By New Frontier Analysts
Two of Canada’s largest banks have recently announced that they will no longer be working with businesses involved in the cannabis industry. In spite of clear steps towards legalization and a wide-spread medical cannabis programs, Scotiabank and Royal Bank of Canada feel the industry is too risky to be involved with. Royal Bank has adopted a policy that forbids working with businesses that actively manufacture or distribute cannabis, while Scotiabank is going as far as to end relationships with paraphernalia companies and ancillary businesses. In response to complaints from clients who were dropped, Scotiabank issued a statement highlighting risk management and mitigation as the driving factor in the new policy decision.
The decision made by these banks is of particular concern as the U.S. cannabis industry waits for wide spread legalization to add legitimacy to this emerging market. It is quite possible that major U.S. banks could take a similar approach to the legal cannabis industry, effectively locking cannabis entrepreneurs out from the financial services needed to grow their businesses. While the current classification of cannabis as a Schedule I drug makes business bank accounts for cannabis venture illegal in many jurisdictions, this could change in the next decade or two. However, this will not guarantee widespread access to banking.
Limited access to financial resources, such as corporate bank accounts, has been one of the limiting factors for growth in the cannabis industry. If major banks continue to ignore the needs of the industry, there is the potential for specialty banks to emerge. Just as marketing and consulting firms have been established expressly for serving the cannabis industry, this trend could continue in banking. Additionally, the banks will lose out on a major revenue source, with cannabis being projected to be a 20 billion dollar industry by 2020. Ultimately, the cannabis industry will need banking services to be widely available for growth to be sustained, whether it comes from major established banks or elsewhere.
New Frontier Analysts
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