Why The U.S. Cannabis Industry Needs SAFE To Pass TODAY

Why The U.S. Cannabis Industry Needs SAFE To Pass TODAY

Cannabis investors know that U.S.-based cannabis companies currently have very limited access to banking services. This hampers everything from basic day-to-day operations to raising capital.

The question is: how “limited” is this access? A MJBizDaily article provides some details.
 

The number of banks and credit unions actively serving the marijuana industry totaled 715 in the U.S. government’s fiscal third quarter, which ended June 30, federal data shows.

At first glance, this looks reasonably encouraging. However, there are roughly 5,300 U.S. banks (as of Q2 2019) and over 5,600 credit unions (as of the end of 2018). This translates into less than 7% of banks and credit unions currently offering access to legal cannabis companies.

It gets worse as soon as we look at where MJBizDaily got its data. It came from the “suspicious activity reports” (SARs) that banks are required to file with regulators.

If you’re a U.S. financial institution and you engage in any business with a legal cannabis company, this is automatically deemed to be a “suspicious activity”. Obviously, banks and credit unions don’t want to appear on this report.

It gets still worse.
 

Most of the nearly 30,000 marijuana-related SARs filed between June 30, 2018, and June 30, 2019, were routine in nature.

But the financial institutions did file 8,437 reports in that one-year period that raised enough red flags for the banks to terminate the customer relationship, according to the data.

Another 2,652 reports were classified as warranting further investigation.

Many of these SARs would be connected to the cannabis-related activities of individuals, not legal cannabis companies. At the same time, we see what is happening here.

Even once a legal cannabis company has found a financial institution that is initially interested in doing business, if “red flags” appear with respect to these companies, the banks terminate the commercial relationship. And the cannabis company needs to look for a new financial institution to facilitate its operations.

Musical chairs.

We get no details with respect to the substance of these SARs reports. Certainly, in some instances there would be reasons to report “suspicious activity” in connection with a legal cannabis company. One U.S. cannabis company has recently been alleged to have been operating both a legal and a black market cannabis business.

However, unless we assume that the legal cannabis industry is completely infested with organized crime, what we are seeing here is phobic behavior by U.S. banks towards its clients that are legal cannabis companies.

The banks are phobic just about being connected to the cannabis industry (and now we know why) and phobic about the operations of these companies. Forget to dot an “i” or cross a “t” on some banking document and you’re out the door.

The legal cannabis industry needs SAFE. And it needs it today.

It’s about more than just banking services and better access to capital. It’s about taking a major step forward in legitimizing the legal cannabis industry in the United States.

The average private investor may not know that legal cannabis operations are deemed to be “suspicious activity” in the U.S. banking industry. However, institutional investors would be presumed to know this.

How much investment capital is sitting on the sidelines in the U.S. today, simply because (in regulatory terms) legal cannabis companies are not “respectable enough” as a destination for such investment capital?

Warren Buffett alone has $120+ billion of Berkshire Hathaway capital currently sitting on the sidelines because he can’t find any “reasonably priced assets” in U.S. markets as a home for that capital.

Marijuana stock valuations are currently at rock-bottom levels.

An ultra-conservative company like Berkshire Hathaway may never choose to invest in legal cannabis. But many other large funds are much more open to new opportunities – especially something with the growth potential of the emerging cannabis industry.

U.S. cannabis companies need SAFE to help normalize their operations, with commensurate gains in efficiency. However, perhaps these companies (and their shareholders) need SAFE even more  as a “green light” for institutional investment in the legal cannabis sector.
 

Published at Wed, 09 Oct 2019 15:58:34 +0000

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