Pot Inc. has found itself in a precarious situation despite recent developments in the cannabis sector. Following an executive order from President Trump that reclassified marijuana to a lower level on the federal drug schedule, expectations rose that cannabis enterprises could finally gain access to banking services. This shift was perceived as a potential lifeline for the $60 billion industry, which has historically faced banking restrictions.
However, major financial institutions, including JPMorgan, Bank of America, and Citigroup, have determined that the new executive order does not change the legal landscape sufficiently to allow them to engage with the cannabis sector. A comprehensive review of the language used in the order revealed that it primarily pertains to medical cannabis, leaving the broader market—especially recreational use—still largely inaccessible to conventional banking practices.
Bank executives have expressed disappointment, emphasizing that they have no interest in turning away potential business. Yet, they are apprehensive about running afoul of federal regulations that continue to categorize marijuana as a controlled substance. The banks seek clearer guidelines from federal authorities, as navigating the current ambiguities leads to complicated compliance issues, such as filing suspicious activity reports for any transactions involving cannabis firms.
Advocates within the cannabis industry, including prominent figures like former hedge fund trader Marc Cohodes, believe the banking sector is misinterpreting the executive order’s intent. They argue that the banking industry should allow financing for cannabis as a legitimate business, given its widespread legalization in various states.
With substantial growth potential in both medical and recreational markets, the continued banking challenges pose significant hurdles for the expansion of the cannabis industry.
Why this story matters
- The cannabis industry is rapidly growing but continues to face significant banking restrictions.
Key takeaway
- Despite federal reclassification, major banks remain unable to service cannabis businesses due to lingering legal limitations.
Opposing viewpoint
- Advocates argue that banks misread the executive order’s intent and should embrace the cannabis sector as a legitimate business opportunity.
