Will International Banking Regs Cripple The Global Cannabis Industry?


Marguerite Arnold

September 8th, 2017

Policy, Top News


Life is difficult enough for the cannabis industry in the United States. The entire vertical, in every state, has a very difficult time finding banking services in general. Some state banks, credit unions and others are moving into the fray domestically. However, they are few and far between. The reality is that the American cannabis industry is for the most part, underserved if not literally unbanked.

The reason?

American banking law.

Cannabis is still a federally illegal substance. As such, banks who provide services to even state-legit businesses, can still be prosecuted under money laundering laws, the Patriot Act, and other very stringent federal statutes.

This issue, however, is not just limited to the U.S.

Uruguay is the latest victim. The country, which moved forward on legal distribution of recreational cannabis through the country’s pharmacy system this summer, is now facing another huge problem. Initial sales were brisk. And then American banks immediately threatened the domestic banks that serve the pharmacies. The cudgel they are using? That they would stop doing business with banks in Uruguay. As a result, Uruguayan banks would lose their access to the American market. In turn, Uruguayan banks threatened the pharmacies. International banks not located in the U.S. – such as Santander – a Spanish bank, followed suit. Losing access to the American banking system is still a major threat.

Pharmacies in Uruguay, faced with this choice, are already deciding to forgo stocking and selling cannabis.

What does this mean for other countries now moving forward on legalization? Of any kind?

The War on Drugs Is Still Baked Into Global Banking Regs

Many countries have faced global sanctions in the past for experimenting with the legalization of “illicit” drugs – including cannabis. In the past, this has tended to come from the UN. Countries like the Czech Republic and Portugal have faced down this issue before albeit from a slightly different quarter.

However this case is slightly different. This is not the UN making threats now. It is private American banks.

Uruguay, like its other Latin and South American neighbours, has been on the cutting edge of this discussion for some time just from that front. Choosing to brave the UN and American pressure on federal legalization of recreational use, they proceeded with legalization post 2013. It has been a slow and difficult path ever since. The most recent banking response appears to be the next salvo in this contretemps.

The question is, will it be limited to Uruguay? Or perhaps the American hemisphere? Could Canada be next? That is always a possibility, of course. However it is also unlikely. The bank response in Uruguay is clearly intended to be a shot across the bow. But will it work?

It is unlikely to in the long term. Why?

The 16 pharmacies in Uruguay now on the front edge of this discussion bear little resemblance to Canadian LPs right now. These firms are already well banked, and large, multi-million dollar enterprises at this point, with international access to equity markets and domestic banking services. In turn, such entities are unlikely to give up as easily as small Uruguayan pharmacies. While they have not (yet) started serving a recreational market, the setup there is different. Customers can order by mail. That means that these firms are also very unlikely to be faced with financial blackmail of this sort next year.

Beyond Canada, in Europe, there are several countries who have already legalized recreational use – either federally or by state (see Catalonia in Spain). In Holland, it is possible to buy legal cannabis in any dispensary with a Maestro bank card (in other words an EU wide bank network).  These companies all still have access to the American market. Seed companies face hurdles with credit cards here, but the banking issue has yet to hit dispensaries and will probably never do so.

In Germany, medical use cannabis has been sold in pharmacies for the last decade, even if tough to get. Banking law was not the problem. Prescriptions and cost were. And still are. Here it is more a matter of insurance companies accepting that the drug has medical efficacy. In Switzerland, CBD (low THC cannabis) is being sold commercially in regular stores with no problems yet.

So Uruguay clearly represents a unique situation. Is this a case of post-colonial blackmail by American financial institutions in a country if not region long shaped by such “interventions” north of the Rio Grande? Particularly over issues like drugs.

It certainly could be.

It could also be a last ditch attempt by the banks themselves to put pressure on American lawmakers to get around to passing legislation to finally fix the many problems of the legal cannabis industry. This spring, yet another bill was introduced by Rep. Ed Perlmutter (D-Colorado) to do just that.

Advocates are not optimistic about its passage in this session of Congress. That said, it is also expected that California will also begin to address this issue as it moves forward on state rec issues. This is likely to change the debate in the U.S. if not put additional pressure at the federal level to change such laws.

In the meantime?

Uruguayan lawmakers are now trying to figure out how to solve the issue. Ironically, the greatest threat to the legalization effort – itself the best way to undercut the black market- is being threatened because of laws meant to wipe it out the “old fashioned” way.

About Marguerite Arnold



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