A Big Cannabis Sector Barrier Crumbles

Written by Adam English
Posted June 19, 2018 at 4:05PM

We’ve seen 29 states enact sensible policies.

We’ve seen President Trump throw his verbal support behind state’s rights on the matter.

We’ve seen pressure from vets and politicians to open up federal funding for Veterans Affairs research and prescriptions.

Now one of the last, but biggest, hurdles for the rapidly growing and maturing cannabis sector is coming down.

And while it may involve what is just about the most boring aspect of any business, it represents what may be the biggest positive change for cannabis businesses outside of legalization itself.

Banks, and extremely influential bankers, are throwing their weight behind the sector.

Trucks Full of Cash

According to a report from the Treasury Department’s FinCEN office, by the end of March 2018, 411 banks and credit unions in the U.S. were “actively” operating accounts for cannabis businesses.

That marks a 20% increase from the start of President Trump’s time in office.

This is practically a make-or-break issue for the cannabis businesses themselves.

Without access to the full suite of banking services that small businesses usually secure with relative ease, a host of problems arise.

Credit and debit transactions? Nearly impossible, and extremely expensive.

A business loan, or revolving credit, for capital expenditures and smoothing out expense spikes? Nope.

Direct deposit and payroll services? Forget about it.

Many companies have to truck around mountains of cash to complete even the most mundane business-to-business transactions, with all the expenses of an armored truck and guards attached.

Colorado’s cannabis industry alone saw $996 million in sales in 2015, and $1.1 billion in sales last year. Every single dollar had to be secured and shipped around.

These aren’t high-margin businesses either. Retail prices are dropping, and there are already robust (and costly) security measures in place for the production facilities and shipments.

The extra security and transportation for the greenbacks eat into relatively tight cash flows and profits at a time when scale and efficiency are paramount.

No one likes the status quo. Now bankers, including the cabinet-level Treasury Secretary and the Chairman of the Federal Reserve, are weighing in.

Change is Coming

The federal government hasn’t really changed its policies regarding banks and cannabis companies for a good four years.

Back in 2014, the Obama administration issued guidance through FinCEN to banks about how to handle these accounts without running afoul of federal regulators.

Banks and financial service providers regularly file reports on customers with cannabis-related accounts, and the federal government considered it to be above board.

But that isn’t real protection, and the banks — especially the regional, national, and international ones — know it.

Yet the gradual climb of banks willing to step into this arena shows that their hesitancy is fading. Plus, the banks also have some heavyweights in their corner now.

Federal Reserve Chairman Jerome Powell recently said that the current gap between federal and state marijuana laws, "puts federally chartered banks in a very difficult situation. It would great if that could be clarified. Our mandate has nothing to do with marijuana, so we just would love to see it clarified."

While the Federal Reserve’s mandate is agnostic regarding what bank accounts are used for, the Treasury Department itself most certainly is not. That’s one of its Big Things, and it is the direct cause of bank reluctance.

That’s what makes Treasury Secretary Steven Mnuchin’s comments on Capitol Hill in front of numerous committees very important. As he stated to House members:

“I assure you that we don’t want bags of cash. We do want to find a solution to make sure that businesses that have large access to cash have a way to get them into a depository institution for it to be safe.”

That means deposits, accounts, card processing, and the regular suite of banking services. The whole kit and caboodle, if you will.

According to Mnuchin’s testimony a different time he was in front of lawmakers, solving cannabis businesses’ financial services issues is at the “top of the list” of his concerns.

Pending legislation to change federal laws regarding cannabis businesses now has record support.

A House bill addressing the issue has 94 co-sponsors, while companion Senate legislation has 18 senators signed on. That’s over 21% of both chambers.

Change is coming, and it is coming soon. And quite frankly, it is long overdue.

But that is the nature of the cannabis sector right now. It isn’t going anywhere, but the U.S. has done a terrible job of revamping the layers of policies and regulations that are involved in recent years.

It’s been a long, grueling process to drag the bureaucrats in line with the will of an overwhelming majority of citizens.

The last hurdles for the cannabis sector are finally crumbling and money is pouring into the sector as it is growing at a faster pace than the internet did in the early 2000s.

It’s a fantastic time to invest in the best companies in the sector.

Take care,

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Adam English

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Adam's editorial talents and analysis drew the attention of senior editors at Outsider Club, which he joined in mid-2012. While he has acquired years of hands-on experience in the editorial room by working side by side with ex-brokers, options floor traders, and financial advisors, he is acutely aware of the challenges faced by retail investors after starting at the ground floor in the financial publishing field. For more on Adam, check out his editor's page

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