Pot Inc. is celebrating, but not just for the New Year.
President Trump has intervened to support the $60 billion cannabis industry by reclassifying the drug, indicating that dispensaries and cannabis-related businesses could finally gain access to banking services that have long been elusive.
But things aren’t as clear-cut as they seemed.
According to recent reports, the initial response to Trump’s Executive Order, which downgraded cannabis to a less restricted category, hasn’t thrilled major banks like JPMorgan, Bank of America, and Citigroup.
The message is clear: no cannabis banking at your local JPMorgan branch, despite Trump’s order.
I’ve been told it’s not that the banks don’t want this business.
Executives at these institutions weren’t exactly pleased with the EO. They initially thought it would open the floodgates for new clientele.
When it was released on December 18, bank lawyers started dissecting the order, hoping to uncover a loophole that would enable banks to fully service the cannabis industry.
However, those hopes were dashed.
Due to the specific wording in the order, most cannabis-related banking remains federally illegal, as large banks operate under federal regulations.
A senior executive from a large bank explained that their team examined the EO meticulously and concluded that it seems primarily intended for medical usage, thus complicating the whole banking situation.
Ramifications Beyond Medical Use
The challenge lies in the fact that many cannabis companies extend beyond just medical applications. The order implies that while marijuana for medical purposes may no longer be classified as a Schedule 1 drug, it’s not entirely straightforward.
Pot farms might serve legitimate medical uses but also cater to a broader recreational market, which banks interpret as outside their legal jurisdiction.
It can be quite confusing for those trying to navigate the legal landscape.
Wouldn’t it mean marijuana is legal if it’s not classified alongside heroin anymore? Well, sort of, but not really.
Federal authorities maintain that it still falls under controlled substances, much like anabolic steroids.
Yes, numerous states have either legalized or decriminalized cannabis, and it’s quite common for people in places like New York to see it everywhere. No one seems to get arrested for it anymore.
Yet these state regulations don’t influence banking laws.
While the legalization trend has pushed cannabis into the mainstream, major U.S. banks continue to hesitate to offer loans or credit services. As a result, cannabis companies often turn to Canada to raise funds or list on stock exchanges.
The reality is, U.S. banks are regulated by the Federal Reserve, and despite any reclassifications, federal law remains a significant hurdle for the banking sector.
This stance is likely to annoy some cannabis advocates who have been pushing the administration for changes to cannabis classification.
Take Mark Cohodes, for example, a former hedge fund trader who is now a cannabis industry advocate. He has been vocal in his discussions with White House officials, asserting that banks are misinterpreting the intent behind the Executive Order.
Cohodes argues that the President aims for U.S. banks to support domestic businesses rather than forcing them to seek operations elsewhere, stressing that just because a grower’s cannabis may end up in the hands of recreational users doesn’t mean they shouldn’t have banking options.
A “Massive Market”
“Medical is a huge market, and recreational use is approved in 41 states,” Cohodes noted.
He points out the irony that while Canadian cannabis stocks can trade in the U.S., American companies find themselves limited to the Canadian market, which is frustrating for the President.
On the flip side, banks insist they don’t want to refuse service to cannabis businesses; they’re merely trying to avoid regulatory complications.
What they’re really after is more legal clarity, ideally a federal law that explicitly permits banking services for the cannabis sector.
“Otherwise, we’d have to file a suspicious activity report every time we lend to a grower,” the bank executive emphasized.
