Cashing In on Cannabis: Current Issues in Financing, Operations, Banking, and Regulations in the Cannabis Industry, and a Comparative Analysis of the U.S. and Canadian Landscapes

5 Min Read By: Hilary Sledge-Sarnor


  • There are generally far fewer rules and regulations on marijuana-related businesses in Canada than in the United States.
  • Further, inconsistencies between federal and state laws make it increasingly difficult for stakeholders in marijuana-related businesses to determine what is legal.
  • However, new laws, such as the Farm Bill and the Safe Act, provide hope that real cannabis reform in the United States may be entering a new era.

The laws impacting cannabis and marijuana-related businesses (MRBs) have been an evolving landscape in both the United States and Canada. The U.S. landscape for MRBs has been difficult to navigate in that there are a number of inconsistencies between federal and state laws that make it increasingly difficult for stakeholders in MRBs to determine what is legal. Twenty-nine states plus the District of Columbia have legalized marijuana for medical purposes; six states have legalized marijuana for recreational use; and Maine and Massachusetts have approved legalization measures that have not yet taken effect.

Under the Controlled Substances Act (CSA), U.S. federal law prohibits the manufacture, possession, or use of marijuana for any purpose, even in states where recreational or medical marijuana sales are legal. The Money Laundering Control Act under U.S. federal law also prohibits knowingly conducting a financial transaction that involves the proceeds of unlawful activity, which includes violations of narcotics laws. However, there is an exclusion from violation of the CSA where the underlying activity is not an offense in the foreign country.

Recent U.S. laws are giving hope to the cannabis industry that the tide in the United States toward MRBs is changing. On December 12, 2018, the U.S. Congress passed the Agriculture Improvement Act of 2018 (also called the Farm Bill). The Farm Bill finally makes a distinction between hemp and other cannabis plants, and makes “industrial hemp” exempt from the CSA, which essentially means hemp is legal with restrictions. The Farm Bill also allows for interstate sales of hemp products. In March 2019, the House Financial Services Committee voted to approve the Secure and Faire Enforcement (SAFE) Banking Act, which has 152 cosponsors, twelve of which are Republicans. The SAFE Act would permit MRBs to access banking services by protecting banks and other financial institutions from federal prosecution when working with MRBs that are operating in compliance with state laws. The law would also provide safe haven for ancillary businesses that work with MRBs from being charged with money laundering and other financial crimes. The next step is for the SAFE Act to go to the U.S. Senate.

Financial institutions in the United States are grappling to obtain a clear understanding of what activities they may currently undertake vis-à-vis marijuana-related businesses. The central question is, what kind of activity by a financial institution would constitute a violation of the CSA and the Money Laundering Control Act? Based on the exclusion from the CSA discussed above, many financial institutions have been able to get comfortable with providing financial services to an MRB located in a jurisdiction where marijuana is legal, where their operations are solely in that country. Even where it is legally permissible, financial institutions often must also deal with certain ethical or reputational risk issues, given the U.S. federal law prohibition and the prohibition under laws around the world.

There are also questions without clear answers around what types of products and services a financial institution can provide a company that derives revenue from an MRB and how far down the chain of suppliers to and service companies for MRBs also may be prohibited from dealing with financial institutions. For example, will a financial institution bank with a state or municipality that derives revenue from marijuana-related businesses, or an accountant who does the taxes of MRBs? Due to this confusing and contradictory environment in the United States, the majority of MRBs have no access to services of financial institutions, such as obtaining loans, opening bank accounts, accepting credit and debit cards, and using electronic payroll services.

In contrast, Canada became the first major world economy to legalize recreational marijuana in October of 2018. The Cannabis Act and accompanying regulations in Canada establish a licensing regime governing cultivation, processing, testing, drug products, and research. There are strict rules governing operations of cannabis businesses in Canada, and each province creates its own regulatory regime governing MRBs. Certain provinces permit privately owned stores and online sales (Saskatchewan and Manitoba); some permit privately owned stores with publicly managed online sales (Alberta, Ontario); others allow both private and publicly owned stores (British Columbia, Newfoundland, Yukon, and Nunavut); and the largest subset permit only publicly owned stores (Quebec, New Brunswick, Nova Scotia, Prince Edward Island, and the Northwest Territories).

Companies in Canada are certainly accessing the financial markets. Canopy Growth Corporation, the world’s largest legal cannabis company by market share and also publicly traded on the New York Stock Exchange, recently closed the second syndicated financing of a cannabis company. Cannabis businesses have grown at record speed as an industry in Canada—Canopy Growth Corporation grew from 700 to 2,700 employees in less than a year. Canopy Growth Corporation also exports overseas, recently obtained a license to produce hemp in New York State, and is moving toward increased international operations.

Businesses in the United States and Canada have varied experiences in starting up and operating MRBs; however, generally there are far less rules and regulations on MRBs in Canada. The operational barriers for MRBs in the United States range from difficulty leasing property to inability to access the banking market to struggling to find investors willing to go into the space given the complicated legal environment, all of which impact growth potential. Fortunately, certain credit unions have opened their doors, and now bank MRBs and, accordingly, some businesses have been able to obtain financing and other traditional banking services. However, the majority of owners of MRBs are forced to operate cash-only businesses, which makes them targets for crime. As a result of all of these factors, some MRBs are going to Canada for investment, and MRBs also understand that they must own properties where they operate their businesses because they cannot risk leasing issues.

MRBs in the United States have been waiting for the financial markets to allow them to access traditional banking services and wider investment options, such as those available in Canada. New laws, such as the Farm Bill and the Safe Act, provide hope that real cannabis reform in the United States may be entering a new era.

The thoughts and opinions in this article do not reflect the any positions taken by MUFG Union Bank, N.A.

By: Hilary Sledge-Sarnor

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