A new decision by a major bank could present trouble in the near future marijuana stocks.
PNC Financial Services (NYSE: PNC) is shutting down its bank accounts for one of the largest advocacy groups for cannabis legalization. The group, appropriately named ‘The Marijuana Policy Project’ (MPP), was informed by a PNC representative that the bank felt it was “too risky” to do business with the organization.
Could the result of this decision by PNC executives affect the marijuana industry? Yes, and it could potentially deflate marijuana stocks in the process.
A representative from PNC confirmed that it would shut down MPP’s account but refused to comment on the details of the situation. PNC did, however, state that “as a federally regulated financial institution. PNC complies with all applicable federal laws and regulations.”
The representative from PNC referred to federal laws such as the Bank Secrecy Act which was enacted in 1970 requiring financial institutions to monitor customers’ accounts for various forms of potential criminal activity. If the company is suspected to be engaging in criminal activity, banks are prohibited from doing business with that company.
Although MPP does not touch the physical marijuana plant, an audit of the organization by PNC showed that MPP received some funding from businesses that are in the physical marijuana industry. This does not necessarily mean that these companies are committing crimes, but rather the fine line between federal and state legislation means that it remains risky for anyone involved. PNC took this information and decided that it would no longer do business with MPP although the organization had been a customer of the bank since its founding in 1995.
The result of this could lead to a domino effect in the industry. If one major bank decides to take an action like this, it could only trigger other banks to follow suit. This could lead small businesses involved in marijuana to only deal with cash in order to survive which is a dangerous and inconvenient system for all. In short, this new budding industry deserves recognition by the financial industry. If the government chooses to tax these companies as they do, it is only fair that they receive bank accounts and treatment as though they are any other business.