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After a short-lived scare, investors in the budding cannabis sector last month didn’t seem to be rattled by the hard line being taken by U.S. Attorney General Jeff Sessions against their industry. But the legal marijuana industry is certainly no closer to getting payment card merchant accounts and other mainstream financial services, at least for the time being.
Sessions announced Jan. 4 that the go-easy federal approach to the marijuana industry in states where cannabis is legal, announced in 2014 by the Obama Administration through its so-called Cole Memo, was over. Instead, Sessions is giving U.S. attorneys in each state discretion over enforcement of federal laws regarding cannabis.
At the federal level, cannabis remains a Schedule 1 substance, in league with harder drugs such as heroin and LSD. Because of that, most banks have refused to provide merchant accounts or other financial services to dispensaries and industry suppliers, even after the Cole Memo came out.
Surprisingly, the stocks of about a dozen publicly traded vendors to the cannabis industry—most based in the U.S. and Canada, with one in the United Kingdom—resumed their upward trajectories after taking a hit the day Sessions made his announcement. Some firms saw their share prices dip by more than 20% that day, but many recovered fast, with several up by double-digit percentages. As of mid-January, the companies’ collective gain since Dec. 1 was 26%, according to Yahoo! Finance.
What gives? Part of the reason could be that investors in cannabis companies believe Sessions’s position will not survive in the long term in light of the increasing number of states, most recently California, that have legalized recreational and/or medicinal pot.
“I don’t think conservative pension funds or mutual funds are putting money in these industries,” says payments consultant Eric Grover, principal at Minden, Nev.-based Intrepid Ventures. But individual investors and some investment managers willing to take a risk “are basically making a bet that these companies won’t be put out of business. If that plays out, they stand to profit handsomely,” he says.
Still, consultant and payment-facilitator executive Todd Ablowitz, chief executive of Centennial, Colo.-based Double Diamond Group, says Sessions’s new policy “didn’t help any” in bringing mainstream financial services to the cannabis industry. He predicts that the development is pushing the federal and state governments toward a showdown. “I think it has to come to a head,” Ablowitz says.
In January, 18 state attorneys general wrote a letter to Congressional leaders asking them to advance legislation allowing states with legalized medical or recreational use of marijuana “to bring that commerce into the banking system.”
The frostier climate in Washington hasn’t stopped one cannabis payments entrepreneur from going forward with a new service. Jeremy Roberts, chief executive of Las Vegas-based Medical Cannabis Payment Solutions, announced his system for medicinal marijuana dispensaries, dubbed Green, on the same day that Sessions made his announcement.
Green is a private-label debit system that does not provide general-purpose payment card acceptance, but does enable state-licensed dispensaries to store customers’ information and accept payments with just a few clicks, Roberts says.
“We don’t, therefore, have the issues with banking that others have because we can comply with state regulations and aren’t violating laws not covered by federal marijuana protection,” says Roberts by email.
Roberts remains hopeful about the cannabis industry’s future. “Investors and patients need not panic or worry,” he says. “This is a marathon, not a sprint, and indictments are not imminent.”
—With additional reporting by Kevin Woodward
