Business
Opinion: What the demise of Silicon Valley Bank means – and does not mean – for cannabis finance
The collapse of Silicon Valley Bank (SVB) isn’t good news for anyone.
Bank collapses portend wider threats to the economy – the Great Depression is one such example – particularly when they derive from an eroding capital base resulting from the Federal Reserve raising interest rates to battle inflation.
It is estimated that more than 50% of venture-backed companies used Santa Clara, California-headquartered SVB as their depository and financing institution.
Wealth management, currency hedges, stock placements, you name it: SVB was the go-to financial institution for the tech industry.
So SVB’s collapse is a big hurt for the tech start-up industry, a classic bank run.
The federal government’s stepping in and covering all deposits – not just those up to the $250,000 guaranteed limit – should help.
So, what is the effect of SVB’s demise on the cannabis industry?
Green disaster avoided
For once, the marijuana industry is not the primary victim of the banking world.
First, SVB was very tech-centric and did not overtly provide banking services to the cannabis industry, despite its proximity to ground zero of the U.S. marijuana space: Northern California.
Second, because marijuana is a Schedule 1 drug, regulated cannabis companies are restricted to state boundaries, meaning there is no geographic concentration for cannabis banking.
This lack of concentration makes any single bank failure less impactful on the cannabis industry as a whole.
SVB was involved in one out of two venture-backed tech companies in the United States.
The marijuana space, meanwhile, is a decentralized – but regulated – industry that already has to look near and far for services such as accounting, law and, yes, banking.
Of course, the safest, best-capitalized banking institutions are federally chartered national banks (think JPMorgan Chase, Citibank, Capital One), which are prohibited from banking the marijuana industry, at least until the SAFE Banking Act passes.
Where cannabis fits in
The compliant marijuana industry needs to go downstream to the “state-chartered” financial institutions to meet its banking needs as well as to “non-bank lenders” for real estate, equipment and working capital financings.
These banks and “nonbanks,” scattered throughout the United States, service industries other than cannabis and have heightened due diligence and reporting requirements.
Like everything marijuana, they are regulated beyond reason. But this might be a good thing in a risky banking environment.
Many of the banks that service cannabis companies are smaller, with smaller capital bases, and are subject to the same financial imbalance that SVB faced.
But SVB was a top-20 contender, and the “marijuana-friendly” banks are nowhere near the top.
When the dust settles
Any disruption to the economy – particularly when it involves banks – is disconcerting and potentially impactful to the cannabis industry.
The global economy, including the United States, has not readjusted to a post-coronavirus world. It is convalescing and is likely to take longer to fully recover than people expect.
Consumers are jittery, and even a hint of trouble sends people scattering (with their money, if they can) like cockroaches in a bright light.
But cannabis is a survivor. It can grow in the cracks and take over a field: It is weed.
There is no “command central” to take out like SVB. It’s a decentralized organ.
Should one of the “marijuana-friendly” banks have similar troubles, it would certainly be a bad thing. But the impact would be less catastrophic to the industry as a whole.
Also, there is no “VC” industry built up around cannabis, wielding vast sums of deposited investors’ money waiting to pounce on the next big thing.
Finally, marijuana is a cash-based business, so normal banking services, such as credit cards, aren’t standard for the industry.
SVB’s demise is likely to have some negative impacts on the cannabis industry, but it won’t set it on fire and burn it down.
Andrew Kaye is chief commercial officer of Denver-based Sweet Leaf Madison Capital. He can be reached at akaye@sweetleafmadison.com.
Source: https://mjbizdaily.com/what-does-demise-of-silicon-valley-bank-mean-for-cannabis-finance/
New Mexico regulators fined a cannabis operator nearly $300,000 and revoked its license after the company allegedly created fake reports in the state’s traceability software.
The New Mexico Cannabis Control Division (CCD) accused marijuana manufacturer and retailer Golden Roots of 11 violations, according to Albuquerque Business First.
Golden Roots operates the The Cannabis Revolution Dispensary.
The majority of the violations are related to the Albuquerque company’s improper use of BioTrack, which has been New Mexico’s track-and-trace vendor since 2015.
The CCD alleges Golden Roots reported marijuana production only two months after it had received its vertically integrated license, according to Albuquerque Business First.
Because cannabis takes longer than two months to be cultivated, the CCD was suspicious of the report.
After inspecting the company’s premises, the CCD alleged Golden Roots reported cultivation, transportation and sales in BioTrack but wasn’t able to provide officers who inspected the site evidence that the operator was cultivating cannabis.
In April, the CCD revoked Golden Roots’ license and issued a $10,000 fine, according to the news outlet.
The company requested a hearing, which the regulator scheduled for Sept. 1.
