Weed’s Banking Bill Is Struggling — But It Isn’t a Panacea Anyway

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https://www.bloomberg.com/news/newsletters/2022-12-12/marijuana-s-safe-banking-bill-is-in-trouble-but-there-may-be-a-silver-lining

Un-SAFE banking?
The cannabis industry failed to get the banking legislation it wanted yet again last week — but so-called SAFE Banking may not have been the panacea that many had hoped for.

There’s still a sliver of hope that the bill, which failed to get attached to the defense budget last week, may yet get attached to an omnibus funding package before the end of the year. But even if it doesn’t, many say it won’t be the end of the world for a battle-hardened industry that has already found workarounds. In fact, keeping an industry that’s prone to hype more lean could even have some benefits.

Companies hope that if SAFE passes, they will gain more institutional investors, list on major stock exchanges and stop operating in mountains of unwieldy cash. Yet they’ve already found workarounds to many of these problems. Because retailers can’t take credit cards, many turned to cashless ATMs (and are now adopting other alternatives, as cashless ATMs shut down). State-charted banks and credit unions have also created a booming business in serving cannabis companies.

Still, the industry saw the bill as symbolic — and a potential sign that the winds in Washington were shifting in favor of marijuana.

“I think the importance of SAFE lies more in the signaling of what it represents for change at the federal level,” said Emily Paxhia, the founder of cannabis investment fund Poseidon Asset Management, contrasting it with more substantive legal changes that would come if the US were to take marijuana off its list of the most dangerous drugs.

Even if SAFE does pass, the largest, most conservative institutions would likely take their time in embracing the industry, said Rasul Raheem, senior counsel in the Detroit office of law firm Dykema Gossett.

“I don’t see the big banks getting into this area, you’ll mostly see the smaller banks,” Raheem said. He noted that because there’s still drug-cartel activity in the marijuana space, banks will want to tread cautiously to make sure the banking system is protected from infiltration by illegal actors. 

Robert DiPisa, chair of Cole Schotz’s Cannabis Law Group, predicted that  it could take a year or more before big banks would serve the industry after passage of a banking bill. Even then, they’d be likely to pass hefty compliance costs on to their cannabis customers.

One of the main problems SAFE Banking would solve is the ability of cannabis companies to get real estate, given how reluctant landlords’ lenders have been to deal with the marijuana industry, he said.

“I see so many transactions die, and fall through, and operators that can’t expand” because landlords don’t want to change to a smaller bank that will work with a cannabis client, DiPisa said.

Vince Ning, founder of Nabis, a cannabis wholesale platform in California, said that if SAFE doesn’t pass, there could be a silver lining. Without a flood of new money, cannabis companies will be forced to fix operational inefficiencies rather than just patch holes. Additionally, other states can hopefully avoid the bubble effect as new participants rush into the market, Ning said. That sudden interest has led to an oversupply of raw flower in California, depressing wholesale market prices.   

“The problem of oversupply of flower today in California largely exists because there was a lot of capital support to built infrastructure, to be as widespread as possible,” he said. “The capacity to produce in California was gargantuan, they had to put it to use. It ended up flooding the market.”

Number of the week
14%
The percentage increase of drivers under the influence of cannabis in 2021, according to the American Automobile Association.

Quote of the week
“We’re talking about a grab bag of miscellaneous pet priorities, like making our financial system more sympathetic to illegal drugs,” Senate Republican leader Mitch McConnell said in a much-discussed quip about attempts to attach the SAFE Banking legislation to a defense bill.
 
What you need to know
>A popular cannabis-industry workaround to the banking system began to shut down. Cashless-ATM systems have been a $7 billion issue for credit-card companies and banks for more than a year, but the news sent some companies scrambling for alternatives that would let marijuana customers pay. 

>A last chance for the SAFE Banking bill to pass is still in the cards, although hopes faded substantially after it failed to make it on the defense bill earlier last week. A pot ETF posted its worst week since March 2020.
>New York did a creative pivot, letting its first marijuana retailers use bikes and scooters to deliver product following a slow start for storefronts.

>Brittney Griner, the US basketball star arrested in Russia with hash oil in her suitcase, came home as part of a prisoner swap for arms dealer Viktor Bout, the so-called Merchant of Death. The move stirred elation, as well as unease.

>A growing number of US drivers are getting behind the wheel after using alcohol or marijuana, contributing to an 11% increase in road deaths, according to a new survey from the American Automobile Association.
 
>TerrAscend says Canopy USA agreed to convert debt into to exchangeable shares and warrants to buy common shares.

>A startup in Chile is looking to finance a cannabis plantation in Chile and a laboratory to produce the nation’s first hash-based products.