As the U.S. nears possible regulation that could open the banking doors to legal marijuana businesses, there are some business owners in the industry who may not want to see such legislation pass: the competition in Canada.
Reports in the Financial Post on Tuesday (March 26) said the Secure and Fair Enforcement (SAFE) Banking Act faced a review with the House Committee on Financial Services, during which policymakers debated and made changes to the proposed rules. Once a final version of the bill has been agreed upon, it will be up for a vote in the house.
The initiative brings the U.S. closer to enabling legal marijuana businesses with access to the banking sector, which remains barred from providing financial services to the industry because marijuana is still illegal under federal law. While the initiative is good news for the nation’s cannabis firms, the publication noted that any passage of the legislation is likely to ramp up competition with northern neighbors in Canada, where recreational marijuana was legalized earlier this year.
“The advantage that the Canadians have had is more access to cheap capital,” explained Merida Capital Partners Managing Partner Mitch Baruchowitz, pointing to the struggle that U.S. industry players have faced in accessing financing to help them grow and compete. “That’s going to change overnight once this bill passes.”
He added that U.S. banks are likely to see cannabis businesses as less attractive financing targets compared to larger, multi-state operations.
“There’s so much capacity on the U.S. side,” he continued, “why would you lend to, say, a small licensed producer in Vancouver?”
McCarthy Tétrault‘s Cannabis Law Group Partner Ranjeev Dhillon agreed.
“Part of the reason Canadian companies have had a big advantage – even though they, too, struggled to get basic things like loans and credit cards in the first few years — is because of our capital markets,” he told the publication. “If, now, American companies get to accept their big loans, there’s a source of money for them to really grow.”