In 2016, the voters of Arkansas legalized medical cannabis, just as they have in 32 other states and five territories, but there, as in many "legalized" jurisdictions, there's been one big problem:
Cash. There's plenty of it - business is very, very good in the $10 billion sector - but there's no place to park it securely.
Most banks won't work with marijuana companies; they won't touch cannabis business proceeds with the proverbial 10-foot pole.
You can attribute that in part to former Attorney General Jeff Sessions' anti-cannabis zealotry.
Risk is almost always radioactive to commercial bankers, of course, and as things stand now, banks run the very real risk of running afoul of federal law if they handle cannabis cash - no matter that marijuana might be perfectly legal in whatever jurisdiction.
That's arguably a bigger barrier to the cannabis sector than prohibition itself, which, as we've seen, is crumbling at an accelerating rate.
But there's one small bank in Arkansas that's reaching out. It deserves to be applauded for its progressive approach and outreach to the cannabis sector. It could very well become the model for how banks provide services to these unique, very profitable companies...
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Legal Marijuana Companies Need Banking Services
It should go without saying that businesses do better when they enjoy unfettered access to banking services. Business functions that other companies take for granted, like payroll, vendor management, and security all present an added, distracting burden for otherwise legal marijuana companies.
Had these firms access to banking, they could enhance their focus on what matters most: growing their business... and putting money in shareholders' pockets.
[Critical] As many as 10 private cannabis companies are expected to go public by Jan. 31 - read more.
But there are some very encouraging signs that banks are taking the first tentative steps toward building relationships with marijuana business owners who, after all, are regular folks, neighbors, and taxpayers.
John Stacks, CEO of HomeBank of Arkansas, gets that.
After watching his father struggle with cancer, he changed his views on medical cannabis, according to TV station THV.
"[It] got me to thinking more about the acceptance of medical marijuana today, and actually turned my view around from having been strongly against all those aspects, really, until I just educated myself a little bit as to what the benefits could be," Stacks told the station.
He and his board of directors agree that working with people and companies in the medical cannabis community is not only good business - but good for the community. Legal marijuana dispensaries will help curb sales on the black market.
Safe Harbor Services, a specialty firm that connects cannabis-related businesses with financial institutions, will analyze applications and prepare paperwork for HomeBank.
Stacks wouldn't speculate on how much the $10 billion cannabis industry could add to HomeBank's bottom line.
But there's no denying this fact: When you're the only game in town, you make all the money...
Banks Will Start Cashing In on the Cannabis Market
As I alluded to earlier, bank CEOs have been in a tough position with mixed signals about marijuana legalization coming from the Trump administration.
Meanwhile, their colleagues in the investment banking business - who do have an appetite for risk - have been raking it in hand over fist.
For example, asset management company Cowen Inc. invested $1 million in Tilray Inc.
Everyone was talking about Tilray after its IPO. Shares opened at $23.05 - and they went to the moon shortly after - reaching $300.
That original $1 million bet Cowen made on Tilray?
It was worth $18 million at the end of September 2018, according to Barron's.
And don't forget about the fees bankers make as underwriters of IPOs. In 2016, the average underwriting fees on a deal size greater than $1 billion was 4.7% of the deal.
That's a nice $47 million payday for banks on a $1 billion IPO, just from fees.
And folks - I'm here to tell you this industry is too large to stop. Bankers will start working with cannabis companies sooner rather than later. (I recently spoke with John Vardaman, the co-author of the Cole Memo, and you won't want to miss what he said about banks and cannabis companies.)
There are untold billions in profits waiting to be unlocked in the cannabis sector. That's money no banker worth his or her year-end bonus will want to leave on the table.
By the way, you don't have to take my word for any of this...
Former Speaker of the House John Boehner said at the American Cannabis Summit that he is now all in on cannabis.
"This is inevitable. Voters want it. Economic benefits are too big to ignore. Let me just say, I have a strong suspicion we won't be waiting five years to see the federal government legalize cannabis," Boehner said.
He knows how the system works better than anyone does.
We may not have to wait until federal prohibition falls forever to see more and more banks reaching out to the cannabis sector. The money is there now, for the taking, in this underserved sector.
When that happens, the trickle of quality cannabis IPOs we're seeing now just might become a flood. It's something every investor can look forward to.
Get Ready: A $12 Billion Tidal Wave of Wealth Could Be Headed Our Way
As we speak, an unprecedented flood of cannabis IPOs is barreling toward us.
We're talking about seeing as many as 42 millionaire-making IPOs hit in the next 90 days - four could go as early as Jan. 31.
And when it happens, it could create the next round of marijuana millionaires.
We want you to have an opportunity to be one of them.
About the Author
Greg Miller started working on Wall Street in September, 1987, just a month before the “Black Monday” stock market crash.
During his career there, he became an expert in just about every kind of publicly traded security - from blue-chip and small-cap stocks to municipals, junk bonds, and derivatives. As a portfolio manager, Greg was responsible for over $500 million of assets in mutual funds and insurance company accounts.
After leaving the Street, he designed a successful options trading strategy and made lucrative tech investments for a financial publication. He has also helped develop new products and worked with other editors to hone their strategies. He’s always been dedicated to deep, fundamental research - and he always will be - because he believes buying the very best companies at the right price is the best way to amass wealth in the stock market.