The cannabis industry has long struggled with limited access to traditional banking services. Banks have been hesitant to offer loans, lines of credit, or other financial support due to federal prohibition, even in states where cannabis is legal. This has created a significant financial hurdle for cannabis-related businesses (CRBs).
CTrust, a company founded by Dotan Y. Melech, is introducing a solution designed to bridge this gap: the Cannabis Trust Score (CTS). This innovative credit score aims to add density to the somewhat depleted financial landscape of the cannabis industry.
“We have seen a serious gap between the needs of cannabis businesses and the willingness of financial institutions to engage with them,” Melech shared in an exclusive interview. “This isn’t just a regulatory issue—it’s about financial security and growth. Cannabis businesses need access to the same services that other industries take for granted, such as loans and credit lines.”
The CTS is a proprietary algorithm that evaluates over 1,700 correlation points across 42 business categories, offering a detailed risk report for banks and other financial institutions. This comprehensive assessment, which considers factors like asset, structure, and character, along with data from Metrc track-and-trace and point-of-sale systems, gives lenders a clear picture of a cannabis company’s financial health.
“For the first time, lenders can base their decisions on solid data rather than fear or speculation,” explains Melech. This data-driven approach helps to address the stigma often associated with cannabis businesses and allows lenders to price loans fairly based on individual business risk, not industry perception.
The CTS is a crucial step in addressing the challenges faced by the cannabis industry, particularly the high cost of capital. “Cannabis businesses have always faced a cost of capital that’s far higher than what’s justified by their actual risk,” says Melech. “With the CTS, we’re leveling the playing field.”
As the cannabis industry continues to evolve, tools like the CTS are expected to become increasingly vital. Many states, including California, have faced a wave of delinquent taxes and financial strain as cannabis companies struggle to stay afloat. The CTS offers a solution by providing transparency and data-driven insights, helping to foster greater financial stability and growth within the industry.
Looking ahead, Melech envisions a future where the cannabis industry is as bankable as any other. “We believe that within the next five years, cannabis will be as bankable as any other industry. Banks just need the right tools to assess risk properly, and once they have those tools, capital will flow.”
The CTS is a testament to the evolving financial landscape of the cannabis industry. It signifies a shift towards greater transparency, data-driven risk assessment, and a more inclusive financial system for cannabis businesses. As more financial institutions embrace tools like the CTS, it is expected to contribute to a more robust and stable financial future for the industry, potentially leaving the banking crisis in the past.
