The banking committee of the U.S. Senate has recently made a significant move by advancing a bill that would enable federally regulated banks to provide services to cannabis businesses operating in states where the drug is legal. Although the bill holds tremendous potential, its chances of passing through the current turbulent House are slim, as the Republican leadership is occupied with keeping the government functioning smoothly.
Despite its legality in numerous states, marijuana remains illegal under federal drug laws. Surprisingly, even though the Drug Enforcement Administration permits its licensed sale in 38 states for medical use and 23 states for recreational purposes, state-licensed operators are still facing various obstacles due to weed’s federal status. These obstacles include sky-high federal taxes, an inability to list their stock on major exchanges, and a general reluctance from most banks to work with them.
Cannabis Businesses Look to Safeguard Banking and Loans
Large cannabis chains have faced significant financial challenges compared to other businesses, grappling with elevated costs and the inherent risks of handling large amounts of cash. However, a recent development may improve their access to financial services. In a notable move, the Senate committee has endorsed the SAFER Banking Act in a 14 to 9 vote. This legislation would permit cannabis operations to establish accounts at federally insured institutions and secure small business loans. Moreover, it would facilitate home loans for the industry’s workers who have historically encountered difficulties in obtaining mortgages.
Optimistic Market Response
The market response to this development has been encouraging, particularly for multistate operators within the cannabis industry. The shares of these operators experienced a surge following the Biden Administration’s proposal to reclassify marijuana to a lesser category of illegal drugs. The momentum continued to build as the Senate bill gained further traction. Notably, the AdvisorShares Pure US Cannabis exchange-traded fund (ticker: MSOS) maintained its stability on Thursday at $8.10 and has achieved a positive return of approximately 16% since the beginning of the year.
Challenges Amidst Growth
Despite the industry’s rapid sales growth, recent trends have shown a slowdown, resulting in stock prices significantly below their levels from two years ago. An example of this can be observed with the AdvisorShares ETF, which has experienced a decline of over 80% from its peak in 2021.
Mixed Reactions
While multistate operators appreciate any progress made in the field, Wall Street analysts maintain a more reserved outlook on the situation.
In summary, the endorsement of the SAFER Banking Act by the Senate committee marks an important step forward for cannabis businesses, offering potential relief in terms of banking services and loans. Although the industry faces ongoing challenges, there is hope for increased stability and growth in the near future.
Uncertainty Surrounds the Fate of the Weed Banking Bill
By Ian Katz, Alpha Capital Partners
A recent research note by Ian Katz from Alpha Capital Partners raises concerns about the support the weed banking bill may receive from Senate Republicans. Katz highlights various compromises in the bill that make its fate uncertain among these lawmakers. Katz goes on to stress that regardless of Senate support, the bill is unlikely to progress any further if it reaches the House of Representatives.