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U.S. cannabis finance bill: good news/bad news for Canadians

Jeff Nielson Jeff Nielson, Stockhouse
1 Comment| March 28, 2019


A new piece of proposed U.S. legislation could have a dramatic impact on the U.S. cannabis industry (if passed), and also have a significant impact north of the Border. The Secure and Fair Enforcement Banking Act (SAFE) is due to come before the U.S. House Financial Services Committee on March 26th.

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The legislation itself would protect U.S. banks working with cannabis companies from criminal scrutiny by U.S. regulators. To date, cannabis companies operating in the U.S. have faced much greater difficulty in raising capital than cannabis companies operating in Canada because of continued cannabis obstructionism by the Trump administration.

When (if?) this legislation eventually passes, this would greatly facilitate cannabis commerce in the United States – in those jurisdictions where cannabis has been legalized. With respect to the hemp sub-species of cannabis, new federal legislation (Farm Bill 2018) has legalized a national hemp industry in the U.S. But without full access to capital, it’s still difficult for U.S. hemp companies to leverage growth opportunities here.

Down the road, more normalized financing for the cannabis industry can expedite the growth of hemp-based commercial applications. In particular, the market potential for “CBD-rich hemp” (high cannabidiol) already shows very lucrative potential.

The picture with respect to the marijuana sub-species of cannabis remains murkier in the U.S. Even if the SAFE Banking Act ultimately gets passed, the U.S.’s patch-work regulatory structure with respect to marijuana (illegal nationally, legal in some U.S. states) still presents regulatory and market uncertainty for cannabis companies and investors alike.

A Financial Post article on this topic takes a deliberately alarmist tone.

Canada’s cannabis industry could see its first-mover advantage cut short if a piece of legislation that would open the U.S. banking sector to cannabis companies is eventually passed, some industry watchers say.

The Financial Post then targets Canadian cannabis investors with more fear-mongering:

“The advantage that the Canadians have had is more access to cheap capital. That’s going to change overnight once this bill passes,” said Mitch Baruchowitz, managing partner at Merida Capital Partners LLC, a private equity firm heavily invested in the cannabis sector.

“American multi-state operators like Acreage (Holdings Inc.) and Curaleaf are much bigger than most Canadian cannabis companies. I can’t see the appetite for U.S. banks to lend to most Canadian licensed producers over these multi-state operators. There’s so much capacity on the U.S. side, why would you lend to, say, a small licensed producer in Vancouver?” Baruchowitz said.

Baruchowitz is hardly an unbiased observer. Merida Capital is entirely focused on the U.S. cannabis industry. This is a detail that the Financial Post (somehow) "forgot" in quoting this U.S. cannabis promoter.

Certainly, the passage of the SAFE Banking Act would be a boon to the U.S. cannabis industry and would have some impact on the Canadian cannabis industry. But this effect is not nearly as one-sided as the Financial Post attempts to assert.

Canadian-based cannabis companies with operations exclusively in the U.S. would benefit from liberalization of cannabis financing south of the Border. Canadian-based companies with Canadian and U.S. cannabis operations would also benefit.

The suggestion by Baruchowitz that U.S. banks would favor U.S. cannabis companies ahead of Canadian companies operating in the U.S. simply because U.S. companies ‘wave the Flag’ flies in the face of a basic mantra in the banking industry: putting profit ahead of all other considerations.

Then there is the impact on Canadian cannabis investors. A previous Stockhouse article on “U.S. cannabis extremism” noted the disgraceful behavior authorized by the Trump administration with respect to harassing Canadian cannabis investors seeking to travel to the U.S. – and even imposing punitive sanctions on these investors.

In some cases, U.S. Customs authorities have been imposing life-time travel bans on Canadian investors traveling to the U.S. to attend legal cannabis conferences, promoting legal U.S. cannabis companies. Clearly, if U.S. banks were given a free hand to finance legal U.S. cannabis operations, it would be very difficult for anti-cannabis dinosaurs in the Trump government to continue with their persecution of Canadian cannabis investors traveling to the U.S.

The enormous irony here is that U.S. Big Banks are regularly caught red-handed laundering money for the illegal global drug cartels, not by the millions or billions of dollars, but by the hundreds of billions of dollars. But these Big Banks are never punished. Rather, they are given a “free pass”, according to Bloomberg.

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(image courtesy of TaxRebate.org.uk)

The U.S. government has taken an extremely heavy-handed attitude toward Canadians cannabis investors investing in legal companies that produce distribute this non-toxic/non-addictive substance. Simultaneously, the U.S. government turns a blind eye with respect to U.S. banks financing illegal narcotics such as heroin, cocaine, methamphetamines, etc., etc.

In Canada, cannabis investors continue to see a consistent effort by the Canadian mainstream media (and even the Canadian government) to undermine the now-legal cannabis industry at every turn. A previous Stockhouse article shone a spotlight on this “next generation” of anti-cannabis propaganda in Canada.

The cannabis industry has already been normalized in Canada following a century of completely unjustified cannabis Prohibition. Cannabis is gradually being normalized in the U.S., in an uneven and capricious manner, impeded by extreme anti-cannabis prejudice, the product of decades of intense (and absurd) anti-cannabis propaganda.

Legally, non-toxic/non-addictive marijuana is still classified in the U.S. as a “dangerous drug” and equated with heroin.  Given this context, it is fear-mongering of the highest order for the Financial Post to portray a piece of potential U.S. cannabis financing legislation as some sort of death-knell for Canada’s cannabis industry.

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