Despite Booming Growth, the Cannabis Industry Struggles with Financial Services

The emerging cannabis industry is still at the mercy of its federal status. Even in states where cannabis is legal, FDIC-insured banks cannot interact with any part of the industry. That means growers, retailers, and dispensaries are increasingly reliant on new banking technology.

The Industry Is Underbanked

Traditional banks consider the industry a liability because of its federal status. Many cannabis growers and retailers have had their bank accounts closed. Even landlords and employees of cannabis companies are subject to these kinds of service denial. Many dispensaries and retail organizations operate a cash-only business. These businesses will purchase a cash ATM that is loaded to provide convenience for customers, but the core business remains cash-only. Even E-commerce options are hesitant to join the cannabis industry because of its federal status in the United States.

Canada's Legal Industry Suffers Too

While the cannabis industry in the United States is severely impacted by its illegal federal status, the same is not true in Canada. Canada federally legalized cannabis in 2018, but many banks are still hesitant to do business with the industry as a whole. In a Financial Post article, one grower explains that many banks still have a cautious approach. One notable exception was the Bank of Montreal, but most Canadian banks have refused to do business in the industry. Canopy Growth Corp CEO Bruce Linton described it as checking every box, "but they still don't like you."

Many banks have exposure to the U.S. financial system and want to preserve those ties. Alterna Savings & Credit Union has risen to prominence in Canada as servicing two-thirds of 100 licensed producers. Bank of Montreal was the first to break the ice by offering $200 m in equity financing for Canopy Growth. The financial sector is thawing, but at a much slower pace than the cannabis industry is growing.

What's the Solution?

Right now, banks and e-commerce providers are caught between trying to provide service to their local communities and abiding by federal regulations. The cannabis industry is estimated to be worth over $9 billion in the U.S. alone, yet only 30% of companies have bank accounts. A recent government funding bill proposed on June 11 by the House Committee on Appropriations aims to address this issue. The bill includes a provision that will protect banks that provide financial services to cannabis businesses. A broader Secure and Fair Enforcement Banking Act will turn the bill into law.

Nearly half the U.S. House of Representatives supports the measure. If the SAFE Banking Act passes, it could fundamentally change the way the cannabis industry banks. This bill could have a wide-reaching impact, too. Banks that have been traditionally conservative about serving the needs of the cannabis industry may lighten their stance. Right now, anyone operating in the cannabis industry in the U.S. must seek alternate financial services. Cryptocurrencies and dealing with Canadian banks have been one way to bypass federal regulations. For the cannabis industry to truly blossom, the federal legality issue will need to be addressed sooner rather than later.