Cannabis banking could be more restrictive with lending following SVB collapse

With marijuana being classified as a Schedule I drug under federal law, state-licensed cannabis businesses aren't allowed to access capital financial institutions such as banks.

This leads to the question of how economic storms like the one caused by the recent failure of the Silicon Valley Bank, a unit of SVB Financial Group SIVB, can affect the cannabis industry.

Morgan Paxhia, who co-founded the Poseidon Investment Management, said that SVB did not provide services for ancillary businesses despite the fact that roughly 10% of all U.S. banks and approximately 5% of all credit unions provide cannabis banking.

Emily will bring her vast industry experience to the Benzinga Cannabis Capital Conference as the Honorary Chair this coming April 11 - 12 in Miami Beach.

He said that banks will be more restrictive with lending because of a risk-off mentality.

SVB's collapse affected other banking players, such as First Republic Bank FRC, Charles Schwab Corp. SCHW, U.S. Bancorp USB and JPMorgan Chase Co. JPM. A study showed that nearly 200 American banks could potentially face a similar fate if their depositors suddenly decide to withdraw funds.

Morgan said that the crisis means that the duration of the capital tightness in our space will continue because we're seeing a risk-off mentality. We're expecting banks to become more restrictive with lending and that's going to have implications. Paxia has some reservations in terms of investors as well.

He said that it's incredibly hard to raise capital in cannabis, but now we think opportunities to secure new capital are even lower as investors are cautious. Primary investors in cannabis are individuals with high net worth, not institutional capital, and are going into a risk-off mode. She said that nervous investors won't help the situation because they already have slim pickings when it comes to raising capital.

Banking Bill For Weed Industry Put On Hold During Crisis

The hopes of a resurgence of the Secure and Fair Enforcement Banking Act in the new Congress are getting cloudier by the day, with Senate Banking Chairman Sherrod Brown deciding to delay hearings on the bill to shift focus to bank failures, as reported by Crain's New York Business.

Brown said he wanted to do SAFE Banking, and he said he had discussed the issue with Majority Leader Chuck Schumer. This is more important than that. It doesn't mean long-term delay, but it means delays a couple of weeks. Brown, along with his chamber colleagues Cory Booker N.J. and Jacky Rosen Nev., joined Sen. Jeff Merkley Ore and Schumer to think about their next move and how to advance SAFE Plus, a set of marijuana proposals through the bipartisan legislature.

Financial services companies are giving up on cannabis, with Euroclear being one of the few to stop supporting trades of cannabis stocks. One of the world's largest financial clearing houses collaborating with the majority of the 50 largest banks in the world informed investors about its decision in December.

Credit Suisse Group AG CS was the first to tell customers it would no longer execute transactions in shares of companies with U.S. operations, followed by JPMorgan's move in 2021.

This is the place where money is raised, M&A starts, and companies meet key partners. On April 11 - 12 at the Fontainebleau Miami Beach Hotel in Florida.