Why Canadian Banks May be Leery of Accepting Legal Marijuana Sellers as Clients

Article by Mark Gollom, CBC News

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Even as Canada heads toward the legalization of selling recreational marijuana, pot-related businesses are being shunned by some banks that are not willing to take a risk on an industry in which the problems may outweigh the rewards.

And that could be a sign that banks in the near future will be just as leery of accepting lawful recreational pot-sellers as clients.

Khurram Malik, an analyst with Jacob Capital Management Inc., which advises on the the global cannabis sector, said banks are likely thinking “until it’s a big enough market where we can generate some decent fees, why take on the headache?”

‘Protect their brand’
“You have to understand the DNA of these banks. They’re the most conservative organizations in the world and they protect their brand very diligently,” he said.

Reports say Scotiabank and the Royal Bank of Canada will no longer give accounts to companies associated with the marijuana industry. Those include stores that sell pipes and bongs (but not cannabis), as well as medical marijuana producers.

“Banks are for-profit organizations, their competitive advantage is managing risk,” said Walid Hejazi, associate professor of international business at the University of Toronto’s Rotman School of Management.

“So these two banks did their due diligence and came up with the conclusion that in their position, there is some risk and that risk can be reputational.”

Read full article here.

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