S-1: SHF Holdings Secures $150M Equity Line, Faces Nasdaq Delisting

SHF Holdings, a financial services provider to the cannabis industry, has entered into a $150 million equity line of credit with CREO Investments LLC, while simultaneously grappling with significant financial losses, liquidity concerns, and Nasdaq listing non-compliance.

Summary

• SHF Holdings has entered into a Common Stock Purchase Agreement with CREO Investments LLC, allowing the company to sell up to $150 million (potentially $500 million) of newly issued common stock to CREO.
• The company will not receive proceeds from CREO's resale of shares, but may receive up to $150 million in gross proceeds from direct sales to CREO for working capital and general corporate purposes.
• SHF Holdings is facing substantial doubt about its ability to continue as a going concern, with management projecting insufficient liquidity beyond October 2025.
• The company is non-compliant with Nasdaq's minimum stockholders' equity requirement, reporting a deficit of approximately $17.9 million as of June 30, 2025, significantly below the $2.5 million minimum.
• Total revenue decreased by 53.3% for the six months ended June 30, 2025, to $3.78 million, compared to $8.09 million in the prior-year period.
• The company reported a net loss of $(1.76) million for the six months ended June 30, 2025, a significant deterioration from a net income of $2.99 million in the same period of 2024.
• Adjusted EBITDA for the six months ended June 30, 2025, was negative $(2.18) million, down from a positive $2.06 million in the prior-year period.
• Material weaknesses in internal controls over financial reporting were identified across revenue recognition, financial instruments accounting, forward purchase receivables, going concern assessment, information technology, and stock compensation expense.
• The Amended Commercial Alliance Agreement with Partner Colorado Credit Union (PCCU), effective December 31, 2024, eliminated indemnification obligations for loan losses and revised the fee structure, which is anticipated to be more expensive.
• The Senior Secured Promissory Note with PCCU was amended on March 1, 2025, deferring principal payments until January 5, 2027, and extending the maturity to October 5, 2030, to improve liquidity.
• The company issued convertible promissory notes totaling $687,500 to accredited investors in August and September 2025, with a 20% original issue discount and a conversion price based on a 20% discount to VWAP.
• The company is involved in litigation regarding a $3.0 million contingent merger consideration payment related to the Abaca acquisition, with funds deposited in court pending resolution.

Sentiment

Score: 2

Explanation: The company faces severe financial distress, including substantial doubt about its going concern ability, significant losses, declining revenue, and Nasdaq non-compliance. While an equity line of credit and convertible notes offer some capital, the underlying operational performance and liquidity issues are critical and immediate. The dilution from the equity line is also a major negative for existing shareholders.

Positives

• Secured an equity line of credit with CREO Investments LLC for up to $150 million (expandable to $500 million) in gross proceeds from newly issued common stock, providing a potential source of capital.
• Operating cash flow improved to $430,477 generated in 2024, compared to $832,144 used in 2023, indicating some operational efficiency gains in the prior year.
• The Amended PCCU Note defers principal payments until January 5, 2027, unlocking $6,437,050 in cash flow and significantly improving the company's liquidity position in the short term.
• The Amended PCCU CAA eliminated the company's indemnification obligations for loan-related losses to PCCU, reducing a significant contingent liability.
• Management has implemented operational and financial restructuring measures, including cost reductions, offering stock-based compensation, and employee base restructuring.
• Stockholders approved an increase in shares available under the 2022 Equity Incentive Plan from 351,857 to 626,749, and an automatic annual increase to 15% of total outstanding shares, enhancing flexibility for equity compensation.
• Successfully regained compliance with Nasdaq's minimum bid price requirement ($1.00 per share) as of April 7, 2025, following a 1-for-20 reverse stock split.

