National Bank steers away from cannabis

is not investing in the cannabis industry partly due to concerns that tobaccostyle lawsuits could be filed against marijuana companies.

“There’s significant risks of class-action lawsuits with respect to the cannabis industry,” said chief executive Louis Vachon during National Bank’s annual shareholder meeting on Friday.

“The tobacco industry operated for 50 years without class action. I think it’s only going to take maybe 50 months or 50 weeks before a significant class action is launched against cannabis producers and contributors,” Vachon said.

He said that National Bank, the sixth-largest bank in the country, was also avoiding investment in the industry due to expectations of ongoing black market competition and concerns about Canadian companies operating in the U.S., where cannabis remains illegal at a federal level.

“There’s significant risk because of the regulatory uncertainty in the United States. It has increased following certain declarations of the Trump administration. We want to be sure that there’s no legal contamination between a Canadian operator or producer and U.S. activities which could have an impact on the bank,” Vachon said.

Canada’s large banks have largely avoided investing in the marijuana space, even as rapidly expanding licensed producers soak up billions of dollars of capital and the country moves towards legalizing recreational use.

There have been a few exceptions, most notably BMO Nesbitt Burns Inc., which helped underwrite $200-million in financing for Canopy Growth Corp. But for the most part, the industry has been financed by smaller investment banks such as Canaccord Genuity Group Inc. and GMP Capital Inc.

Bruce Linton, chief executive of Canopy Growth, dismissed Vachon’s concerns about potential lawsuits, suggesting they had more to do with National “having entirely missed the opportunity to bank the most actively growing sector” of the economy. “I suspect that (National Bank) needs a new answer,” Linton said.

There’s little risk for legal liability, he added, “as long as the products are prepared and presented, and they are what they’re exhibited to be, with all the warning labels that you would see on the containers.”

This was echoed by Allan Rewak, acting executive director of Cannabis Canada, an industry association.

“There’s no evidence that cannabis is lateral with Tobacco in terms of harm,” said Rewak. "It’s not free of harm, no product is .... That’s why we’re going to regulate this, we’re going to keep it away from kids, we’re going to make sure that adult consumers of cannabis are freely choosing knowing the risks.”