Big banks remain wary of pot firms
Cannabis companies struggling to gain full access to services from most major lenders
Cannabis might be legal now, but major Canadian banks — with the exception of the Bank of Montreal — appear to be exercising a significant degree of caution when it comes to providing their full suite of services to the cannabis sector.
It is unclear if this is due to lingering stigma about the drug itself, trepidation about the long-term viability of certain companies, or whether they are wary of finding themselves in trouble with U.S. regulators where they have sizable operations.
But interviews with the heads of seven of the biggest licensed producers — with a cumulative market cap of over $20 billion — paint a picture of pot companies still struggling to garner full access to services provided by Toronto-Dominion Bank, Royal Bank of Canada, Bank of Nova Scotia and Canadian Imperial Bank of Commerce.
“You check every box, and they still don’t like you,” said Bruce Linton, CEO of Canopy Growth Corp. “They are opening up, but reluctantly. What I need is everything that they do.”
Just weeks before legalization, Linton says he was scheduled to meet with “very senior executives” at one of the Big Five banks.
“I said, ‘OK, good, I’ll come, I’ll tell you what this whole thing is about.’ And then suddenly, they said, ‘don’t come’.”
Canopy has banked with the little-known Ottawa-based Alterna Savings & Credit Union since 2015, after being shut down by all the five major banks years ago. Alterna, for its part, has become a major financial player in the pot sector, which as of April, was offering bank accounts to “at least two-thirds of almost 100 licensed producers in the business,” according to Bloomberg.
“The big banks here are still conservative. They want to be certain, that given their U.S. exposure, they won’t end up in difficulties with the American government,” said Cam Battley, chief corporate officer of Aurora Cannabis Inc. “I really don’t think it’s anything to do with cannabis itself, especially now that you see both Canopy and Aurora are on the New York Stock Exchange. The thing is, we’re interested in the full range of products and services from them, and to them, it’s a question of caution.”
In January, BMO became the first major Canadian bank to break the ice with the cannabis sector, leading a $200-million equity financing deal for Canopy Growth.
In May, its capital markets division advised Aurora exclusively on its successful $3.2-billion bid for pot producer Med Releaf Corp.
Those two transactions paved the way for other cannabis companies to come knocking on BMO’s door, in search of the full array of financial services which, until then, had been largely provided by midsized investment firms such as Canaccord Genuity Group, Eight Capital and GMP Securities.
Battley claims Aurora does almost all its banking with BMO now, a trend that appears to be industry-wide. Canopy, along with other smaller producers like CannTrust Holdings, Organi Gram Holdings and Auxly Cannabis Group Inc., also have bank accounts with BMO.
Of the remaining four banks, RBC and Scotiabank appear to be the most conservative when approaching the cannabis sector, according to multiple interviews with cannabis company executives.
“RBC and Scotiabank have always been the two most anti-cannabis. I have heard that RBC is starting to poke around and consider the sector but I would say that Scotiabank appears currently not to be looking at the industry at all,” said Chuck Rifici, one of the founders of Tweed, who currently heads licensed producer Auxly Cannabis.
His sentiment was echoed by Greg Engel, CEO of New Brunswick-based Organi Gram, who believes that although RBC has not officially been involved in the cannabis space, they are looking to increase their involvement “in the not too distant future” by first issuing coverage on the sector. “I just think all the banks have different cultures and move at different speeds. Desjardins and Laurentian are looking to work in the space, even though historically, there was a hesitancy there,” Engel said.
Recently, Desjardins CEO Guy Cormier said his bank would begin “supporting the needs” of clients who participated in the cannabis industry with lines of credit, mortgages and long-term loans.
RBC was vague when contacted regarding its current and future involvement in the sector. “Thanks for your inquiry. We don’t currently cover this sector. If that changes down the road, we’ll be sure to let you know,” spokesperson Tony Maraschiello said in an email.
When asked if RBC provides bank accounts to any individual or business involved in the pot sector, Maraschiello said: “I’ll come back to you when we have more to say on the topic.”
Scotiabank, TD and CIBC did not respond to queries regarding their involvement in the cannabis space. Despite being actively involved in the pot space, BMO too did not respond to questions regarding its relationship with the sector.
“In fairness, one of the reasons Canadians banks have been so successful is their level of conservatism. It has served them well, and we certainly saw that in 2009,” said Jay Wilgar, CEO of Oakville-based pot firm Newstrike Resources Ltd.
Bloomberg data shows the pot sector has fuelled about $8 billion in deals since the start of 2018, surpassing activity for all of 2017. With the exception of BMO’s capital markets unit, the major winners in those deals weren’t big Canadian banks — they were Goldman Sachs and Greenhill & Co. for advising Constellation Brands’ on their investment in Canopy, Canaccord Genuity and GMP Capital.