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Cannabis Banking Is Booming Despite Federal Uncertainty

Cannabis companies may not be able to work with the JPMorgan Chases and Citigroups of the world anytime soon, but that hasn’t stopped small banks from flooding into the space.

Small banks are gaining confidence

Cannabis companies may not be able to work with the JPMorgan Chases and Citigroups of the world anytime soon, but that hasn’t stopped small banks from flooding into the space.

On the surface, it would seem that the industry’s prospects for being able to bank like normal companies has taken a hit. U.S. Representative Ed Perlmutter of Colorado, the biggest supporter of legislation that would liberalize rules for cannabis banking, just announced his retirement. The SAFE Banking Act he backed stalled late last year. Meanwhile, Visa Inc. sent a memo to banks saying that so-called cashless ATMs — a workaround used by some dispensaries to avoid dealing in cash — weren’t copacetic.

But those who specialize in helping financial institutions work with cannabis companies say that may all be moot: The number of credit unions and state-chartered banks venturing into the industry has been quietly accelerating.

“In the early days, no banks were willing to do this,” said Peter Su, a senior vice president at Green Check Verified, which offers software to banks that helps them deal with the added regulatory burdens of working in cannabis. Green Check, which is among a handful of companies that have sprung up to fill the niche, announced last week that in 2021 the number of financial institutions that it works with grew by 270% to around 100 banks and credit unions.

Most big banks shun cannabis companies because marijuana is illegal at the federal level. Credit-card networks do as well. That has created a conundrum for any company that touches marijuana; they’re often forced to deal in cash and can struggle with basic operations like paying workers and buying inventory.

Shield Compliance, another company that helps financial firms do business with the industry, has also experienced strong growth. “We’re seeing more and more bankers recognize that there’s a clear path to serving these customers,” Tony Repanich, the company’s president, told me. “The playbook has been established showing banks and regulators how to work with the industry.”

Banks that work in the space agree there’s more competition for cannabis clients. “More people are dipping their toe in this industry over the past year,” said William Hufnagel, chief executive officer of Dart Bank. The bank started in 2019 with one client in Michigan and now has hundreds in the state, including ancillary companies like testing labs and law firms, he said.

Todd Gunderson, CEO of Credit Union 1, said his institution — which like Dart, uses Shield’s software — started out in 2019 with one cannabis client in Nevada. It now works with around 150. “Our comfort level is very high with cannabis banking. I think we’re taking on more and more clients every day,” he said. He estimates his client base in cannabis has more than doubled in the last six months.

Number of the week

62% The percent of registered U.S. voters who said they don’t support legalizing marijuana when presented with other options like medical programs or decriminalization, according to a recent poll by Emerson College.

Quote of the week

“I look at the fast-growing bourbon category. One day, upon federal legalization, we’ll be able to come out with a nonalcoholic bourbon that’s infused with THC, under the Breckenridge name, which in turn would create a perfect adjacency between our alcohol business and THC business,” Tilray Brands Chief Executive Officer Irwin Simon said during the company’s quarterly conference call.

What you need to know

  • Tilray Inc. is renaming itself Tilray Brands Inc. as it focuses on a new strategy to fend off market saturation in Canada. The company’s second-quarter earnings last week topped analysts estimates. Tilray will focus on gaining share from the black market. Investors sold off the company’s shares at the end of the week.

  • Cannabis compounds were found to prevent Covid infection in a laboratory study.

  • A trademark authority refused to register “Potify” for a software platform for marijuana dispensaries, finding that it would dilute the mark of streaming music service Spotify Technology SA.

  • Atai Life Sciences NV said the U.S. Food and Drug Administration has given investigational new drug clearancefor a clinical trial related to ketamine.

This article originally appeared in Bloomberg News on January 18, 2022


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