With the sales of legal marijuana hovering around the $5.4 billion mark last year it’s no longer just trained dogs sniffing out this product. Today it looks like Wall Street is taking a serious whiff of the marijuana business future, with banks now exploring the possibility of doing business with the marijuana companies.
Two marijuana analysis investment firms that released their reports this week have Wall Street diligently looking over the marijuana business and comparing this to another possible Silicon Valley, according to The Credit Union Times on February 7. The financial institutions are still exploring the many requests to provide banking services to the marijuana businesses as these ventures look to be very viable. Financially they offer amazing prospects for the future as more and more states legalized the product.
Not allowing the marijuana businesses to use the banking services nationwide has forced the companies to basically become an all-cash business. Without making deposits into a bank, where their financial history will have a paper trail, it is going to be hard on Wall Street’s part when it comes to investors. Instead these business owners are forced to run around with duffle bags full of cash.
People want to know how the company is doing in dollars and cents and their banking history is a very big part of that. Without the bank as a piece as this business venture, people may find it a bit risky to invest in the marijuana businesses.
From what The New York Times reports it seems that the old ethics surrounding marijuana seep in from a few different avenues. The stigma on marijuana dies hard. Banks are still not doing business with the marijuana industry and even parents debate whether or not to allow their children to invest in the stocks even though they can be quite profitable. Wall Street is weighing the benefits of the marijuana stock seriously enough to appropriate funds for exploring the ethics of investing in the product.
The Business Insider reports that while states are piling up one by one making the sale of marijuana legal either for medical purposes or to use socially, the federal government still sees pot as illegal. “The drug remains strictly illegal under federal law. That means banks, which are regulated by the federal government, are still refusing to work with state-approved pot shops for fear of running afoul of money laundering laws. The situation has made handling those huge piles of cash an increasingly tricky issue for marijuana entrepreneurs,” writes the Business Insider.
The demand for legal marijuana is on its way up with the sales numbers forecasted for the year 2016 to top last year by another billion. The projection for this year in sales is $6.7 billion. In 2014 the sale of legal marijuana came in at $4.6 billion, followed by the $5.4 billion in 2015, with almost a billion dollar jump. As the Business Insider suggests, they are making all this money, but they have nowhere to put it.
This is all new territory to tread on and one big stumbling block would be the banking aspect. Mike Nahass, director of operations for Terra Tech, which is a cannabis-focused agriculture company, told CU Times “Banking is a real issue, so being a public company, we have to put standard operating procedures in place that make it auditable so that an auditor can stamp off on it. We have that challenge of checks and balances. The problem is the government is forcing people in this industry to stay in the black market. It doesn’t make sense.”
If anyone knows what they are talking about when it comes to the importance of the investors seeing a complete package, which includes a banking aspect of the business, Nahass does. He is a former senior vice president and complex manager at Morgan Stanley and he sees the banking issue as a dilemma today. He said, “If they would just allow the banks to accept the deposits … the fear they have is the money is coming from a source or a person that is not real.”
Nahass talked about the problems his company Terra Tech had when it made the move to go public. He said “Wall Street was apprehensive.” The shares topped off at $1.14 and they saw lows in the single digits. “It’s been very interesting, to say the least, but we did it because we are the first public company that is a retail dispensary,” he added. Businesses with ties to the marijuana industry are cash intensive and they carry risks associated with not having access to financial services.