The marijuana industry has been booming for some time now, but one of the largest remaining issues has been the access to basic financial services that any other company would be allowed to have. Although around a dozen or so countries have legalized the use of cannabis nationwide, the recent addition of recreational legalization into the Canadian market will have to be balanced by new regulations in the financial industry.
The bill is officially known as C-45, recently passed with flying colors, meaning that Canadians will now have access to recreational adult-use marijuana nationwide. Prime Minister Trudeau has also stated that the new industry will effectively begin as soon as October 17th, which means that there is a large amount of potential to live up to over the next few months. This new industry has been stated to be able to increase the overall market by as much as $5 billion annually in the near future. Although the industry is growing with a massive amount of potential and backing, it seems as though this basic access to financial needs is one of the biggest issues that has yet to be solved.
Canada has had medical marijuana legalized nationwide since 2001, meaning that they have had time to develop this industry up to this point. Although the government has been in strong favor of the market, businesses in the nation are still often unable to get the financial services that they need to continue operating. One report stated that “recreational weed has been illegal in Canada, financial institutions feared the potential for criminal and/or monetary penalties if they offered banking services — such as a checking account, a line of credit, or a loan — to marijuana-based businesses. This has left most pot stocks to get creative when it came to raising capital because no cannabis company is earning anywhere near enough in positive operating cash flow from medical weed sales and exports to fund broad-based capacity-expansion projects.” Many companies have been looking to grow their businesses, but the traditional methods of using capital from large banks has not been an option. Because of this, many companies have had to find alternative methods to growing their businesses, but it has in no way been an easy feat.
Many companies in the market have chosen to go with the method of something known as a bought-offering. This means that a company will sell common stock, as well as other things to ensure they have enough money to support their growing businesses. These offerings have been extremely successful, but they have also put a large strain on the growth of the market as a whole. Many have feared that these deals will, in turn, dilute stock prices in the near future, but this could be changing as companies could soon have access to these basic financial services that are so necessary.
The passing of the Cannabis Act means that banks are free to offer these basic banking services to cannabis companies without having to fear the national government cracking down on their business. One of the best examples of this has been with Aurora Cannabis (NASDAQOTH:ACBFF). The company recently announced a $150 million deal with the Bank of Montreal, that could allow them to expand greatly.
The industry on cannabis is still very much in its infant stages which means that these issues still need to be figured out before the market can reach its full potential. The hopes are high that companies will begin to have an easier time growing as we move toward the future of the industry.