Negatives

• Substantial doubt exists about the company's ability to continue as a going concern, with management projecting insufficient liquidity beyond October 2025.
• The company is non-compliant with Nasdaq's minimum stockholders' equity requirement, with a deficit of $17.9 million as of June 30, 2025, $20.4 million below the $2.5 million minimum.
• Total revenue decreased significantly by 53.3% for the six months ended June 30, 2025, and 13.21% for the year ended December 31, 2024.
• The company shifted from a net income of $2.99 million in H1 2024 to a net loss of $(1.76) million in H1 2025.
• Adjusted EBITDA turned negative, from $2.06 million in H1 2024 to $(2.18) million in H1 2025, indicating deteriorating operational profitability.
• Cash and cash equivalents declined sharply from $2.32 million at December 31, 2024, to $247,318 at June 30, 2025.
• Operating activities used $1.82 million in cash during the six months ended June 30, 2025, compared to providing $2.70 million in the prior-year period.
• Identified material weaknesses in internal controls over financial reporting across multiple critical areas, including revenue recognition, financial instruments, forward purchase receivables, going concern assessment, IT, and stock compensation.
• The new asset hosting fee under the Amended CAA with PCCU is anticipated to be more expensive than previous disaggregated fees, potentially increasing costs.
• The company is involved in ongoing litigation regarding a $3.0 million contingent merger payment, which could incur significant defense costs and divert management resources.
• Significant dilution risk for existing shareholders due to the potential issuance of up to 46,153,846 shares (representing approximately 94% of current outstanding shares) under the CREO Purchase Agreement.
• The purchase price for shares sold to CREO will be at a discount to the then-prevailing market price, which could further depress the stock price.

Risks

• Substantial doubt exists about the company's ability to continue as a going concern due to significant working capital deficiency and operating losses.
• Growth is restricted by substantial dependence on Partner Colorado Credit Union (PCCU) for CRB client deposits and loan funding, limiting expansion until agreements with additional financial institutions are secured.
• The loan program is heavily reliant on PCCU's regulatory restrictions and lending capacity, which may limit the types, terms, and amounts of loans offered.
• Intense competition from traditional financial institutions and other lenders/service providers in highly competitive markets may adversely affect business goals and results.
• The soundness of financial institution customers could adversely affect the company, as defaults or rumors about financial health could lead to losses or regulatory actions.
• Volatility in interest rates may adversely affect revenues, profitability, and competitive position, impacting investment income and loan interest income.
• Changes in laws, regulations, or rules, or failure to comply, may adversely affect business, investments, and results of operations, especially given the evolving regulatory framework for cannabis.
• Dependence on third-party vendors, including PCCU, for certain services exposes the company to operational issues and increased expenses if relationships are terminated or terms become unfavorable.
• Information systems interruptions or security breaches, including cybersecurity threats, could adversely affect operations, lead to loss of clients, and result in financial/reputational damage.
• The company may suffer uninsured losses or losses exceeding insurance limits, particularly given difficulties in obtaining insurance for cannabis-related businesses.
• Adverse outcomes in litigation, including the Abaca legal case, could result in significant financial losses, defense costs, and harm to reputation.
• Material weaknesses in internal controls over financial reporting could impair the ability to produce timely and accurate financial statements or prevent fraud.
• The federally illegal status of the cannabis industry poses risks of federal enforcement actions, criminal prosecution, and regulatory sanctions against clients or the company.
• Difficulty using bankruptcy courts due to involvement in the regulated cannabis industry, as courts may deny federal bankruptcy protections to businesses deriving income from cannabis.
• Conduct of third parties (financial institution customers, CRB clients) may jeopardize business and regulatory compliance, exposing the company to legal sanctions and costs.
• Constraints on marketing services in certain states could adversely impact results of operations and growth opportunities.
• Service providers to cannabis businesses may be subject to unfavorable U.S. tax treatment under Section 280E of the Internal Revenue Code, significantly affecting profitability.
• Cannabis businesses may be subject to civil asset forfeiture, which could impede borrowers' profitability and ability to use services if assets are collateral for loans.
• Difficulty obtaining various insurances due to providing services to CRBs may expose the company to additional risk and financial liability.
• Potential difficulty enforcing certain commercial agreements and contracts in courts due to the federal illegality of cannabis.
• Non-U.S. citizen directors, officers, employees, and investors may face cross-border travel constraints into the United States due to cannabis industry involvement.
• Dependence on key management personnel and other experienced employees, with loss of such personnel potentially impacting operating results.
• Failure by directors, officers, or employees to comply with applicable policies, regulations, and rules could materially and adversely affect the company.
• Changes in accounting rules, assumptions, or judgments could materially and adversely affect the company's financial statements.
• Inability to comply with Nasdaq's continued listing standards could lead to delisting, affecting liquidity and stock price.
• The market for securities has been volatile and may continue to be volatile, adversely affecting liquidity and price.
• Issuance of additional equity securities, including under the CREO Purchase Agreement, will significantly dilute existing stockholders' interests.
• Operating results may fluctuate significantly due to various factors, including seasonality, leading to stock price declines.
• If securities or industry analysts cease publishing research or publish unfavorable research, the stock price and trading volume could decline.
• Inability to obtain additional financing beyond the CREO Equity Financing could materially adversely affect continued development or growth.
• Anti-takeover provisions in corporate documents and Delaware law could impair takeover attempts, limiting the price investors might pay for common stock.
• Forum selection provisions in the Certificate of Incorporation may limit stockholders' ability to obtain a favorable judicial forum for disputes.
• Reliance on emerging growth company exemptions may make common stock less attractive to investors and increase price volatility.
• Uncertainty regarding the actual number of shares sold under the Purchase Agreement, gross proceeds, and resulting dilution.
• CREO will pay less than the then-prevailing market price for common stock, potentially causing the stock price to decline.
• Future resales and/or issuances of common stock, or the perception of such sales, may cause the market price to drop significantly.
• Proceeds from sales to CREO may be used in ways with which investors may not agree or that may not yield significant returns.

