By Ray Birch
ARVADA, Colo.—For several years Partner Colorado CU has intended to sell its cannabis banking CUSO, Safe Harbor Financial. And when the $185-million sale for the CU’s division was announced early this week, Sundie Seefried said it could bring a big payday for the CU’s members.
“It really makes me proud, Safe Harbor proud, Partner Colorado proud, and all my staff proud to know that we created something of value for our members,” said Seefried, CEO of Safe Harbor Financial. “We've done this for our members. They took the risk with us and hopefully they're going to be rewarded for it.”
As CUToday.info reported, the CUSO launched by Partner Colorado Credit Union eight years ago to provide financial services to the cannabis industry has been bought for $185 million by New York-based Northern Lights Acquisition Corp.
The company is to be listed on NASDAQ. Northern Lights Acquisition Corp. is a blank check company that was formed for the specific purpose of effecting a merger or acquisition.
Sundie Seefried
The company is paying $70 million in cash and $115 million in Northern Lights stock for Safe Harbor Financial, which was created by Partner Colorado in the wake of the 2012 vote by Colorado voters to legalize marijuana usage in the state.
Seefried, who as CEO of Partner Colorado oversaw the launch of the pioneering CUSO in 2014, told CUToday.info that splitting from the credit union is a growth move for Safe Harbor.
“This all about scale,” Seefried said. “It’s about being able now to scale to serve more cannabis businesses. By taking the company outside of CUSOs and credit unions, we don't have those restrictions anymore. We’re going into a fintech model to optimize our programs. We’re going to offer more services, and, of course, the timing is right.”
Consolidation Occurring
Seefried said a consolidation among FI providers of cannabis banking services is beginning to happen, adding that mounting regulatory pressures on those providing pot banking services is leading more to consider selling. She noted Safe Harbor, for example, just picked up a large cannabis banking portfolio from a financial institution.
“We were going to have to compete under the credit union model, which we knew was going to be difficult, or cut Safe Harbor loose and become its own entity, allowing us to compete on a national level. It was either compete and grow outside credit unions or compete and diminish inside,” she said, adding the organization’s service to credit unions will not be hampered by the sale.
Seefried, who will remain with Safe Harbor in her role for the next two years before retiring, said the firm—which has national reach—will move forward with a “robust” merger and acquisition strategy.
“But first we will lead with lending, as this is the fastest road to growth and profitability, and we have the money to lend,” said Seefried.
Safe Harbor saw $153 million in deposits in 2015, a figure that has increased to around $4 billion in 2021.
Seefried said the deal has not been finalized, and Safe Harbor and the credit union are waiting on SEC and NASDAQ approvals.
Not a First for a CUSO
The deal is not the first time a CUSO has been sold, NACUSO President and CEO Jack Antonini told CUToday.info.
“A couple of years ago CUSO Financial Services was sold to Atria Wealth Management in order to raise capital to help them invest in state-of-the-art wealth management technology,” Antonini said. “CFS continues its focus on serving credit unions, but has the deep pockets of Atria to help them in accomplishing their mission. CFS put the sale to a vote of their credit union owners, and the credit unions approved the sale.”
Jack Antonini
Antonini noted other CUSOs have also been spun off and sold by credit unions over the years.
Seefried told CUToday.info that Safe Harbor and Partner Colorado came to the decision several years ago that selling off the CUSO was the best move for both organizations.
“We decoupled Safe Harbor in July of 2021, so this was the plan back then,” Seefried explained.
As CUToday.info reported, Safe Harbor was taken public using a Special Purpose Acquisition Company (SPAC). It is process that appears similar to a merger.
Currently, Safe Harbor and Northern Lights are a combination as a result of the SPAC.
“But, we will perform a de-SPAC transaction, which is much like a reverse merger, and we will become Safe Harbor again,” explained Seefried.
Returning the Funds to Members
When the deal is finalized, Partner Colorado will get $70 million in cash, along with its investment in Safe Harbor. Seefried said the decision on whether any money is returned to members is in the hands of the credit union. Last year the $588.7-million CU made $7.5 million in net income, according to Call Report data.
While plans have yet to be finalized, Partner Colorado CEO Doug Fagan told CUToday.info the goal is to continue to give back to members in a number of ways, including boosting technology capabilities to provide even stronger member service.
“There are many ways members are going to benefit from this—higher dividend rates, lower loan rates, better technology, better access points, better channel selections. There's so many different ways we can help members and future members,” said Fagan, adding that year-end dividends are being considered.
Via the SPAC, Partner Colorado invested $115 million into Safe Harbor. Fagan said he does not see the move as risky.
Doug Fagan
“Sundie and her team are skilled and have always excelled,” said Fagan. “We are confident in Safe Harbor continuing to be successful. However, over time we will divest of that stock, because that's not one of our core competencies. The credit union is not in the business of investing in public companies. Divesting that stock is how we will give even more cash back for our members.”
As a result, Fagan acknowledged that stock sale will bring a larger payday than the initial $70 million in cash.
Looking Forward, Not Considering Mergers
For now, Fagan said the cash infusion will drive up the PCCU’s net worth, which stood at 10.74% at midyear, adding that while the credit union recognizes the strong capital position puts Partner Colorado in a position to grow via mergers, it currently has no plans to be aggressive with such combinations.
On the flip side, he said the large capital position could also make Partner Colorado a merger target for larger credit unions.
“But I don't think our board of directors has an appetite to merge into another credit inion,” he said.
Fagan said selling Safe Harbor will bring a solid payday for Partner Colorado members for a long time.
“They will get rewarded for sure,” he said. “Safe Harbor was formed in 2014 and I started in 2017. From the first day I started there has been talk about how the members really got on board with this and took this risk with the credit union. There is a reward for that risk, and now here it is. This can really help the credit union and its members for years to come.”