'The Banking Crisis For Cannabis Has Been Over' For Several Years, Experts Discuss What's Next

At the recent Benzinga Cannabis Spotlight in New Jersey, experts like Pablo Zuanic, managing partner at Zuanic & Associates, and Tyler Beuerlein from Safe Harbor Financial discussed the end of cannabis banking issues and the risks of overly ambitious regulations.

The panel also included the expert voices of Matt Karnes, founder of GreenWave Advisors, and Kenneth Rose, fund co-manager at Abraxis Eagle Fund. Their insights are crucial for investors eyeing opportunities in a potentially rescheduled market.

Rescheduling And Investment Dynamics

The panel highlighted the resolution of major banking challenges in the cannabis industry, such as restricted access to traditional financial services due to federal legal status, which stifles investments and growth.

Beuerlein remarked on the recent stabilization and increased competitiveness in the banking sector for cannabis businesses.

"The banking crisis for cannabis has been over for a few years. If you see an article stating that, it's typically not aware of what has been happening on the ground floor," he said, underscoring the significant progress made and the potential for increased traditional banking engagement in the cannabis sector.

Photo Corynn Egreczky

The Risks Of Changing It All At Once

The panel discussed the potential benefits of DEA rescheduling for the cannabis industry, highlighting that it could attract more traditional lenders and investors. However, Pablo Zuanic warned against overly ambitious regulatory changes.

He explained that attempts to extensively modify regulations, such as those seen with the Schumer Bill and the Cannabis Administration and Opportunity Act (CAOA), have so far been unsuccessful.

These efforts aimed to implement broad federal legalizations that introduced increased federal and FDA oversight, interstate trade, and a regulatory framework similar to alcohol and tobacco.

Zuanic said that such ambitious legislative changes can create complex challenges and unintended consequences, stressing the need for a balanced approach to regulatory advancements.

Photo Corynn Egreczky

Zuanic remarked: “It's a delicate balance, advancing without overreaching."

Karnes' Advice On 280E And Net Operating Losses 

Matt Karnes, founder of GreenWave Advisors, emphasized the transformative impact 280 E removal could have on cannabis businesses, stating, "The most important thing, I think, that's coming out of the rescheduling, is the elimination of 280 E... The effective tax rate for pre-tax income companies [is] about 65% to 70%. So the important aspect of everything is the cash flow generation that will come from the elimination of 280 E". 

Karnes also highlighted the strategic financial planning benefits that could follow the repeal of 280E, noting the potential for businesses to utilize net operating losses more effectively. "Once 280E goes away, and these companies act like any other business, there is net operating loss carried forward... That is an actual asset that will benefit, and will help with the cash flow as well," he explained. This change would allow cannabis businesses to carry forward losses to offset future taxable income, a common practice in other industries but previously unavailable to cannabis companies due to 280E restrictions.

However, Karnes cautioned about the risks associated with non-compliance or premature adjustments to business practices in anticipation of these tax changes. He warned that the danger of not paying 280E is that interest and penalties "could exceed the cost of capital."

These investing issues will be a hot topic at the upcoming Benzinga Cannabis Capital Conference in Chicago this Oct. 8-9. Join us to get more insight into what the wave of weed legalization means for the future of investing in the industry. Hear directly from top executives, investors, advocates, and policymakers. Get your tickets now before prices go up by following this link.

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