Science

The cannabis sector in the US still held back by financial institutions

Legal regulation of financial transactions in the cannabis sector is needed for CBD producers like Veritas Farms Inc. (OTC: VFRMD) to prosper

Medical cannabis sellers are “at the mercy” of banks, which can close their accounts at any time. The recent passage of a law in the House of Representatives facilitating access to the banking sector for marijuana professionals is just a first step forward.

Medical cannabis is legal in 33 states. Eleven states and the American capital have legalized its sale for recreational use. However, according to the federal law cannabis is still a hard drug, just like cocaine, and banks are afraid of money laundering charges if they work with marijuana professionals.

Even after passing the Farm Bill in December 2018 legalizing hemp on federal level, not all banks accept transactions of CBD companies either. But even though the financial sector is reluctant, the hemp business is growing at a continuous pace and CBD companies seem to do well.

Veritas Farms Inc. (OTC: VFRMD), a CBD company with production facilities in Pueblo, Colorado, was founded in 2015 and has already recorded a tremendous growth after just four years of operations. They generated over $2.9 million in total revenue by Q2 2019, that’s a 500% increase compared to Q2 2018, with gross profits increasing by almost 800% to $1,523,413. The company produces eight categories of hemp oil products which are available at 4,500 retailers across the U.S. including 1,350 Kroger Family of Stores locations and online. Veritas products are becoming increasingly popular thanks to their transparency, honesty and focus on high quality – recently they have released a unique QR code packaging allowing customers to check product quality directly on their smartphones.

But companies’ commercial success is not enough for the banks. There are very few banks that would accept a cannabis company as a customer. Transactions happen mostly in cash and it takes several days for the money to be deposited in the account. This affects paying invoices on time or employees’ salaries.

The bank account, which can be closed if the bank has a doubt about the legality of transactions, is mainly used for cryptocurrency payments from buyers, and it cannot contract any credit, as large networks refuse high-risk customers.

A first step

Banks’ reluctance is a problem for companies that deal with cannabis businesses too. According to Jenn Michelle Pedini, development manager at NORML, one of the leading pro-cannabis lobbies, recalls her own experience is this matter. Her company helped a cannabis seller open their business and afterwards, she had problems with the administration.

Yet the cannabis sector is expanding quickly: it generates more than $10 billion in revenues and could reach $56 billion by 2025, according to pro-legalization lobbies. The American cannabis market is also attracting investors from Canada where cannabis is legal since October 2018. For example, GreenStar Biosciences Corp. (CSE: GSTR) invested in a Washington state-based producer of recreational cannabis, Cowlitz, and the company already brings results. Last year (2018), Cowlitz recorded over $14 million in revenue after five years of operations. GreenStar aims at building a diverse portfolio of cannabis companies touching at every aspect of the product life cycle. Their experienced management team specializes in selecting and guiding most promising marijuana businesses to success.

However, despite the interest from foreign companies, out of the 11,000 banks and credit institutions in the United States, only 700 work with cannabis-related companies, according to the Treasury Department.

Last week, the House of Representatives passed a law that aims at protecting cannabis professionals and associated companies from possible legal or tax consequences by the federal government. The SAFE Banking Act reduces the risk of burglary or violent robbery in an area where transactions are done with. The opponents of the law however, claim that the act will provide easier access to the financial sector for drug cartels. But Tanner Daniel, the Congressional Relations Officer for the American Bankers Association (ABA), thinks that this is a “small necessary step forward”.

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