The Weed Industry is Being Hit With a Double Whammy

Article by Business Insider via Yahoo Finance

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The legal-weed industry faces many unique challenges to doing business.

Most companies in the space are frozen out of banks, can’t use credit cards for transactions, and can’t get loans. It all creates huge headaches for the industry.

On top of that, marijuana is like any other commodity: When there’s a supply glut, the price plummets. And that’s exactly what’s happening in legal markets like Colorado.

Cultivators are ramping up production and the price of marijuana is dropping, causing profit margins for growers to decline as well.

Marijuana companies — especially those that deal with the plant directly — are squeezed between the high cost of doing business and lower profit margins from the plummeting price of pot. And then there’s the banking problem.

Financial institutions that do business with marijuana companies often charge exorbitant fees to offset some of the risks of dealing with these businesses, as marijuana is still federally illegal.

In its most recent “Beige Book,” the Fed made two references to the nascent marijuana industry’s banking troubles (emphasis added):

1. In the San Francisco District, financial institutions in states with a legal marijuana industry reported increased operational costs related to regulatory constraints.

2. Financial institutions in a few states with a legal marijuana industry reported increased operational costs related to regulatory constraints on activities linked with that industry.

Read full article here.

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