Last week, as the cannabis world collectively gasped at the nearly $4 billion investment Constellation made into Canopy Growth, other, more dour news on the domestic cannabis front was also being announced. The L.A. Times reported that state lawmakers had shelved a specialty-banking law that would have allowed cannabis businesses within the Golden State to open accounts and to pay taxes, rent, bills and other typical business expenses with checks.
“Banking in California is ruff” for cannabis businesses and this measure by the state legislature would have been a welcome reprieve for legal businesses besieged by unregulated businesses that do not pay taxes at all, let alone with cash.
While the summer opened optimistically on this front; the sunny tune has unfortunately changed. The proposed banking legislation passed a preliminary clearing by the state senate back in June. However, lawmakers in Sacramento ultimately balked, fearing retribution from the federal government. The move would have helped open up the California cannabis market which continues to face problems in its implementation, including: local lawmakers dragging their feet to award retail licenses to legit business operators, a dearth of approved and licensed testing facilities, (again) a thriving unregulated market that is undercutting the legal and open market, and, oh yeah, a legal and open market that is hamstrung by being forced to pay in cash and cash alone.
Unfortunately, the killing of this bill mirrors the aborted efforts of other legalized states that have contemplated special banks for cannabis operations. While more and more jobs become available in the cannabis space (over 200,000 and counting!); and as more and more and states begin pushing towards legalization, a sobering bucket of ice water is the conundrum of banking within the cannabis space. We have outlined the challenge of financing numerous times, and while some companies will become unicorns, or find partners with deep pockets, the fact remains: the US cannabis market is lagging further and further behind Canada and, to a certain extent, the ever growing global cannabis market.
Most frustrating about this fact is this, while plant-touching businesses continue to deal with the frustrations of a cash-only business; US banks and financial houses are getting in on the green rush in Canada and other countries. That Constellation investment? Backed by Bank of America Merrill Lynch. While we are in no way, shape or form begrudging of Constellation, the banks or, especially, not of Canopy Growth. The completely legal, cash-backed financing from a US banking institution into a US company’s investment in a cannabis business has some poor optics. More important than bad optics is the fact that this move by a massive US financial organization sends a clear message. Big banks and big business based (particularly Big Alcohol) in the United States see big opportunity in cannabis. These forces are putting their money where their mouth is and it is not in America.
Fortunately, this trend of big investment from big banks and big companies doesn’t show any sign of stopping. Unfortunately, the US market will continue to languish behind Canada, and investors will continue to put their money elsewhere, until more useful and practical financing and banking measures are afforded our nascent industry across the country. Simply put, as cannabis goes global, will the US be left behind?