Future Outlook

Management projects that the company will not have sufficient liquidity to continue operations, including making required interest payments under the Amended PCCU Note, beyond October 2025. The company is actively pursuing strategic partnerships, renegotiating debt terms, offering stock-based compensation, restructuring its employee base, and adjusting Board compensation to improve its financial condition. Discussions with potential investors, lenders, acquirers, investment banks, and strategic partners are ongoing to secure additional capital. The company is also exploring the potential use of its Nasdaq listing as part of a broader strategy that may include digital assets or treasury-related partnerships. The cannabis industry is expected to grow significantly, with the U.S. market predicted to expand from $44 billion in 2025 to $76 billion by 2030, which management believes will favorably affect the company, despite increased competition. Policy changes like the SAFER Banking Act or rescheduling cannabis could materially expand banking access for CRBs, benefiting the company.

Management Comments

• We believe that our unique banking relationships, reputation of reliability in the cannabis industry, as well as our deep expertise and experience in the industry will position us to serve a broad range of cannabis industry participants.
• We feel our history of developing processes that satisfy regulatory standards has resulted in a solid reputation with related authorities and solidifies our ability to continue to grow existing services and reduces barriers to expanding into new service offerings.
• We anticipate that the new asset hosting fee will be more expensive than the disaggregated fees in the PCCU CAA.
• Management is making progress towards regaining compliance with Nasdaq listing standards, however, there is no assurance that we will be successful.
• Management projects that the Company will not have sufficient liquidity to continue operations, including making required interest payments under the Amended PCCU Note beyond October 2025.
• Management remains committed to executing its business plan while addressing the Company’s liquidity needs in a timely and prudent manner.
• Management believes that anything that favorably impacts the cannabis industry will in turn favorably impact the Company.

