BMO - Big Banks Don't Want US Cannabis Business Right Now
Despite the excitement from investors about the US cannabis market, two large Canadian banks have confirmed no involvement in the sector will happen until sweeping policy changes.
According to a report from Bloomberg on Sunday (April 7), the heads of Bank of Montreal (BMO) (NYSE:BMO,TSX:BMO) and Toronto-Dominion Bank (TD) (NYSE:TD,TSX:TD) expressed hesitation to potentially financing deals or other business activities with US-based marijuana companies.
Investment in the US cannabis market, particularly in companies dubbed as multi-state operators (MSOs), has become one of the most dominant trends this year.
The executives for each bank expressed trepidation over conducting any business with US marijuana firms until legalization policies for the drug are in place.
“We’ll look at it then, but we have nothing in our business plans today that is dependent on pushing our cannabis business into the United States,” Darryl White, CEO of BMO, said following the bank’s annual meeting, according to the report.
In a similar fashion Bharat Masrani, CEO of TD, said the bank has no plans to perform any business in the US until legislation deems it legal.
Marijuana remains an illegal substance at a federal level in the US despite legalization efforts from several states—even including for recreational use in states like California and Nevada where the adult-use market is legal.
“Depending on what comes out [from policy changes in the US], we’d look at it and make sure it is appropriate for TD in terms of our risk appetite and whether it’s right for our customers,” Masrani said following his bank’s annual meeting.
In terms of the public capital, Canada remains the leader for investor enthusiasm for the emergent growth market.
Canadian investors have backed the operations of several Canadian firms directly involved or with ancillary operations to the larger marijuana space.
“Canadians are leading the capitals market race,” Kevin Murphy, CEO of Acreage Holdings (CSE:ACRG,OTCQX:ACRGF), said during a panel talk at the MJBiz convention in Las Vegas, last November.
However, the savviness of Canadian cannabis investors has sent them looking for growth in the US.
As such, these MSOs have gained the attention of the market and financial institutions at the forefront of the marijuana market.
“I think that the US companies have the confidence of investors and they’re going to be able to raise more capital,” Alan Brochstein, cannabis analyst with 420 Investor, previously told the Investing News Network (INN).
Additionally Nawan Butt, portfolio manager with Canadian asset management firm Purpose Investments, told INN his firm started opting for US cannabis names compared to the Canadian counterparts.
Purpose Investments offers investors an actively managed marijuana fund called the Purpose Marijuana Opportunity Fund (NEO:MJJ). Companies such as Green Thumb Industries (CSE:GTII,OTCQX:GTBIF) and Curaleaf Holdings (CSE:CURA,OTCQX:CURLF) are included as some of the top holdings.
These firms predominantly list on the Canadian Securities Exchange (CSE), which elected to not block the business of these companies despite the federal roadblock.
Meanwhile the TMX Group (TSX:X), fellow Canadian exchange operators to the CSE, has not budged in requests from the market to open the trading to US firms.
US cannabis market faces challenge from illegal status of the drug at a federal level
One of the major roadblocks for the US cannabis market remains the federal illegality of the drug despite the status of the drug at several states.
Players in the US market have received encouragement in the form of two bills aimed at offering protections for the legal industry.
In March, the Secure and Fair Enforcement Banking Act of 2019, otherwise known as the SAFE Banking Act, was approved by the House Financial Services Committee and continues its road to potentially becoming official policy.
The bill is designed to make it so marijuana businesses can perform banking activities and would no longer operate in a cash-only basis.
While experts agree this bill can help smaller dispensaries and other operations in the space, the movement of this bill sends a signal of support for aiding the overall cannabis market.
“I think that the passing of the SAFE Banking Act could help to signal a larger shift in public opinion that may ultimately help legislation like the STATES Act to gain traction,” Marc Adesso, veteran cannabis attorney with law firm Waller Lansden Dortch & Davis previously told INN.
The STATES ACT is designed to grant legality to companies that operate in legalized marijuana states. This, however, wouldn’t represent a sweeping legalization of the drug in the country.
The Acreage executive has projected the bill could be approved by the end of 2019 or early in 2020.
Investor takeaway
The potential the US legal market has to offer gains no other space can match has led to investors to look for plays in this space.
As such, MSOs have expanded business operations and ambition in terms of market dominance, thanks to the backing of investors.
Banks also play a critical role in the development of these firms; while established banks will wait for the market, several other financial institutions have jumped into the market.
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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in contributed article. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
Editorial Disclosure: Acreage Holdings is a client of the Investing News Network. This article is not paid-for content.