[YWH S1E18] Managing Finances and Banking in the World of Lawful Cannabis Business
January 01, 2018, California joined the ranks of a select few states that legalized recreational cannabis. I recall wondering what this meant for the average consumer and remember asking friends and family: “Does this mean when I go to Home Depot to get plants in the Spring, cannabis is just going to be chilling there with the vincas and geraniums?”. Fast forward to 2020 and I can tell you Home Depot does NOT have cannabis chilling on the shelves ready for the average Joe to purchase. What I can tell you is, since 2018, there are 39 States that have some level of legalized cannabis and, according to Forbes, the industry is expected to grow to nearly $30 billion by 2025. 2025, that’s only 5 years from now! $30 billion dollars is a lot of green (pun intended), how is all that money going to be handled when the Federal Government still lists marijuana as a schedule 1 drug making financial transactions in the industry that much more challenging?
To witness the birth of a new industry is exhilarating. I liken it to the end of Prohibition. When Prohibition ended it was not an immediate free-for-all, it took time to develop and grow as laws changed and States slowly accepted it, much like the cannabis industry is currently experiencing. The difference is the Federal Government ended Prohibition with the ratification of the 21st Amendment in December 1933. Cannabis is gaining legitimacy State by State, which is reversely, but given the revenue and jobs generated by the industry, I will make a bold prediction and say that the Federal Government will legalize cannabis. According to History.com, the Federal Government collected $258 million in alcohol taxes the first year after Prohibition. That is the equivalent of $4.9 billion in today’s economy. As of 2019 the market for alcoholic drinks was $250 billion and has been on a steady increase. The cannabis-related revenue potential through taxation and the creation of new jobs is too large to ignore.
A few months back I was invited to a business-to-business cannabis convention and was flabbergasted by the scene. The majority of participants held a Ph.D. in their respective disciplines and many of the businesses had decades of experience in agriculture, crude oil testing and extraction, marketing and professional services. These businesses diversified their portfolios by modifying their equipment and processes to capture a piece of the cannabis industry. When the average consumer thinks of the cannabis industry they typically think of the businesses that touch the plant or products of the plant; cultivators, harvesters, extractors, and dispensaries. But there are numerous businesses that play a supporting role; attorneys, accountants, truck drivers, marketers, testing facilities, HR/payroll providers, and yes, BANKERS. The latter has been a real challenge in this very cash-heavy industry because traditional banks will not provide banking solutions for cannabis-related businesses, but 7 Point Financial, in concert with Greenleaf HR, does.
Cannabis, marijuana, call it what you will. The term is taboo to many, but this is a very lucrative industry. The cannabis train has left the station and it is roaring down the tracks, so either hop on board, or move out of the way. Those that see the potential and can get past the stigma will undoubtedly partake in a nice piece of the financial pie (or edible, whichever you prefer).
“Innovation is seeing what everybody has seen and thinking what nobody has thought.” –Dr. Albert Szent-Györgyi von Nagyrápolt