How the SAFE Banking Act Can Remove Barriers to U.S. Cannabis Finance
In the third financial quarter of 2019, the“Big Four” public Canadian cannabis corporations lost nearly $14 billion in market capital. For the last few years, Canadian investment has been the prominent financial resource for the global cannabis industry. But now the time has come for the U.S. to reclaim its rightful place as the center of finance for the cannabis industry worldwide.
The floodgate moment we’re waiting for in the U.S. is access to public markets for cannabis companies. The removal of these banking barriers that have kept the U.S. cannabis market at bay, may be imminent. On September 25th, 2019, the Secure and Fair Enforcement (SAFE) Banking Act passed the House. Now, the act is currently awaiting approval from Congress. But to understand the implications of this act, we have to think about the high-level function of banks.
At the individual level, we all know banking involves checking and savings accounts, loans, and personal investing.
But banking at the highest level gives companies access to public offerings and public markets. To date, marijuana’s illegal status at the federal level has barred cannabis company’s access to high-level banking and financial resources. Even though hemp is federally legal, banks have failed to make the distinction from marijuana.
The traditional role of banks at this high-level works like this – I have a company and I want to take it to the New York Stock Exchange. I gather the value of the company and project it as high as I can because once I access the capital markets, I’m on the world stage and the higher the value, the more fervor it will generate with investors. But here’s the important thing to realize: the bank is the institutional capital investor.
Think about it like this, an institution like Chase owns another entity under J.P. Morgan that acts as an institutional investment bank. If a company is valued at a billion dollars, the institutional investment bank gathers money and puts it into the public market. The advantage for investors is two-fold. They own stake in the company, and they have power through shares to inform the company’s direction.
A few North American marijuana companies, like MedMen, have been cross-listed on the New York Stock Exchange by first being listed on the Toronto Stock Exchange. But taking a company public in Canada is not the same as an initial public offering on the New York Stock Exchange, which is much more rigorous and typically takes 12 to 15 months.
To take a company public you need fervor. It’s what drives the public market and attracts institutional investment. And to get the fervor you need a clear path of legality.
There’s an abundance of global sources sitting waiting to pour investment into the U.S. cannabis industry. But, so far they’ve been sitting on the sidelines. They’re looking for safe bets, and safe bets start with a regulated marketplace. That’s the wake of the flood we’re seeing now. You can feel the waves starting to swell. In the days to come, if and when the SAFE Banking Act is approved, that will be the day the sideline money starts to flow into the U.S. That’s the day America will gain its position as the center for global cannabis finance.