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| 2 minutes read

Banks are quietly dancing with the cannabis industry

Friends, as you’re likely aware, one of the enduring challenges for the cannabis industry has always been banking, or, well, not having access to it. Why has that been? Well, put very simply, banks that are FDIC-insured are subject to the federal prohibition on offering financial services and free toasters to cannabis companies. So, the industry has relied an assortment of credit unions and state-chartered banks, as well as cash. A number of years ago, there were plenty of anecdotes of cannabis operators sitting on veritable mountains of cash that had nowhere to go, but then credit unions stepped into the fold, providing critical treasury services – operating accounts, ACH and wire transfers – to handle all that cash.

The SAFE Banking Act, if it ever actually becomes law (I remain unconvinced), would certainly fix this problem once and for all, although it would not surprise me if banks remained hesitant for some time to start doing business with the cannabis industry. Removing hemp from the list of controlled substances hasn’t resulted in a banking renaissance for the hemp industry – indeed, banks are generally still reluctant to service the industry, not really understanding that hemp is no longer “cannabis” under federal law. If banks can’t be convinced to bank a legal industry, it remains to be seen how they will consider cannabis businesses even with the protection of SAFE Banking.

Amidst all of this cynicism and frustration, there seems to be something of a trend of banks easing into doing business with the industry. The latest news report came recently (yes, I’m a little behind on this, but don’t forget that this is free content), with cannabis lender AFC Gamma announcing that it secured a lending facility from “two FDIC-insured banks” to fund its lending operations. This is kind of an example of one of my favorite finance concepts – backleverage. Not only is it fun to say, backleverage is (very generally) a lender borrowing against its existing assets to fund new loans, leveraging returns by requiring less equity. It’s a good example of the creativity of high finance.

Granted, AFC Gamma is an ancillary business, and NASDAQ-listed to boot, so it’s not quite the same as a bank lending directly to a plant-touching company (although there are reports of that as well), and it’s also not the first time a bank has loaned money to a cannabis lender. I’m not sure how many data points make up a trend (perhaps we could call it an “organization”, but not quite yet a “movement” (yes, another Alice’s Restaurant reference months away from Thanksgiving)), but it’s something to watch.


cannabis, cannabis banking, cannabis fdic

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