The inability of several banks to properly manage themselves is hurting the cannabis industry
The collapse of several banks has been affecting different new and cutting-edge industries such as crypto. The cannabis market is unfortunately not being spared either, and many companies related to the plant are being highly affected.
Companies located in the US that deal directly with marijuana are having severe problems in the wake of a sharp drop in some major banks in the region. Being a federally illegal substance, the industry does not have access to such banking services. This has led the companies to find increasing support from an estimated 200 to 700 smaller financial firms that serve them, including state-chartered banks.
However, the turmoil that has hit Signature Bank, Silicon Valley Bank, First Republic Bank and others has brought precisely those financial institutions to the brink. This is clearly not good news for marijuana businesses, an industry that does not have many other options should its small financial institutions no longer be able to continue operating.
“A lot of the industry is with mid-tier banks,” said Morgan Paxhia, co-founder of one of the longest-running cannabis investment funds, Poseidon Investment Management. “The concern is those banks have a lot of default risk on the horizon because of their commercial loan books.”
The challenges facing the marijuana industry have been mounting. For example, so far this year, the AdvisorShares Pure US Cannabis ETF is down about 9% and down 73% in 2022. The decline is due in part to the failure of US lawmakers to pass the SAFE Banking Act. This clearly has investors worried, with an industry that has had to lower its wholesale prices due to a thriving illicit market and the proliferation of synthetic imitations of cannabis’ psychoactive ingredient.