At the hearing, the CCD testified that the company’s dried-cannabis weights in BioTrack were suspicious because they didn’t seem to accurately reflect how much weight marijuana loses as it dries.
Company employees also poorly accounted for why they were making adjustments in the system of up to 24 pounds of cannabis, making comments such as “bad” or “mistake” in the software, Albuquerque Business First reported.
Golden Roots was fined $298,972.05 – the amount regulators allege the company made selling products that weren’t properly accounted for in BioTrack.
The CCD has been cracking down on cannabis operators accused of selling products procured from out-of-state or not grown legally:
- Regulators alleged in August that Albuquerque dispensary Sawmill Sweet Leaf sold out-of-state products and didn’t have a license for extraction.
- Paradise Exotics Distro lost its license in July after regulators alleged the company sold products made in California.
Golden Roots was the first alleged rulebreaker in New Mexico to be asked to pay a large fine.
Source: https://mjbizdaily.com/new-mexico-cannabis-operator-fined-loses-license-for-alleged-biotrack-fraud/
Four marijuana companies, including a multistate operator, have filed a lawsuit against U.S. Attorney General Merrick Garland in which they allege the federal MJ prohibition under the Controlled Substances Act is no longer constitutional.
According to the complaint, filed Thursday in U.S. District Court in Massachusetts, retailer Canna Provisions, Treevit delivery service CEO Gyasi Sellers, cultivator Wiseacre Farm and MSO Verano Holdings Corp. are all harmed by “the federal government’s unconstitutional ban on cultivating, manufacturing, distributing, or possessing intrastate marijuana.”
Verano is headquartered in Chicago but has operations in Massachusetts; the other three operators are based in Massachusetts.
The lawsuit seeks a ruling that the “Controlled Substances Act is unconstitutional as applied to the intrastate cultivation, manufacture, possession, and distribution of marijuana pursuant to state law.”
The companies want the case to go before the U.S. Supreme Court.
They hired prominent law firm Boies Schiller Flexner to represent them.
The New York-based firm’s principal is David Boies, whose former clients include Microsoft, former presidential candidate Al Gore and Elizabeth Holmes’ disgraced startup Theranos.
Similar challenges to the federal Controlled Substances Act (CSA) have failed.
One such challenge led to a landmark Supreme Court decision in 2005.
In Gonzalez vs. Raich, the highest court in the United States ruled in a 6-3 decision that the commerce clause of the U.S. Constitution gave Congress the power to outlaw marijuana federally, even though state laws allow the cultivation and sale of cannabis.
In the 18 years since that ruling, 23 states and the District of Columbia have legalized adult-use marijuana and the federal government has allowed a multibillion-dollar cannabis industry to thrive.
Since both Congress and the U.S. Department of Justice, currently headed by Garland, have declined to intervene in state-licensed marijuana markets, the key facts that led to the Supreme Court’s 2005 ruling “no longer apply,” Boies said in a statement Thursday.
“The Supreme Court has since made clear that the federal government lacks the authority to regulate purely intrastate commerce,” Boies said.
“Moreover, the facts on which those precedents are based are no longer true.”
Verano President Darren Weiss said in a statement the company is “prepared to bring this case all the way to the Supreme Court in order to align federal law with how Congress has acted for years.”
While the Biden administration’s push to reschedule marijuana would help solve marijuana operators’ federal tax woes, neither rescheduling nor modest Congressional reforms such as the SAFER Banking Act “solve the fundamental issue,” Weiss added.
“The application of the CSA to lawful state-run cannabis business is an unconstitutional overreach on state sovereignty that has led to decades of harm, failed businesses, lost jobs, and unsafe working conditions.”
Alabama regulators are targeting Dec. 1 to award the first batch of medical cannabis business licenses after the agency’s first two attempts were scrapped because of scoring errors and litigation.
The first licenses will be awarded to individual cultivators, delivery providers, processors, dispensaries and state testing labs, according to the Alabama Medical Cannabis Commission (AMCC).
Then, on Dec. 12, the AMCC will award licenses for vertically integrated operations, a designation set primarily for multistate operators.
Licenses are expected to be handed out 28 days after they have been awarded, so MMJ production could begin in early January, according to the Alabama Daily News.
That means MMJ products could be available for patients around early March, an AMCC spokesperson told the media outlet.
Regulators initially awarded 21 business licenses in June, only to void them after applicants alleged inconsistencies with how the applications were scored.
Then, in August, the state awarded 24 different licenses – 19 went to June recipients – only to reverse themselves again and scratch those licenses after spurned applicants filed lawsuits.
A state judge dismissed a lawsuit filed by Chicago-based MSO Verano Holdings Corp., but another lawsuit is pending.
Source: https://mjbizdaily.com/alabama-plans-to-award-medical-cannabis-licenses-dec-1/
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