One of the biggest questions on the mind of analysts and observers in the cannabis industry is just when exactly will it be viable for businesses in this area to enlist the services of banks in a legal manner. A new request from a bipartisan group of attorney generals throughout the U.S. may spark a reevaluation on this topic.
On Tuesday (Jan. 16) California Attorney General Xavier Becerra joined a multistate grouping of 18 state attorneys general requesting Congress to create a policy that would allow for the banks to fully interact with cannabis companies in the states where it may be legal.
In terms of developments in the cannabis market, the financial institutions are incomparable to companies already in the space, due to the unclear legalities surrounding the overall industry.
“The future of small and local licensed businesses has been clouded by the Trump Administration’s relentless attacks on progress, in conflict with the will of voters,” Attorney General Becerra said. “Congress has the power to protect a growing $6.7 billion industry and the public safety of our communities.”
The letter from the group addressed to several member leaders of Congress, asked for legislation that would remove the risk factor preventing banking institutions from entering this burgeoning area. “This risk has significantly inhibited the willingness of financial institutions to provide services to these businesses,” the letter read.
The letter from the state attorneys general continued, stating the decision from Sessions to take away the Cole Memo made it more urgent for Congress to step in and “get the cash generated by this industry into a regulated banking sector.”
The recommendations from the letter would make changes to the SAFE Banking Act, allowing the ability for the law enforcers to keep an eye on the transactions in the legal cannabis world.
“Compliance with tax requirements would be simpler and easier to enforce with a better-defined tracking of funds,” the letter said. “This would, in turn, result in higher tax revenue.”
Legality in the U.S. amount to a lot of risk for banks to engage with cannabis companies
As investors know, marijuana is an illegal drug at a federal level in the US under the Controlled Substance Act. Despite, this eight states and Washington, DC have legalized recreational use of the drug.
The growing trend of US states legalizing cannabis in some form or another was backed up by the Cole Memo. The memo, which is a government guidance that created some protections for companies operating in this space, was implanted by former Deputy Attorney General James Cole during the Obama Administration.
Now, current Attorney General Jeff Sessions rescinded the memo and allowed federal units to follow through as best they saw it fit in implementing the federal law. This change in policy hasn’t sparked targeted approach to companies dealing with cannabis in legal states, but it did add a new level of uncertainty in the market.
One bank avoiding legal issues in a legal state
In Maryland, Severn Savings Bank has been offering cannabis businesses with banking services, despite the legal problems this would cause to other banks, according to a report from The Washington Post. The report indicated the accounts pay substantial fees, can’t write checks or ask for loans with them.
Unlike other legal states, Maryland allows cannabis businesses to pay employees through an automatic debit system and can use debit services for other transactions.
Canadian banks slowly entering the industry
Across the border in Canada, the federal government is on the path to full legalization, slated for summer 2018. The development of companies focused entirely in this space has been fueled in large part by some of the financing done through alternative financial institutions focused on researching the space, the banks haven’t exactly embraced the industry with open arms.
However, that public shun from the banks could be changing soon. In October, Bloomberg wrote the Bank of Montreal and Toronto-Dominion Bank had provided business accounts to at least 21 cannabis companies
“There could be a significant first-mover advantage to the financial institutions that are getting involved with the legal cannabis industry already,” Basem Hanna, chief executive officer of TerrAscend (CSE:TER) told Bloomberg.
The report said the Bank of Montreal already had active accounts for Aphria (TSX:APH; OTCQB:APHQF) CannTrust Holdings (CSE:TRST), Invictus MD (TSXV:IMH; OTC:IVITF), Cannabis Wheaton (TSXV:CBW) and CannaRoyalty (CSE:CRZ; OTCQX:CNNRF).
At the Lift Cannabis Expo in Vancouver recently, a panel of analysts was asked about the potential of various services banks could provide starting to roll out once recreational cannabis became legal in Canada.
John Medland, a partner at Blair Franklin Capital Partners answered first by explaining the banks haven’t jumped into the industry because of the risk factor it provides to their U.S. interests.
“They worry about it impacting the US business, and they are highly regulated in the States, so they worry about the exposure from that standpoint… they worry about their board members getting stopped at the border,” Medland said.
He predicted the banks will be part of the lending market but he didn’t expect them fully banking the companies or raising money for them, yet.
Everett Knight portfolio manager at Matco Financial added the two big Canadian markets will evaluate the industry later since they are taking a “dip a toe” approach right now.
Uruguayan cannabis market sidetracked because of US banks
Last year, Uruguay was on a rampant path regarding the business of cannabis. Pharmacies with legal marijuana stands were selling out each day. Consumers were excited to acquire legal cannabis products. But then the industry was sidetracked by warnings from U.S. banks.
