The challenges faced by legal cannabis businesses in Canada and the US when it comes to cannabis banking services are many. This comprehensive article explores the discriminatory practices and limitations that hinder the growth and stability of the cannabis industry. Gain insights into the need for a legal framework to facilitate fair and secure cannabis banking options, ensuring the legitimate operation of cannabis businesses within traditional financial systems.
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The Secure and Fair Enforcement (SAFE) Banking Act is once again making the news following recent discussions during a Senate committee hearing. How can a majority of states have legal markets but no standardized cannabis banking options?
Wouldn’t it just be easier if the US government rescheduled cannabis, creating a legal framework for its cultivation, sale, and use? It works in Canada, so it should work elsewhere. At least, that’s the assumption.
But it may come as a surprise to our American neighbors that even in a country with legal weed, the Canadian industry is still fighting to get fair access to banking and financial services. Our Big Five banks have denied the vast majority of cannabis and cannabis-adjacent companies in Canada.
WAIT, WHAT’S GOING ON WITH CANNABIS BANKING IN CANADA?
In 2018, Canada legalized recreational cannabis, fueling the cannabis stock market frenzy and launching some of the world’s largest brands like Aurora and Canopy Growth. Yet, from the start, cannabis businesses struggled to secure the same kinds of banking services eagerly offered to other companies.
Aurora and Canopy, now worth more than $800 million combined, were some of the first to report their frustrations to the Financial Post in 2018. At the time, the Post interviewed the heads of seven of Canada’s biggest producers, demonstrating the dire state of cannabis banking, even when fully licensed and regulated.
In the words of Bruce Linton, founder and now former CEO of Canopy Growth, stated, “You check every box, and they still don’t like you.” Even after scheduling meetings with senior executives at Canada’s Big Five banks, Linton explained, they all called back and said, “Don’t come.”
But that was at the beginning of legal sales when nobody knew how it would all play out. Over time, many assumed cannabis banking in Canada would get easier as the market proved itself and conditions stabilized.
Unfortunately, it has gotten worse.
In 2021, the CBC reported that the vast majority of Canadian cannabis retailers, 95 percent, had been denied access to traditional banks. And it wasn’t for lines of credit, business mortgages, and other high-stakes services; it was for simple business checking accounts.
Ryan Roch, the owner of Lake City Cannabis, told Leafly in 2022 that “the big banks won’t even look at you. It’s as if you weren’t there.” More recently, Stratcann spoke with John Carroll, CEO of Trichome Consulting Services Inc., who estimated that 60 percent of the cannabis companies he has spoken with had faced similar issues. More than one cannabis company has reported having their accounts canceled, despite being in good standing at their bank.
The situation has gotten bad enough that Groupe SGF launched a lawsuit on behalf of Gabriel Bélanger, the founder of Origami Extraction, against Desjardins Federation, National Bank, Royal Bank, Bank of Montreal, TD Bank, Royal Bank (RBC), and CIBC. According to StratCann, this new class action lawsuit has targeted the banks that “it alleges to have engaged in financial discrimination against legal cannabis businesses.”
CANNABIS BANKING IN CANADA, IT’S PERSONAL
Despite frequently writing about the issues with banking south of the border, I was in the dark about the problems dogging cannabis banking in Canada. I always assumed that because cannabis is legal here, there would be no hiccups for legal businesses.
But now, the problem is affecting my own business. It’s personal.
In February of 2023, my branch manager at the Royal Bank of Canada (RBC) contacted me to advise that my accounts were in review. According to the bank, I was at risk of having all my accounts closed. This, understandably, was news to me.
As a freelance writer and content marketer, I’m very clearly non-plant-touching. I sit at my home office desk 99 percent of the time. The other 1 percent I’m visiting clients or wandering around cannabis expos. I’ve been in business only since legalization and stick to the legal and licensed segment of the market. Furthermore, the majority of my B2B clients aren’t even plant-touching; they build cultivation tech, engineer software, and provide ancillary services.
My branch manager explained that my dealings with cannabis businesses, particularly those in the US, were concerning for RBC. Our conversation included a multistep risk assessment and a line of questioning that didn’t apply to me because I neither sold nor cultivated cannabis.
I asked him what laws I was breaking. What special license did I need? Of course, there are none. But RBC did not care. After our conversation, I was quickly notified that should I decide to continue to work with US-based cannabis companies, “RBC will regrettably necessitate escalation and possibly further action, including considering the termination of our business relationship.”
If I’m strictly an ancillary service provider to the cannabis industry and even feel the ramifications of anti-cannabis stigma, I wonder where the buck stops. Will the contractors I hire face similar consequences? What about all the service providers from my accounts payables list? If I were to follow the bank’s rationale, it would be hard to see where their risk assessment would end.
I frantically researched for alternatives, assuming RBC had to be an outlier. But after speaking with several of Canada’s other big banks and reading similar reports online, it became apparent that none would consider working with me.
Except, of course, for the Bank of Montreal (BMO), which loves to advertise that it works with cannabis. The truth is that they technically work with some cannabis businesses (determined on a case-by-case basis), and they require a $5,000 annual surcharge for a dedicated account manager—something which isn’t required for other regulated industries, just cannabis.
Like many other cannabis companies before me, I’ve turned to my local credit union for support. Thankfully, with no footprint outside of Canada, small credit unions are typically not as concerned about the perceived “risk” of working with cannabis businesses.
BANKING DISCRIMINATION CONTINUES TO THREATEN LEGAL CANNABIS IN THE US AND CANADA
The barriers to banking in the US and in Canada demonstrate that the global cannabis industry still has a long way to go before it receives fair treatment on par with other regulated sectors. Even in jurisdictions facilitating legal sales, businesses face discrimination trying to access everyday business services. Something as simple as a business checking account is out of reach for many.
How do regulators expect to stamp out the black market once and for all if licensed operators have to find alternatives to traditional banking or operate entirely in cash? Yes, North America’s cannabis market may have hit 15.2 million in 2022, but how much was outside the traditional banking structures?
We should be making it easier, not harder, for cannabis businesses to operate legitimately, and this starts with banking services. If and when banks finally decide to enter the 21st century and serve the legal cannabis market, this will immediately lead to positive ripples throughout the global market.
Access to banking ensures more financial oversight, better asset protections, and improved market stability. All of which will undermine the stubbornly persistent black market. If cannabis is legal, cannabis banking should be, too.
SAFE continues its long, arduous journey through the layers of the US government.
In prepared remarks, Senator Merkley said, “It is beyond unacceptable that, with more than half the country embracing some form of legalized cannabis, we would continue to allow this dangerous and untenable situation of forcing legitimate business to operate entirely in cash here in the 21st century.”.