Industry Context

The company operates in the rapidly growing U.S. state-legal cannabis industry, which is projected to expand from $44 billion in 2025 to $76 billion by 2030. Despite this growth, the industry faces significant headwinds including regulatory complexity (federal illegality under the CSA), capital constraints, competition from illicit markets, and limited banking access. The company's business model thrives on providing compliant financial services to Cannabis-Related Businesses (CRBs) due to the reluctance of most traditional financial institutions to serve this high-risk sector. Potential federal policy changes, such as the SAFER Banking Act or cannabis rescheduling, could significantly impact the industry by expanding banking access and improving CRB profitability, which management believes would favorably affect the company. However, such changes could also increase competition from traditional financial institutions. The market for compliant financial services for CRBs remains fragmented and underpenetrated, creating a long-term opportunity for specialized providers like SHF Holdings, but also attracting new fintech competitors.

Comparison to Industry Standards

• The company's compliance program is designed to assist financial institutions in providing safe and sound financial services to CRBs, aligning with FinCEN Guidance, which is a key standard for cannabis banking.
• The company's history of navigating over 16 state and federal banking exams through its financial institution relationships suggests a robust compliance framework compared to new entrants or less experienced providers.
• The company's loan program offers access to loan options at what it believes to be competitive rates, often with less punitive terms than the current industry average for cannabis businesses, indicating a competitive advantage in capital-constrained markets.
• Many competitors are substantially larger and have considerably greater financial, technical, and marketing resources, suggesting the company operates at a disadvantage in terms of scale and investment capacity compared to broader financial services industry standards.
• The company's reliance on a single financial institution (PCCU) for a substantial portion of its CRB client deposits and loan funding is a concentration risk, contrasting with diversified funding models typically seen in more mature financial services sectors.
• The company's identified material weaknesses in internal controls over financial reporting, particularly in revenue recognition and financial instruments, indicate a gap in internal governance compared to established industry best practices for public companies.

Management Changes

Corporate Governance

Legal Proceedings

• The company filed a declaratory judgment action on October 17, 2024, against former Abaca shareholders (Daniel Roda, Gregory W. Ellis, and James R. Carroll) regarding a $3.0 million contingent merger consideration payment. The funds were deposited into court registry on November 21, 2024, pending resolution of internal disputes among shareholders.
• The defendants filed a counterclaim on December 19, 2024, alleging breach of contract and related causes of action, with a third-party claim against a board member. A motion to dismiss counterclaims was filed on January 16, 2025, and Gregory W. Ellis was dismissed as a counter-plaintiff on April 18, 2025, due to lack of standing.
• A settlement offer of $300,000 was made to a former employee related to employment matters, accrued as of March 31, 2025. The settlement was accepted and finalized in Q3 2025, with $100,000 payable in cash over 12 months and 89,308 shares of Common Stock (valued at $200,000) issued on July 7, 2025.

Related Party Transactions

• Partner Colorado Credit Union (PCCU) is a related party due to significant ownership interest, being the most significant financial institution customer, sole lending institution, counterparty to the PCCU Note, and holding the majority of the company's deposits.
• The Amended and Restated Commercial Alliance Agreement (Amended CAA) with PCCU, effective December 31, 2024, replaced prior agreements (Account Servicing, Support Services, Loan Servicing Agreements). It eliminated indemnification obligations for loan losses, replaced prior fees with a fixed asset hosting fee (0.01% of average daily balance), entitled the company to all investment income on CRB funds invested by PCCU, and introduced a new loan yield allocation formula (approx. 39% interest income to the company).
• The Amended PCCU Note, effective March 1, 2025, modified the Senior Secured Promissory Note with PCCU, setting the principal at $10,748,408 at 4.25% annual interest, with interest-only payments until January 5, 2027, and full repayment by October 5, 2030. PCCU holds a first-priority security interest in substantially all company assets.
• A loan receivable of $385,642 was sold to PCCU on July 31, 2025, for $384,527.
• PCCU holds 1,080,807 shares of the company's Class A Common Stock as of December 31, 2024, representing a 39% holding.
• As of June 30, 2025, $235,993 of cash and cash equivalents were held in deposit accounts at PCCU.

