BANKING ON GREEN
Getting into business early may offer major advantage, cannabis firm’s CEO says
Toronto-Dominion and BMO are emerging as banks of choice for Canada’s cannabis industry,
Bank of Montreal and Toronto-Dominion Bank are emerging as the banks of choice for Canada’s burgeoning marijuana industry, even as some lenders shun the sector.
With less than a year to go before July, when Canada plans to legalize recreational pot, and 16 years after making it legal for medical use, Bank of Montreal and Toronto-Dominion are providing business accounts to at least 21 cannabis companies, according to interviews with 45 firms tied to the drug. Alterna Savings and Credit Union Ltd. is top among co-operative lenders.
Canadian banks are warming to an industry avoided by banks in the U.S., where marijuana is outlawed federally. Most U.S. banks have refused to do business with pot companies to avoid accusations of money laundering and other criminal violations.
Canada’s recreational pot sales are forecast to reach $6 billion by 2021, surpassing the $1.3-billion estimate for the mature medical marijuana market. Ontario’s government is already forging ahead with plans to set up its own stores.
“Different lenders have been quicker than others to move into this industry, but this is understandable as public perceptions are still evolving,” Basem Hanna, chief executive officer of Mississauga-based TerrAscend Corp. said by email. “There could be a significant first-mover advantage to the financial institutions that are getting involved with the legal cannabis industry already.”
Bank of Montreal provides accounts to at least a dozen companies, including Aphria Inc., CannTrust Holdings Inc. and Invictus MD Strategies Corp., as well as investment firms Cannabis Wheaton Income Corp. and CannaRoyalty Corp.
Toronto-Dominion, Canada’s largest lender, is banker to at least nine producers including MedReleaf Corp., Cronos Group Inc., TerrAscend and Beleave Inc. The lender assesses banking and loan applications from businesses in any legalized industry on “a case-by-case basis,” bank spokesperson Elizabeth Lewis said.
Bin Huang, CEO of Victoria, B.C.-based Emerald Health Therapeutics Inc., said the company won over Bank of Montreal by explaining the industry and directing its local bankers to the federal government’s Health Canada agency to prove Emerald is legal. Huang says she hasn’t had any issues with the Torontobased lender or other banks, but said that’s not the case for many others in the industry.
“There has been a reluctance from the big banks because they are really risk-averse and there’s also some confusion and misunderstanding,” she said. “We’re legal, we’re licensed, but they still think when you’re in the cannabis business that it’s just a grey area — that’s the misperception and it takes time to educate.”
Royal Bank of Canada and Bank of Nova Scotia are among those that shut out pot companies, and both have shuttered accounts of those in the industry. Changing rules may prompt them to reconsider.
“RBC currently does not provide banking services to companies engaged in the production and distribution of marijuana,” the bank’s spokesperson, A.J. Goodman said. “We recognize that the legislative landscape is evolving and we are undergoing a review of our policies.”
A Scotiabank spokesperson, Rick Roth, said, “Should there be significant change to industry legislation or regulation, we will revisit our risk assessment and make risk policy adjustments if warranted.”
While many banks have shied away, credit unions have stepped up. Alterna has embraced firms dropped by banks.
“This is a legal, legitimate business and therefore it should be able to be provided the appropriate banking services,” Alterna CEO Rob Paterson said. Ottawa-based Alterna provides banking to about half of licensed producers, according to Paterson. “The licensed producers are very sophisticated and structured, so they’re easy to actually do business with,” he said.
Cannabis companies may miss out on the benefits of dealing with big banks, including better access to debt financing, more favourable terms and their investment-banking expertise. Still, MedReleaf landed a $20-million credit agreement with “a major Canadian bank” in April, the Markham-based company said in a filing. CEO Neil Closner wouldn’t disclose the bank’s name, but says the commitment could signal changing sentiment.
“It has sort of broken the ice and another one might follow, provided that it’s a business that makes sense,” Closner said.