Legislation to reform how financial institutions can interact with cannabis companies in the United States won’t change much for Canadian cannabis companies struggling to find banks willing to take their business. 

The SAFE Banking Act in the US made headlines again in the past few weeks, with many in that country’s cannabis industry saying such changes are needed to allow the industry to grow. 

Canadian cannabis companies often face similar challenges in finding banks willing to work with them, despite the industry being fully legal and regulated across the country. One of the reasons sometimes offered to explain Canadian banks’ lack of interest in working with the legal cannabis industry is their ties to other countries like the US, where cannabis is not yet legal. 

While the US bill seems unlikely to pass anytime soon, even if it does, it’s unlikely to change those dynamics, says Joshua Reynolds, President of CapitalNow Cannabis, a small financing company focused exclusively on small to medium-sized licensed operators in the Canadian cannabis sector.

Although the connection to US and European banks and any legal or regulatory concerns are real, he says that even if cannabis was legal in the US and any other country they operate in, most large financial institutions would still not likely want to work with cannabis anytime soon. 

“I don’t think that, even if the (SAFE) Act passed, the banks would jump in,” says Reynolds. “US illegality is a real issue, but it also provides a good excuse to avoid the sector and the risk associated with it.” 

The cannabis industry is still too new and too risky, he explains. 

“I think they have conveniently been able to blame those rules, but I don’t think they would jump into it. I think they see it as too risky still, that it’s not mature enough. I think they would be concerned about the business acumen, and a few other things.”

Mike Schilling is the President and CEO of Community Savings Credit Union, which operates seven branches across British Columbia and works with numerous cannabis businesses. He echoes some of Reynolds’s comments about fear of legal or regulatory penalties, and adds that he thinks it’s just not a priority for larger banks, but is something smaller credit unions are more comfortable with and suited for. 

“There are two key reasons why financial institutions don’t work with cannabis companies,” says Schilling. “The first is that banks that operate in both Canada and the US can be sanctioned by the extraterritorial reach of US law, as cannabis is still not legal at the federal level in the US. 

“The second is that the cannabis industry isn’t seen as a big enough prize to compensate for the additional regulatory burden. Many financial institutions aren’t willing to do the extra hard work. And while there are some examples of larger institutions willing to bank cannabis, they charge exorbitant fees.”

Schilling says legislation like the SAFE Banking Act could begin to change that equation, although it could be too late for many Canadian companies. 

“Banks turn away because of both fears of sanctions, and a calculation of if the industry is worth the effort. As the cannabis industry matures and shows longevity, the calculation of whether it is worth it to bank cannabis will change and more banking options will emerge. Removing the threat of legislation will further change the cost-benefit equation for banks, and more banking options for cannabis will emerge. 

“What we hear from our members is that it’s too late. So many banks weren’t willing to bank cannabis from the start when it was tough, or were only willing to with fees that meant cannabis businesses could not survive. Now that it’s getting easier, financial institutions want a slice of the pie without the legwork.”

Oscar Jofre, the President and CEO of KoreConX, a company doing business with cannabis businesses in the US and Canada, says the issue isn’t as widespread in the US as some might believe, noting that numerous smaller banks are doing business with cannabis companies in numerous legal US states. 

Even if legislation like SAFE passed, he says he doesn’t see it making much of a difference in the US or Canada because of the risk aversion larger banks have to the cannabis industry in general, regardless of any regulatory concerns. 

“Even with the SAFE Act, the bigger banks aren’t going to put it under their risk profile,” says Jofre. “They’re going to do the same thing our banks are doing in Canada. They’re not looking at it from the legal point of view anymore. They’re looking at it from the optics point of view. They’re big banks and don’t want to be seen doing business with cannabis.”

He notes that the banks are also quite inconsistent, even those operating in both the US and Canada. While many Canadian banks say they don’t want to touch cannabis, they have no problem accepting payments through credit cards. In the US, he says it’s often the opposite, with at least smaller banks being willing to work with cannabis companies, but credit and debit card sales are often off the table. 

One solution Jofre says his company has found success with is working with some of those smaller US banks. As the US moves closer to a fully regulated, federal legal model, he says those businesses can then better serve their Canadian partners. 

“Canada has some things that the US doesn’t and the US has some things that Canada needs. I believe if Canadians can’t find banking in the Canadian sector, they should do what the rest of us do, begin the operational side by partnering with someone in the United States and move from south to north.”

For Reynolds at CapitalNow, the early success of the cannabis industry in Canada in bringing in investor dollars may have left a bad taste in the mouths of some of the large banks. With large publicly traded companies seeing skyrocketing valuations for a few years before often imploding, banks are just deciding to stay away until things settle out, regardless of the law. 

“Banking, in general, is very conservative. In Canada, it’s even more conservative. So even if the SAFE Banking Act passed, I don’t think they would have anything to do with it.”