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The Ongoing Struggle to Find a Financial Institution

Before legalization, the cannabis market did its business discreetly. In those days, it was cash-only, with money and product changing hands in shadows behind closed doors. How times have changed!

Cannabis legalization meant the business had to get sophisticated. After a retailer goes through the rigorous process of earning a cannabis licence, there are business accounts to open, transactions to manage, and staff to pay. And this is where many retailers hit a road block. Despite how cannabis has been legalized in Canada for well over a year now, cannabis retailers still struggle to find financial institutions willing to do business with them.

“The cannabis industry is still new and is perceived to have significant risk as there are many places where cannabis isn’t legal outside of Canada,” explains a credit union financial advisor in Manitoba. “There’s still that stigma attached to it–it’s still seen as an illegal drug and depending on the credit union, they may decide working with a cannabis business doesn’t fit the values of their membership.”

It can be very frustrating for the Canadian cannabis retailer, who, despite coming in with all the right paperwork and documentation to open a business account, will be flat-out denied the moment they step in the door.

“It has definitely been difficult to establish banking relationships,” says Spiritleaf Founder, President and CEO Darren Bondar. “We have 46 Spiritleaf stores operating across four provinces. In Alberta, we have been fortunate that ATB is a progressive bank. In BC, Saskatchewan and Ontario, we are using various credit unions.”

As far as working with a ‘big bank’ goes, Bondar acknowledges the lack of options. “The Bank of Montreal (BMO) is the only one of the five ‘big banks’ I know of that will work with cannabis companies,” he says. “And the application fee for a business account with them is $7,000. But, I will say they have been supportive of the cannabis industry as a whole.”

In early 2019, BMO and Canadian Imperial Bank of Commerce (CIBC) made headlines when they partnered to provide an $80 million loan to licensed cannabis producer Canopy Growth Corp. While the hope was that the partnership marked a shift for the industry, it appears to have been a one-off. Small cannabis enterprises continue to have a tough time obtaining a business account, likely because of its illegal status in many of the states and the stigma that continues to be associated with it.

“We know this sector has many dimensions and will continue evolve,” Rob Ritchie, RBC regional director, communications, Manitoba, Saskatchewan and North West Ontario said in a statement. “RBC evaluates business relationships on a case-by-case basis, taking into consideration factors like the nature of the business, their financial and credit quality, and their ability to comply with federal and provincial laws while ensuring there is no connection to the US.”

Other financial institutions, like the Business Development Bank of Canada (BDC) is happy to work with the cannabis industry, at a distance. “We currently evaluate applications from businesses supporting the cannabis industry that do not own or physically handle cannabis,” Olivier Breton, BDC media relations said in a statement.  “This means that general contractors, equipment manufacturers, horticultural and other equipment or product suppliers are eligible, but under specific criteria, as long as they are not economically dependent on the cannabis industry.”

Credit unions operate on a more local scale. They have more flexibility to do business with the cannabis industry, but an overwhelming amount of them choose not to.

“Credit unions are controlled by their boards, who are also credit union members,” a representative from Vancity credit union explains. “Depending on the area, you could have a pretty conservative membership. So even though cannabis is legal here in Canada, people may not be on board with it and decide that supporting that type of business doesn’t align with the core values of their credit union.”

While the cannabis industry waits for more financial institutions to open their doors to them, the best strategy right now is to knock on as many of those doors as possible prepared with the right documentation and paperwork. Some retailers have had to get creative and work with financial institutions in different provinces.

“It is certainly challenging to get established with the various banks, but I believe the stigma is slowly fading,” Bondar says. “Like most things with the cannabis industry, perseverance and attention to detail are important to be successful.”