What The Banking Crisis Means For The 'Underbanked' Cannabis Industry

The ongoing banking crisis could bring even more difficulties for cannabis businesses struggling to find balance in an already chaotic banking environment.

For years, the conundrum of accessing banking services has been a cause of uncertainty for cannabis companies operating legally on a state level but illegally at the federal level. 

The FDIC became one of the protagonists of the Silicon Valley Bank saga when President Joe Biden's administration assured that all depositors —even those with deposits that exceed standard FDIC insurance— would have their funds guaranteed by the federal government.

Yet, cannabis companies are wondering if their funds would be equally secured if they faced the same predicament that the startup tech ecosystem went through in March. 

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The SAFE Banking Act, aimed at preventing banks from getting federal penalties for working with cannabis businesses, has passed the House on seven occasions but remains stalled in the Senate.

In the meantime, state-legal cannabis companies that don't want to run an all-cash business have taken a liking to state-chartered banks, some of whom are willing to take the legal risk of working with cannabis businesses—and put in the extra due diligence work. This is a line big banks like JP Morgan JPM and Wells Fargo WFC are not willing to cross.

In an unlikely turn of events, the Silicon Valley Bank collapse has become a nightmare for cannabis businesses, as the small, regional banks that stepped in to offer their services to this "untouchable" industry have been the worst hit by the shock waves of SBV's demise.

A point that has become the most worrisome for cannabis businesses is that the $250,000 deposit guarantee provided by the FDIC is not necessarily guaranteed in the case of cannabis. 

Since the FDIC is a federal body, it's not clear whether the agency would step in to cover for businesses performing federally-illegal operations. The agency itself has not offered clear guidance on the matter, according to a report from Bloomberg.

Additionally, acquisitions of struggling regional banking institutions by larger federally-regulated banks could leave cannabis businesses out of the system. Getting acquired is not uncommon for a failing bank, as it’s an easy way for a larger bank to instantly acquire a new customer base, as was the case this week with the acquisition of Silicon Valley Bank by First Citizens.

While not explicitly at risk of collapse, some banks that are known for offering services for the cannabis industry, like East West Bancorp Inc EWBC and Western Alliance Bancorporation WAL have respectively lost 25% and 52% of their stock value in the past month.

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