Cannabis Weekly: The Disconnect Between US Banking and Cannabis Industry

Novartis, and US Banks, Want “In” on Medicinal Cannabis

In summary: Big Pharma has decided it wants in on the world of medicinal cannabis. So do U.S. banks. And Presidential candidate Elizabeth Warren has sponsored a bill that would help (the banks) with that cause.

US Banking and the Cannabis Industry

Banking is a federally regulated industry, subject in particular to anti-money laundering and know-your-customer rules, and these rules have led to a troubling disconnect between banks on one side and cannabis businesses on the other. It’s troubling for a lot of reasons, such as the heightened security necessary for businesses that have to transact in cash.

There is no “up” side

AML and KYC rules, and the Suspicious Activity Reports they require, exist for good reason. They are intended to help law enforcement catch bad guys, terrorists or gangs trying to turn dirty money into clean (proper laundering) or, sometimes, to turn clean money into dirty, as by redirecting donations intended for charities, toward violent activities.

But the application of such rules to cannabis entrepreneurs, in states where such activity is lawful and above board, serves no purpose. The upside disappears in this context. As the economist Aaron Klein has written, banks that do allow accounts for cannabis entrepreneurs find that they have to file an endless stream of SARs, and federal law enforcement officials find in turn that they have many more files to review. “Federal investigators are looking for needles in the haystack,” Klein says, and the banks and credit unions that do work with MJ firms are “continuing to dump more hay.”

The situation may now ease somewhat if revenue from the sale of hemp-derived CBD is no longer considered worthy of an SAR. But even these alterations are not yet certain.

Presidential Candidate Elizabeth Warren’s Sets Her Tone on Cannabis Industry

Senators Elizabeth Warren (D - MA), as Sponsor, and ten Cosponsors, including Corey Gardner (R - CO) introduced the “Strengthening the Tenth Amendment Through Entrusting States,” (STATES) Act in June. It would have created a federal set of “guardrails” for the interstate impacts of the state-level marijuana trade, and it would have made clear that transactions within these guardrails “are not trafficking and do not result in proceeds” that require an SAR. Unfortunately, STATES has expired now, with the legislative session.

On the final day of 2018, Senator Warren formally announced the formation of an “exploratory committee” to facilitate her expected campaign for President of the United States in 2020. The support of that wing of the Democratic Party which calls itself “progressive” and which contrasts itself to the relatively centrist Clinton/Obama wing is very much up for grabs, and Warren has a part to play in the jockeying on the progressive side of that divide.  

Cory Gardner’s enthusiasm for a change in the law as to marijuana and banking, on the other hand, reflects the fact that in much of the country now, and in his state of Colorado more than many, cannabis entrepreneurs are regarded as part of the above-board business establishment: they’re the Main Street, Chamber-of-Commerce folks  whose interests one can expect many Republicans will wish to defend.

From both points of view, I expect that freedom for cannabis, and especially for the non-psychoactive component, will be an important rallying cry in the months to come, from Sen. Warren and from the other candidates, for the highest office and for many others.

Novartis Heading into the World of Cannabis

Novartis, the Swiss parent company to Sandoz, Alcon, etc., and the owner of familiar brand names such as Excedrin and Theraflu, is  in my humble opinion, Big Pharm.

Like much of Big Pharm, Novartis wants in to the world of medicinal cannabis, and to that end it has entered into a global supply and distribution agreement with Tilray, a Canadian medical cannabis firm.  

Tilray, headquartered in British Columbia, sources its CBD from the United States as well as Canada. Six months ago it agreed to collaborate with Sandoz Canada in making eight specific co-branded products, capsules and ingestible oils, available to Canadian patients through the Access to Cannabis for Medical Purposes Regulations. With the new agreement last month, though, the  six month old arrangement went global. This is all just more proof that this industry has nothing but growth and success ahead.

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Special thanks to my team for gathering up these sources for me! Sources:

  • Shanna Fuld, “Tilray (TLRY) Prepares for Mass CBD Oil Purchase Following the Signing of Letter of Intent,” Smarter Analyst (December 17, 2018).

  • Mark Anderson, "California Study Offers Little Hope for Cannabis Industry Banking Services," Sacramento Business Journal (December 28, 2018).

  • Nik DeCosta-Klipa, “Elizabeth Warren’s Marijuana Bill has Majority Support in the Senate, According to its Co-Sponsor,” Boston (December 17, 2018).

  • Aaron Klein, “Banking Regulations Create Mess for Marijuana Industry, Banks, and Law Enforcement,” Brookings: Series on Financial Markets and Regulation (April 23, 2018).

  • Lee, MJ and Krief, Greg, “Elizabeth Warren Launches Exploratory Committee Ahead of Likely 2020 Presidential Run,” CNN Politics (Dec. 31, 2018).

  • Andrew Restuccia, “Keystone and the Udall-Gardner Race,” Politico (May 12, 2014).

  • Jacob Rodriguez, “Gardner Amendment to Allow Pot Shops to Use U.S. Banks Dead on Arrival,” (December 19, 2018)

  • David Siders, “Bernie Tops Progressive Straw Poll,” Politico (December 18, 2018).
    Staff Writer, “Novartis’ Sandoz Expands Cannabis Alliance with Tilray Into Global Partnership,” Genetic Engineering & Biotechnology News (December 18, 2018).

  • Photo by Suzy Hazelwood from Pexels