Escrow service will become the next great equalizer in this industry. When the Farm Bill was signed and certain regulations changed, the way was paved for the use of licensed and bonded escrow services in certain aspects of the hemp CBD value chain.
Up to this point, the verifications for funds have been through the use of attorneys. Attorneys and their clients have an attorney-client privilege which allows them to discuss anything between themselves and never have to tell you any of what they discuss. Attorneys have played a key roll in helping get transaction accomplished for the most part and many attorneys deserve praise and recognition for their assistance in helping get transactions across the finish line. Some attorneys, on the other hand, have stolen millions of dollars of buyers’ money from their trust accounts and IOLTA accounts.
Attorney IOLTA accounts pay direct to the supplier on behalf of the buyer and once the attorney for the buyer is in contact with the supplier, the attorney for the buyer can renegotiate price on behalf of the buyer. After that, they can cancel the original transaction and go direct to the supplier with new pricing without having to disclose any details to anyone who was previously involved in the transaction because they have attorney-client privilege with their client. This is the formula used to cut out middle persons. (Example: biomass is selling for $.20 less PPP than the buyer is buying for in their contract. If the biomass is 10% CBD and the weight is 1,000,000 lbs. then the buyer is paying $2,000,000 extra for the purchase. When the buyer’s attorney talks to the supplier and finds this out, they are required to disclose this to their client. They are also prohibited by law from disclosing to anyone else what they discuss with their clients. What do you think happens next?)
Attorneys have a fiduciary duty to their clients only, not to the transaction. Wealthy buyers pay good money for their attorneys to represent them and get them the best deal possible. By law in escrow states, escrow has a fiduciary duty to the transaction and representation of all parties associated with that transaction. Escrow earns a service fee from the transaction itself based on the total amount of the transaction.
Escrow is offered by a third party fiduciary service whose fiduciary is to the transaction. Have you ever heard of an attorney wanting a percentage on a transaction in the CBD space? That’s an example of not providing a fiduciary to the transaction but instead attempting to profit for oneself. Escrow is paid for its service from the transaction through the earning of ‘basis points’ (look it up on Investopedia) and one basis point equals 1/100 of one percent. Basis points are accessed based on the transaction type for risk associated with the insurance and bonding company that is insuring the transaction.
In Colorado, DORA has no licensing requirements for escrow services and any company calling themselves an escrow company should be looked into to see how they are licensed in their state, how they are bonded to each transaction and who they are held accountable to perform with integrity by. Anyone can open an LLC there and call themselves an escrow company and if they are using an attorney trust account or a business bank account for transactions, they are not a true escrow service. In this instance, the risk of loss of funds could be very high. When we are talking about millions of dollars and no accountability through state-licensed fiduciary service practices, a big risk could be on the horizon for keeping funds in a Colorado escrow account.
My background for the past 20 years has been in Wall Street finance, real estate, and escrow. I’ve been in the CBD space for a number of years too. My goal has been to find a way to help transactions get into an accountable position with the ability to transact. Escrow allows for such an ability. Be careful of the escrow service you use. Not all escrow companies are the same.
I am happy to assist anyone who wants more information on how to establish an escrow account for a Farm Act compliant transaction, how to find a reputable escrow service, how to get into escrow to proof funds without actually moving any money out of a buyers account allowing the buyer risk-free peace of mind. Please DM me for any person inquiries that you may want to keep private.