Article by Vanmala Subramaniam, Growth Op
Small and mid-sized cannabis companies say they are finding it increasingly hard to obtain basic credit facilities from some of Canada’s largest financial institutions amid heightened scrutiny on the struggling sector.
“It seems that most charted banks do not want to entertain new applications for lines of credits, loans, or new bank accounts,” said Sam Rad, a marketing executive at CannaPiece Group Inc., a late-stage cannabis licence applicant.
According to Rad, banks have been less inclined to dispense loans or lines of credit to late-stage applicants because they are looking for “strong cash flow.”
“It has affected us. When you are a late-stage applicant operating on a pre-revenue basis, you need capital, because the cost of equipment increases, your cash burn rate is high and there’s no revenue yet,” said Rad.
CannaPiece is aiming to become a cannabis extractor and operate a micro grow site in Ontario once it receives the green light from Health Canada, but the licence application process has been taking longer than expected.
“After CannTrust, they became really particular and started asking for more documents. We are hoping to get our licence soon, but now they want some additional information from us so we’re on the back burner again,” Rad said.
Yet another Ontario-based late-stage cannabis applicant who declined to be named for fear of deterring private investors, told the Financial Post that he believed his company was on track to receive up a multi-million-dollar credit facility from RBC, but ended up “empty-handed” after a meeting with the bank’s loan officers, who expressed concern over some of its board members.