsement of doing the Cocaine or crack Cocaine. We're just pointing out the disparities.
Seke Ballard: (36:21)
Exactly.
Sarah Kunst: (36:23)
And then Joe, do you want to conduct the questions?
Joe Eletto: (36:27)
Absolutely. [crosstalk 00:36:27].
Sarah Kunst: (36:30)
And then Joe do you want to jump in with some of the questions?
Joe Eletto: (36:33)
Yeah. For sure and I just wanted to again, not endorsing crack Cocaine just kidding. So we've been doing a series of cannabis talks with a partner ETF mg. And in those conversations I've been learning tremendous amount. But one of the things that came up that you started talking about was procuring a licenses for dispensary's the costs going into actually setting up one of these businesses. And the fact that the majority of them are owned by a very small amount of businesses and people. Could you elaborate a little bit more on that? And then how you see if the companies that I guess we don't need to name, but everyone knows who they are in the cannabis space. How you either work with them to get those licenses back or work with local legislatures to make sure that more licenses are able to be procured.
Seke Ballard: (37:17)
Right. So, I'll use Illinois as an example. So under the medical legalization bill that passed seven years ago I think, you had to have $2 million in Escrow if you wanted to pursue a cultivation license and you had to have half a million dollars in Escrow if you wanted to pursue a dispenser. My first question is who the hell has that kind of money? Apart from the top 1% of Illinoisans? I mean who has that kind of liquid capital? And so this is the State erecting a barrier for broad-based participation in the industry. But if you put the State aside there's sort of inherent cost to pursuing the license and standing your business irrespective of what the State does. Particularly in the application process you've got consultants, you've got lawyers, you've got security experts that are literally charging people six figures just to be able to put together an application.
Seke Ballard: (38:21)
And then once you put together that application, you've got to demonstrate that you have real estate where you're going to operate the business and often these States take anywhere from 12 to 18 months to make a decision. So you can have money going out for real estate that you've leased or purchased with nothing coming in, you shelled out six figures for all the consultants you needed to put the application together, and then you might be told no, you don't get a license. So if you're the guy on the street who's selling the dime bag and you look at that equation it just doesn't make any sense to you. But if you're some wealthy tycoon and you've got money to waste then yeah, you're going to throw some money behind trying to get a license. And so in my opinion not only do you have the structural costs you have the cost that States often erect that create really immense barriers for people's participation.
Seke Ballard: (39:16)
The way we've tried to solve this problem is both through policy advocacy as well as putting our money where our mouth are. So from a policy perspective in Illinois when Pritzker was running for governor, he made it very clear that he wanted Illinois to be the most equity centric market in the nation. Which is another way of saying he wants the people who can historically borne the brunt of prohibition to be the main benefactors of the wealth that's being created in the industry. And so when I heard this I immediately reached out to the legislators who were writing the bill. And my goal was really three part. It was one, to reduce to the earthiest extent possible, the State erected cost to enter the industry, to increase state financing of these equity licensees, and to also create an environment that is favorable for investors or banks who want to provide capital to the same crop a crop of licensees.
Seke Ballard: (40:21)
And so we had a ton of success in our advocacy at the state level. And even though Illinois and passing and executing it's bill has had some hiccups along the way. I think the trajectory is probably more successful than any state in the country in terms of creating a context that allows broad-based participation and the cannabis industry that reflects the diversity, either racial or gender diversity in the State.
Joe Eletto: (40:52)
So then and something I'll leave the conversation on it so you can dive into it as far as you like or not, but we're less than a month out from the election. What would it change in the presidency? What would a Biden presidency mean for your company's ability to operate on a more national level? In that we're talking about Illinois, we're talking State by State. Governor Cuomo, has said that he wants cannabis legalization to come in the next session for the state. But what would it mean for you to operate on a federal level and what are you sort of looking for in a new administration and for specifically for cannabis?
Seke Ballard: (41:31)
So there are two hypotheticals here either Trump wins or Biden wins. If I think about the experience of the industry under Trump's administration, it's been muddy. I think that's probably the best word to use. So coming out of the Obama administration, we had what was called the Cole memo. And this was the justice and treasury department saying, "Hey banks, if you want to capitalize this industry, provide any services. This industry just follow these principles and we won't come after you." Was essentially the message of it. Trump comes into office, Jeff sessions spends his first year in the office honoring this and then January of the second year he does an about face and he says we no longer care about that. So it kind of muddied the waters in terms of how we think about what rules to follow in order to provide services to the industry.
Seke Ballard: (42:23)
But at the same time, this is a bi-partisan industry. If you look at the SAFE Act, the SAFE Banking Act was just passed the house. It passed with overwhelming bi-partisan support. It currently has overwhelming bi-partisan support in the Senate but it's stuck in committee right now because COVID. Because there's lots of other things that are sort of happening and really taking the time and sucking all the oxygen out of the room. So it's not as though this is a starkly partisan issue where Democrats feel one way and Republicans feel another way. I just think the barrage of things that we have to deal with on a day-to-day basis whether, yeah. I want you to go on to that, that we deal on a day-to-day basis as really distracting lawmakers and the executive branch from doing their job. Under a Biden administration, I expect things would be clarified quite a bit.
Seke Ballard: (43:24)
The reason I expect things to be clarified quite a bit is because the SAFE Banking Act is championed primarily by Democrats. Even though it's got bi-partisan support, really the main sponsors and champions of the bill are on the democratic side. Joe Biden's VP Kamala, she is a co-sponsor of the Moore Act which is not just thinking about how do we increase access to financial services for the Cannabis industry. But how do we create restorative justice for those people who have criminal records for the dime bag while at the same time you got all these other people who are making billions of dollars now the industry is legal. And so the fact that she is a co-sponsor on this to me says that this is an administration that is interested in normalizing this industry, getting out of the way of the industry so that it can thrive.
Joe Eletto: (44:20)
Well Seke and Sarah, this is been fantastic. I sat back for one point just listened to the whole thing and it just, I'm going to listen back to this. There's a wealth of information here and I can't wait to share it with the rest of the SALT community. So again want to say thank you Sarah for moderating, Seke, thank you so much for joining us today. Obviously I missed the memo on having a first name with an S, but I'll figure it out. But again, thanks so much.
