U.S. Pot Banking Bill May Hurt Canada Exchanges

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NEWS U.S. pot banking bill may hurt Canada exchanges U.S. SAFE Banking Act won’t automatically open every institution to working with cannabis industry, but it will push many in that direction By Kristine Owram, Bloomberg The SAFE Banking Act may be the clearest sign yet that the U.S. is steamrolling toward federal legalization. Getty Images

The advancement of the SAFE Banking Act indicates it won’t be long before U.S. stock exchanges open up to cannabis listings, a potential blow to Canadian bourses that have carved a lucrative niche for pot.

The U.S. House of Representatives voted 321-103 last week in favour of the Secure and Fair Enforcement Banking Act, which would allow banks to do business with legal cannabis companies. Currently, the industry is forced to conduct many transactions in cash because of its lack of access to the banking system.

“The bill now faces the more difficult hurdle of the Republican-controlled Senate, but most industry analysts believe a version of it will pass by next year.”

This would do more than allow U.S. pot companies to open accounts at deposit-taking institutions, said Jodi Avergun, a Washington-based partner at Cadwalader, Wickersham & Taft LLP.

Avergun pointed to Section 3 of the bill, which says transactions conducted by legal cannabis businesses won’t be considered proceeds of a crime under money-laundering laws. That won’t automatically open every institution to working with the cannabis industry, but it will push many of them in that direction.

“If it’s not money laundering, then that risk of prosecution goes away for investment banks, trading houses, the stock markets, all of those things,” Avergun said. “There are quite a few financial institutions that are close to the fence, but not quite over the fence on their comfort in doing these transactions, and for those, this will push them over.”

This is particularly true for U.S. stock exchanges, which currently won’t list so-called “plant-touching” companies with U.S. operations because the drug remains illegal at the federal level.

“That’s exactly who’s going to look at Section 3 and say, ‘Wow, that really protects us, no one’s going to say that we’re committing money laundering,” she said.

That doesn’t bode well for Canadian bourses like the Canadian Securities Exchange, as well as some investment banks that have turned cannabis into a big business after the country legalized pot almost a year ago. Many American pot companies have expressed interest in moving to the New York Stock Exchange or Nasdaq when they can, and will likely prefer to work with the big U.S. banks as well.

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