The Canadian banking industry is known for being fairly conservative. This is especially true when it comes to working with cannabis, a sector that’s been kept underground by nearly a century of prohibition. But as marijuana enters the mainstream—and brings with it a legal market worth billions of dollars—financial institutions are realizing they better get in on the action soon or risk playing catch-up later on.
One company that has been at the forefront of helping cannabis businesses get the banking support they need is KIND Financial. The Los Angeles-based company, which provides seed-to-payment support for cannabis businesses, made its first international expansion last year into Canada.
It could prove an invaluable tool for cannabis entrepreneurs that need the support of the banks to get business loans, open accounts and securely process payments. KIND could also help the cannabis industry and the banks—which have long eyed each other with deep suspicion—establish a more fruitful and trusting relationship.
U.S. Legal Cannabis Highlights Banking Problems
In the United States, banking has been the stick in the cannabis industry’s craw. Even in states that legalized marijuana, businesses working in the industry have struggled to find reputable banks that will work with them. The reason is simple: While some form of cannabis may be legal on the state level, federally it’s still considered a Schedule 1 drug. Banks don’t want to risk being on the wrong side of the feds by working with businesses that many in Washington still see as criminal enterprises.
As a result, cannabis entrepreneurs in the U.S. often resort to storing cash in safe deposit boxes or contracting with a cash holding company. And this certainly hasn’t helped the industry appear legitimate.
The taint of illegitimacy drives reputable banks away even more. All that cash lying around also makes cannabis businesses vulnerable to theft. Licensed marijuana companies in Denver, for example, had an annual robbery and burglary rate of 50% in2014.
Banks & Cannabis in Canada
The situation in Canada isn’t quite the same as it is in the U.S. Unlike our southern neighbours, banking and criminal law here are both controlled by the federal government. This means that when marijuana becomes legal in Canada this fall, banks won’t have to worry about any level of government coming after them for working with the cannabis industry.
But this doesn’t mean it’s been easy to be a Canadian marijuana entrepreneur looking to open a bank account. For better or worse, Canada’s big banks are fairly risk averse. And because marijuana was illegal for so long, it’s caused many of them to steer clear of the industry. Even working with legal cannabis companies makes some of the big banks nervous.
In 2016, for example, an internal memo sent by the Royal Bank of Canada (RBC) to its employees banned them from opening business deposit accounts with any business that was associated with marijuana, even medical marijuana. This was despite the fact that medical marijuana has been legal in Canada since 2001. RBC cited “legal and reputational risks” as reasons for denying banking services to the industry.
Another problem is that many of the big banks, particularly RBC and Toronto-Dominion (TD), have deep tentacles in the U.S. Understandably, this makes them a bit skittish about bringing the wrong sort of attention on themselves from south of the border for the businesses they may be backing in Canada.
Small Banking Players Driving Change for Marijuana Businesses
With the big banks staying away, cannabis businesses have had to rely on smaller financial players for help. Alterna Credit Union, for example, is one of the few that has shown a willingness to back the marijuana industry—which is slightly ironic given that credit unions are supposedly the most cautious players in the financial industry.
The small company, which most Canadians have probably never even heard of, is now the bank of choice for two-thirds of the nearly 100 licensed producers in Canada. The credit union has about $750 million in marijuana-related loans and deposits.
Cannabis legalization is also helping some of the big banks become more accepting of cannabis. Bank of Montreal and TD have both started providing banking services to a few marijuana companies, although neither has been advertising the fact too loudly. Even RBC and Scotiabank—financial institutions that have stayed far away from cannabis—now say they’ll reconsider their guidelines on working with cannabis businesses.
The big banks may have little choice in the matter. Cannabis is big business, especially in Canada, which will become the only G7 nation to legalize the plant. The combined market value of the nearly 100 cannabis companies on Canadian stock exchanges is currently worth about $31 billion Canadian dollars. That’s a lot of money for the banks—and their shareholders—to be leaving on the table.
KIND Acts as a Mutual Friend to Cannabis & the Banks
So, attitudes are changing, but not fast enough for cannabis entrepreneurs who need banks willing to provide loans and open business accounts for them now. That’s why the cannabis industry needs to prove to Canada’s banks that it’s an investment worth making.
In other words, cannabis needs to start acting like the billion-dollar industry it is, and that’s what KIND Financial helps them do.
KIND Financial isn’t a bank, but it does help marijuana businesses meet their regulatory requirements and helps them store and track data. That’s data that banks like to see when they decide whether to work with a specific company.
The services KIND offers include:
- Bank-approved payment gateways
- E-commerce platforms
- Seed-to-sale tracking and monitoring
- Government compliance support
- Data storage and tracking
All of these tools help entrepreneurs develop business plans and ensure they’re in compliance with the law, which is exactly what banks need before they’ll sign off on a loan or open a deposit account.
In other words, KIND Financial is offering a way for two groups—the cannabis industry and the big banks—to move past their mutual distrust and get to know each other better.
Photo credit: Expect Best