Cannabis is the ultimate consumer good: light it up, then buy some more.
The time is nigh
The majority of banking is Federally-regulated and tends to be traditionally slow to adopt policy changes. A consequence of being regulated on a Federal level means that banks are prohibited from offering their financial services to cannabis businesses, lest they break the law. As long as cannabis is illegal on a Federal level, many banks are not legally able to engage marijuana businesses as clients, even if it’s legal in their state. For this reason, dispensaries are cash only, even though most US states have legalized the sale of a variation of cannabis, whether it be hemp or a marijuana derivative.
Cash and carry
Banks and governments seem to understand that cash-only businesses tend to underreport tax and there are justifiable security concerns over handling such large volumes of cash. It’s terribly inefficient and unsafe for people to count cash everyday when dispensaries like MedMen are making “more in sales per square foot than Apple or Tiffany & Co.”
The banking industry’s inability to engage with the new lucrative cannabis industry is restraining the overall market; they need each other. Congress seems to have taken notice because they hosted two public hearings on cannabis policy in July 2019. One of these historic hearings was on banking access for cannabis, in which the chairman of the Senate Banking Committee, Senator Mike Crapo (R-ID) vocally supported legislation that would allow cannabis businesses to access the banking system, like the tobacco and alcohol industries enjoy. Currently there is a bi-partisan bill called the SAFE Banking Act, which aims to solve the cannabis banking access issue.
The cultural tide is turning
Hemp has been rescheduled by the DEA, and with the support of the FDA, it’s Federally legal for industrial farming and business purposes. This is a significant step: it’s the first time the DEA has removed any form of cannabis from a Schedule 1 classification. Currently, 41 US states allow hemp cultivation, but in 2018, there were only 24 states with farmers actually growing it. The untapped opportunity is huge, considering that approximately 65 million Americans have tried CBDand 63% found it effective.
Rules are relaxing
The American perception of cannabis isn’t the only system that’s modernizing. Thailand, a country staunchly against marijuana and most drugs, has quickly reversed their position by quietly legalizing medicinal cannabis in an effort to carve out space in the lucrative, burgeoning industry. Their government created the first ever cannabis lab and university course, to be taught by professors in the medicinal and other fields. Their goal is to improve the quality of life for chemotherapy patients and those suffering from MS, epilepsy and chronic pain. Even the World Health Organization has added their voice to the conversation by stating that there are no adverse effects from using CBD.
On a consumer level, these loosening perceptions translate into legal marijuana being sold and enjoyed at San Francisco’s Outside Lands festival, marking the history books as the first major festival to allow it in the state. Since the recreational legalization in California, other events have had significant sales and enjoyment. One example is an event in Sonoma County in 2018, which generated “$4.2 million in tax revenue for Sonoma County, supporting more than 200 jobs with $7.1 million in labor income” from limited cannabis sales.
A look forward
In the last several years, there have been drastic advances made along the path to cannabis legalization and cultural acceptance. In recent years, it would have been unthinkable that the DEA would support removing any cannabis from schedule I classification, or that Thailand, a close American ally on the war on drugs, would break from their long-held criminal stance on marijuana. The banking industry seems eager to get involved with cannabis businesses and politicians are attempting to facilitate this mutually beneficial relationship. Perceptions are gradually relaxing and opportunities in the cannabis industry are emerging for everyone.
If you are an investor, the cannabis industry is nearly impossible to ignore. Research and due diligence are key to minimizing risk, should you or someone you know choose to get involved.
