U.S. Attorneys Are Still Leashed, But Banking Still a Problem
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There is a lot of confusion surrounding what the Jeff Sessions decision to rescind the Cole Memo actually means to the cannabis industry. Some people are worried it means that U.S. attorneys across the country will start filing charges against state legal marijuana businesses and that it will cause an end to the legalization movement.
In reality, the justice department letting its dogs loose might not involve much more than a bunch of sniffing around that creates some anxiety, however the cannabis industry has probably become too large to go away. The immediate issue has more to do with banking and therefore investing. Slowing the investment capital flowing into cannabis businesses was likely the true intent of the decision to rescind the Cole Memo.
But Sessions’ move has created more uncertainty for banks, Karnes notes. “With the clear and present risk of operating a cash only business, the biggest issue at hand centers on banking,” he says, noting that current FinCEN guidance requires banks to ensure its cannabis customers are in compliance with the new laws, and until FinCEN guidance is revised, banking for cannabis businesses will remain problematic.
Moreover, the confusion caused by the Sessions rescission “has made a gray area grayer,” he adds. The Cole memorandum had provided some guidelines for investors, but “now, no one knows when the shoe could drop,” with many investors temporarily remaining on the sidelines, which could have an impact on short-term growth within the industry.
“Accordingly, we expect to see a regression to lower valuations that may eventually create more attractive investment terms, while creating a larger funding burden on businesses,” Karnes adds. “Eventually, however, we expect a return to confidence and growth.”
Sessions created confusion for investors, Fitzpatrick agrees, pointing out that cannabis-related businesses had been enjoying better access to capital than ever before, but following Sessions’ announcement cannabis stocks took a dive, and now investment capital will not be as available or will be delayed. But he also remains optimistic about investors’ eventual return and contends that people in the industry don’t expect Sessions’ action to materially affect them.
It is funny to see such obvious games happening on what is perceived to be the highest levels. It seems very manipulative of the justice department to threaten the cannabis industry without actually planning on doing anything. Are these the sort of practices you expect from the justice department?
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