Listen to a CEO of any of the American cannabis companies and you’re sure to hear them talk about the SAFE Banking Act, more formerly known as the “Secure And Fair Enforcement Banking Act of 2019.” For good reason, it’s on the mind of every cannabis CEO and most educated cannabis investors, but why does it really mean for the industry?
Here’s what the House version of the bill states the purpose is: “.. to increase public safety by ensuring access to financial services to cannabis-related legitimate businesses and service providers and reducing the amount of cash at such businesses.”
Due to marijuana/cannabis still being listed as a Schedule 1 drug by the Drug Enforcement Agency (DEA), it’s risky for banks to do business with cannabis sellers, so banks charge astronomical interest rates for capital. According to the DEA, marijuana is listed as having “no currently accepted medical use and a high potential for abuse” and listed in the same category as heroin, LSD, ecstasy, and meth – completely outrageous considering 35 states plus Washing D.C. have legally approved medical marijuana.
Passage of the SAFE Banking Act will permit legal cannabis sellers to be treated like every other legal business by the banks, even with cannabis listed as a Schedule 1 drug by the DEA. Currently, even businesses with sub-par credit get single-digit rate banking loans, but according to Trulieve’s CEO Kim Rivers, U.S cannabis company rates are 12-15%, even with outstanding balance sheets and strong cash flow to service the loans. She explains this at the 5-minute mark in this video:
A good example is Columbia Care’s most recent $20.4 million debt financing where they have to pay 12-14% for the money. If the SAFE Banking Act were to pass, Columbia Care’s rate would likely be in the mid-single digits or half the interest rate.
Additionally, many American cannabis companies are selling and leasing back their grow and processing facilities to real estate investment trusts like Innovative Industrial Properties just to have the capital for expansion. This eats away profits because these leases come with high rents and taxes. Normal banking would allow for expansion without selling off properties.
Cannabis companies are already punished at a tax rate higher than 50% and thanks to the federal prohibition on marijuana, must be listed on Canadian over-the-counter exchanges – while Canadian cannabis stocks are listed on American exchanges. You read that correctly, Canadian cannabis companies can raise capital through American stock exchanges while American cannabis companies must raise money through over-the-counter exchanges in Canada. Welcome to the Twilight Zone called American politics, where some of our elected leaders still think Reefer Madness is a serious documentary and not a comedy.
Passage of the SAFE Banking Act makes sense unless you have banking buddies that enjoy loaning money to great companies at shady credit card rates. For the cannabis investor and CEO, it’s a major win with accelerated growth and profits. It’s also a major win for America because accelerated growth in the cannabis industry means tens of thousands of more jobs.
You can read the full House version of the SAFE Banking Act here and can contact your Senator here to let them know to pass it soon.