In August 2017, The New York Times wrote on the effect these letters had on the local officials, who were then forced to change their new cannabis laws.
“American banks, including Bank of America, said that they would stop doing business with banks in Uruguay that provide services for those state-controlled sales,” the Times wrote. This warning trickled down to Uruguayan banks that were forced to threat them saying their accounts would be dismissed.
It will be key for banks to participate and provide a boost to the cannabis companies trying to expand the reach of the industry. Investors should keep an eye on the situation developing in Canada between the major banks making an attempt at entering this space at the moment and how much reception the letter from the US attorneys general gets in Congress.
Don’t forget to follow us @INN_Cannabis for real-time news updates!
Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Invictus MD is a client of the Investing News Network. This article is not paid-for content.
CanBud Distribution Corporation Closes 2M Second and Final Tranche of its Oversubscribed Private Placement Offering
CanBud Distribution Corporation (CSE: CBDX) (FSE: CD0) (“CanBud” or the “Corporation”) is pleased to announce that it has closed the final tranche of its oversubscribed non-brokered private placement for aggregate gross proceeds of approximately $4,730,000 (the “Offering”).
The Corporation issued a combined total of 39,409,346 units (each a “Unit“) at price of $0.12 per Unit, with each Unit comprised of one common share in the capital of the Corporation (each a “Common Share“) and one common share purchase warrant (each a “Warrant“). Each Warrant entitles the holder to purchase one additional Common Share at an exercise price of $0.22 within 24 months of the closing of the Offering (the “Warrant Term“), provided, however that if the closing price of the Common Shares on the Canadian Securities Exchange (the “CSE“) (or any such other stock exchange in Canada as the Common Shares may trade at the applicable time) is $0.25 or greater per Common Share for a period of five (5) consecutive trading days at any time after the closing date of the Offering, the Corporation may accelerate the Warrant Term such that the Warrants shall expire on the date which is 30 days following the date a press release is issued by the Corporation announcing the reduced warrant terms.
Thoughtful Brands Inc. (CSE:TBI)(FSE:1WZ1)(OTCQB:PEMTF) (the “Company” or “Thoughtful Brands) announces that the letter of intent with Franchise Cannabis Corp. (“FCC”), previously announced in January, has been terminated. The previously announced European joint venture with FCC will continue and allow the Company to launch and tailor its products to European consumer demands
In connection with termination of the merger transaction with FCC, the Company has agreed to pay FCC $100,000 in cash and to issue FCC 5,000,000 common shares of the Company at a deemed value of $0.05 per share. The common shares will be subject to a four-month-and-one-day statutory hold period in accordance with applicable securities laws.
Mergers and acquisitions (M&A) in cannabis space have helped boost the industry to new levels.
Strategic sale of non-core assets by Lobe adds non-dilutive capital and shareholder value
Lobe Sciences Ltd. (CSE: LOBE) (OTC Pink: GTSIF) (“Lobe” or the “Company”) is pleased to announce, further to its press release dated February 23, 2021, that it has completed the sale to Ionic Brands Corp. (“Ionic Brands”) of Lobe’s non-core cannabis assets relating to Washington-based Cowlitz County Cannabis Cultivation Inc. (“Cowlitz”) held by Lobe’s subsidiary vendor, Green Star Biosciences Inc. (the “Transaction”).
Seattle Area Grocery Chain Metropolitan Market to Begin Carrying KOIOS and Fit Soda on March 22, 2021
Adding to its existing presence on the west coast of the United States, all five KOIOS™ flavours and all four Fit Soda™ flavours will be carried in Metropolitan Market stores beginning on Monday, March 22, 2021. Serving the Seattle-Tacoma area (population 3.87 million), Metropolitan Market is one of five chains under its parent firm Good Food Holdings, which has a total of 51 stores in California, Oregon, and Washington State.
Koios Beverage Corp. (CSE: KBEV; OTC: KBEVF) (the “Company” or “Koios”) is pleased to announce that beginning on Monday, March 22, 2021, Koios’ entire line of canned beverage products will be sold at all locations of Metropolitan Market, an urban format supermarket chain in the Seattle-Tacoma area of Washington State. In Q1 2021, the Company announced multiple placements of its beverage products with regional grocers in markets on the west coast of the United States including Market of Choice in Oregon Jensen’s in Southern California and major natural grocery chain Sprouts Farmers Market which has a substantial west coast presence with over one third of its locations (360+ stores across 23 states) in California as well as Washington State 1 . The Company has also recently announced other developments relating to its expansion efforts being undertaken in 2021 such as an in-house beverage canning facility and distribution agreements with regional and national wholesale partners.