Cannabis industry hopes SAFE Banking Act will spark new wave of growth, especially in U.S.
For the first time in history, the U.S. House of Representatives passed legislation to both validate and protect the burgeoning cannabis industry by giving it access to banks, credit unions and insurance companies.
The SAFE Banking Act, which easily cleared the House with a 301-123 vote but still has to clear the U.S. Senate before passing into law, would allow financial institutions to work with cannabis companies without fearing retribution. It’s still currently possible under federal law to prosecute banks for doing so; punishments can even include stripping them of deposit insurance.
Should the act pass the Senate, cannabis companies will be able to open operational accounts at banks, transforming the current industry into one that’s still largely considered cash-dominant. On the consumer side, the act would allow the purchase of cannabis to be made with credit and debit cards.
“It’s a very strange scenario to be in when you’re in a fully fledged state legal industry that doesn’t have access to traditional banking,” Cresco Labs Inc. CEO Charlie Bachtell said. “It’s a rather fundamentally large step in the right direction towards a different future for cannabis legalization.”
Bachtell said he’s already reached out to banks and insurance providers about how they can immediately begin work with his multi-state operator should the act be passed into law. The first and most immediate benefit would be that Cresco Labs, one of the largest cannabis companies in the U.S., with a market cap of US$1.6 billion, would no longer have to keep its cash at the office.
The act would also free up capital for his company, Bachtell said. He used the example of being able to finance real estate acquisitions through banks instead of locking up capital he’d prefer to use on his core business.
Cresco Labs’ stock has been under significant pressure in the market since late April when it reached a high of $17.85. Like the struggling Canadian industry, the U.S.-based cannabis sector has been devoid of catalysts and has ventured into a bear market. Bachtell sees the promise in the SAFE Banking Act to be the first step in a turnaround.
Or as former Canopy Growth Corp. CEO Bruce Linton bluntly put it in a text message: “Get ready for USA liftoff.”
On Thursday, it appeared as though investors in the U.S. cannabis industry agreed with Bachtell and Linton. Cresco Labs closed up more than four per cent at $8.29, while other mainstays in the space, such as Acreage Holdings Inc. and Charlotte’s Web Holdings Inc., saw gains of more than three per cent on a day where the S&P 500 closed in the red.
It’s a very strange scenario to be in when you’re in a fully fledged state legal industry that doesn’t have access to traditional banking
Charlie Bachtell, CEO, Cronos Labs Inc.
The news had a more mixed effect on the stocks of the Canadian LPs. Canopy, Tilray Inc. and Aurora Cannabis Inc. were flat to end the day while Cronos Group Inc. and OrganiGram Holdings Inc. each lost between two and three per cent.
The mixed reaction in the market could be a signal that some investors are doubting whether the Republican-dominated Senate — whose leader, Mitch McConnell, described cannabis last year as hemp’s “illicit cousin which I choose not to embrace” — will support the bill, which had been backed by 91 Republicans in the House and opposed by 102.
Evolve ETFs portfolio manager Elliot Johnson, who runs an active fund made up of U.S. cannabis stocks, said the market may simply be overlooking the significance of the SAFE Banking Act. Johnson thinks the act may be the first step toward allowing banks to begin to funnel institutional dollars into these companies and underwriting IPOs. It may also be the first step in a larger rally, he said, forcing investors to “wake up and say we better get into this market because these prices aren’t going to be around for forever.”
Most crucially, it’s the clearest sign yet that the U.S. is steamrolling toward federal legalization.
“It’s getting really, really difficult to hold on to the notion that cannabis will remain illegal in the U.S. indefinitely,” Johnson said.