Stakeholder Impact

• **Shareholders**: Face significant dilution from the potential issuance of up to 46,153,846 shares under the CREO Purchase Agreement, representing approximately 94% of current outstanding shares. The discounted purchase price for CREO's shares could further depress the stock price. The substantial doubt about the company's going concern ability and Nasdaq non-compliance pose significant risks to investment value. The increase in authorized shares for the Equity Incentive Plan also contributes to potential dilution.
• **Employees**: Restructuring efforts and headcount reductions have occurred, impacting employee stability. The shift to stock-based compensation aims to retain key personnel but introduces equity risk.
• **Customers (Financial Institutions)**: The company's liquidity issues and Nasdaq non-compliance could raise concerns about its long-term stability as a service provider. However, the company does not anticipate material impact to services provided to CRB clients, whose deposits are maintained with contracted financial institutions. The Amended CAA with PCCU changes fee structures and indemnification, potentially impacting costs for financial institution partners.
• **Creditors (PCCU)**: PCCU is a major creditor and related party. While the Amended PCCU Note defers principal payments, the company's liquidity concerns and potential covenant breaches (though waived in 2024) highlight repayment risks. PCCU holds a senior security interest in substantially all company assets, providing some protection in case of default.
• **Regulatory Bodies**: The company's Nasdaq non-compliance and identified material weaknesses in internal controls will be under scrutiny by the SEC and Nasdaq, potentially leading to further regulatory actions if not remediated.

Next Steps

• Management will continue to assess the effectiveness of remediation efforts for identified material weaknesses in internal controls.
• The company intends to timely submit a Compliance Plan to Nasdaq to regain compliance with the Shareholders Equity Requirement.
• Management will continue to monitor the Abaca legal case and assess any potential financial impact.
• The company expects to reduce the accrued liability for the former employee settlement by $200,000 in Q3 2025 through equity issuance.
• The company will continue to monitor the development of new accounting standards (ASU 2024-03, ASU 2024-04, ASU 2025-01) and adopt them in accordance with their respective effective dates.
• The company will continue to evaluate the impact of the One Big Beautiful Bill Act (OBBBA) tax law changes, with impacts to be included in financial statements beginning Q3 2025.
• Management will continue to pursue strategic partnerships aimed at expanding service offerings to cannabis-related businesses.
• Management will continue to renegotiate terms under its Amended PCCU Note.
• Management will continue to offer stock-based compensation in lieu of cash to conserve liquidity.
• Management will continue restructuring its employee base to align staffing with current operating needs.
• Management will continue adjusting Board of Directors compensation to further align interests with shareholders through equity incentives.
• Management will continue active discussions with potential investors, lenders, acquirers, investment banks, and strategic partners to secure additional capital.
• Management is exploring the potential use of its Nasdaq listing as part of a broader strategy that may include digital assets or treasury-related partnerships.
• The company intends to seek stockholder approval in the near future to issue additional shares of Common Stock to CREO in excess of the 19.99% Exchange Cap.

Key Dates

Recommendation

The company faces immediate and severe financial challenges, including substantial doubt about its ability to continue as a going concern, a significant net working capital deficit, and a rapidly declining cash position. Revenue and Adjusted EBITDA have deteriorated sharply, indicating a worsening operational performance. While the equity line of credit with CREO offers a potential capital infusion, it comes with massive dilution for existing shareholders (up to 94% of current outstanding shares) at a discounted price, which will likely depress the stock further. The company's non-compliance with Nasdaq's minimum stockholders' equity requirement poses an imminent delisting risk. Furthermore, identified material weaknesses in internal controls suggest fundamental operational and financial reporting deficiencies. Given the high level of uncertainty, severe liquidity crunch, ongoing losses, and significant dilution, the stock presents an extremely high risk with a very low probability of near-term recovery for current investors. A seasoned investor would likely seek to exit this position to avoid further capital erosion.

Keywords

Cannabis Banking, Fintech, SEC Filing, S-1 Registration, Equity Line of Credit, Nasdaq Delisting, Going Concern, Financial Services, CRB, Compliance, Loan Origination, Dilution, Material Weakness, PCCU, Convertible Notes, Risk Management, Corporate Governance