Pubdate: Mon, 30 Nov 2015
Source: Globe and Mail (Canada)
Copyright: 2015 The Globe and Mail Company
Contact:  http://www.theglobeandmail.com/
Details: http://www.mapinc.org/media/168
Author: Mike Hager
Page: S1

BANKERS STILL VIEW CANNABIS WITH CAUTION

Many Credit Unions, However, Have Stepped in to Help Finance and 
Service the Legal Pot Sector As Well As Illegal Dispensaries

On the cusp of receiving a coveted new licence to grow medical 
marijuana, Dan LaFlamme went looking for a bank to represent his 
family-owned business and encountered the kind of rejection those in 
the burgeoning industry have gotten used to.

Two of them turned Canna Farms away before a third finally agreed. It 
was early 2014 and the company, based in Hope, B.C., had secured the 
fifth licence from Health Canada to produce medical cannabis for its 
new commercial mail-order system.

"I think it was just so new, [the banks] didn't know [it was legal]," 
Mr. LaFlamme said.

For those seeking lawful ways to profit from marijuana, it only takes 
one uncomfortable bank employee to quash access to the financial 
tools essential to running a successful business, such as a chequing 
account for payroll and e-transfers for online ordering, according to 
James Poelzer, chief operating officer of aspiring licensee Agrima 
Botanicals. "Legalization is on the horizon and the ultimate goal of 
that is to dry up the black market," Mr. Poelzer said. "And the only 
way we're going to be able to do that is by having these 
infrastructures in place that other businesses are allowed to use."

Canadian pot entrepreneurs got a boost last month with the election 
of Justin Trudeau. The Liberals promise to legalize marijuana, and 
one analyst expects that momentum behind the policy will take some of 
the starch out of the big banks' conservative approach to such businesses.

Predictions are difficult because so much of the current cannabis 
trade is underground, but Simon Fraser University economics professor 
Stephen Easton has estimated legalization could bring in $3-billion a 
year in tax revenue alone. In contrast, alcohol sales generated about 
$7.7-billion in total for both provincial and federal governments in 
2004, according to a University of Victoria study. A 2013 study by 
Physicians for a Smoke-Free Canada estimated that annual tobacco 
sales bring about $7-billion into provincial and federal coffers.

When the Conservative federal government launched the current medical 
system last year, it projected annual sales of $1.3 billion to 
450,000 patients within a decade. This past August, Health Canada 
recorded fewer than 18,000 patients buying 600 kilograms of medical 
marijuana. At the average price of $7.95 a gram, only $4.8-million 
worth of pot was sold legally in Canada during that month.

None of Canada's largest banks would tell The Globe and Mail whether 
they serve the two dozen commercial pot growers licensed under the 
federal medical marijuana regulations or the hundreds of aspiring 
growers, such as Agrima, awaiting final security clearances and site 
inspections from Health Canada.

The Globe has confirmed through talking to various licensed growers 
that at least three of the big five banks do business with the new 
industry, which was created when the Tories outlawed home growing in 
favour of industrial-scale producers that are strictly regulated.

Khurram Malik, an analyst with Toronto-based Jacob Securities, an 
investment bank that services the sector, says bankers still view 
cannabis with caution. But that will change as legislation appears 
and the challenges facing their resource-industry clients continue to 
nudge the banks toward accepting new business, Mr. Malik said.

"You would think with the oil and gas falling off the rails and 
mining falling off the rails, they would be looking at new places to 
go," Mr. Malik said. "A lot of institutional investors will not touch 
it because it makes them nervous from an optics standpoint."

Still, in terms of financial services, these licensed growers are 
better off than their American counterparts operating in 
jurisdictions that have legalized all pot sales. Companies in places 
such as Colorado must handle millions of dollars in cash because, 
though legal in that state, federal drug laws prohibit them from using banks.

Canadian producers have received cease-and-desist letters from 
financial transaction processor PayPal, because it is U.S.based and 
subject to those same laws. But they are allowed to process credit 
card transactions from patients using Moneris, which is a joint 
investment between BMO and RBC.

If the larger banks are reluctant to embrace the industry, many 
credit unions have stepped in to help finance and service the legal 
marijuana sector, as well as the scores of illegal dispensaries that 
bloomed first in B.C. and now dot the country. On the more permissive 
West Coast, at least two credit unions say they have served a handful 
of Vancouver's more than 100 pot shops for a number of years and have 
received no flak from any government agency.

"The game is an awkward one insofar as the province and some health 
authorities have intervened and said 'this is a health-related 
issue,' " said Ross Gentleman, general manager of Vancouver's 
single-branch CCEC Credit Union. "It seems that, inevitably, be it 
bankers or medicinal resource suppliers or landlords or any number of 
other players who are involved are going to be called upon to step 
and say 'yes, we do business in this context.' "

CCEC serves half a dozen dispensaries that are run by "people that 
are of good character" who were turned away from larger banks, Mr. 
Gentleman said. He added "there have been no issues" and said every 
transaction is reported to Canada's financial intelligence agency, as 
required under federal banking rules. Vancity, Canada's biggest 
credit union, confirmed that it has accounts with three dispensaries, 
noting there is "considerable public support" for stores that offer a 
"safe healing environment for those in need."

The Conservative federal government vehemently opposed the medical 
and recreational use of pot. But the Office of the Superintendent of 
Financial Institutions, the independent agency that regulates 
Canada's banks and credit unions, said before the October federal 
election that it had not issued any directives or guidance related to 
marijuana dispensaries.

Christine Duhaime, a lawyer and anti-money-laundering expert, said 
Canadian financial institutions are well within their right to 
"debank" any client they deem too risky, as repeated court cases have affirmed.

"In some way it's proceeds of crime," she said of financial 
institutions serving the dispensaries, which are violating federal 
drug laws by both illegally procuring cannabis products and then 
selling them to consumers. "The bank, if they accept the money, is 
going to be viewed as having participated in laundering it."

Ms. Duhaime said it was hypocritical for banks to accept bags of cash 
from clients such as strip clubs and escort agencies, which are 
continually linked to prostitution by law enforcement.
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MAP posted-by: Jay Bergstrom