Pot Inc. has been popping the champagne corks (or, in this case, rolling some fat joints), and it’s not just to celebrate the New Year.
President Trump just came to the rescue of the $60 billion industry, putting the drug in a low-level federal category in which dispensaries, farms and various weed-related products said they could finally get “banked,” or have access to banking services long denied weed entrepreneurs.
Or so they thought.
The Post has learned that the initial reaction to the Trump executive order (EO) lowering weed to among the lowest level of controlled substances — at least among big banks like JPMorgan, Bank of America and Citigroup — hasn’t been a good one for the pot business.
Sorry, weed banking isn’t coming to the nearest JPMorgan branch near you, because Trump’s order simply doesn’t allow it.
It’s not like the banks don’t want the business, I am told.
Executives running all three of these places aren’t potheads (though the image of Jamie Dimon smoking a joint would be hysterical).
Banking, like politics, is a business of addition and bankers thought they were about to welcome scores of new customers into their branches as speculation grew around Trump’s executive order.
When it hit on Dec. 18, in-house bank lawyers spent days reading every clause backwards, forwards and upside down, trying to find some clause or wording that would allow them to fully bank the cannabis industry.
They came up with nothing, I am told by sources at these institutions.
The specific language of the EO renders the vast majority of pot banking still illegal at the federal level, which is where the big banks get regulated.
“I can tell you that a battalion of lawyers at every major bank looked at the EO and we all came away with the same conclusion: It was written not broadly but mainly just for medical use, which makes banking this industry next to impossible,” said a senior executive at a major bank.
Far beyond med use
The issue for the banks is that most of Pot Inc. goes far beyond medical research or even prescriptions for weed-related pain-relief products that the EO suggests are now legal — or at least no longer a “Schedule-1” drug like heroin, but a “Schedule-3” drug like Tylenol with codeine.
Pot farms, for instance, could service medical usage, but they also service — probably in much larger volume — the business of supplying smokable stuff to the pothead community.
Based on the banks’ reading of the EO, that remains outside the boundaries of banking law.
If you’re confused by the legal stuff, you’re not alone.
Doesn’t reclassification away from heroin make pot legal?
Well, yes and no.
It’s still a controlled substance like anabolic steroids, according to the feds.
And yes, pot has been legalized or decriminalized in nearly every state; no one gets busted for smoking a joint anymore, which is all too obvious to New Yorkers (like myself) who are tired of the stench of pot every time you walk down the street.
But those are state laws that don’t impact banks.
While the state-by-state legalization of pot has mainstreamed weed as a business, its growth has been stymied because big US banks still won’t lend to these businesses or provide them with credit card services; pot companies need to go to Canada to float stock or get financing from costly non-bank sources.
That’s because our banks are regulated by the Federal Reserve, and federal law — even after the reclassification — remains a banking roadblock, bank executives say.
This position will certainly draw some blowback from some of the leaders of Pot Inc. who had been lobbying the White House for a change in weed’s classification status.
One is former hedge fund trader Marc Cohodes, who’s now one of the pot industry’s leading advocates.
He has met with White House officials including people at the Treasury Department for the past year.
He says the big banks are misreading the intent of the executive order, how Trump wants pot companies to do banking here in the US as opposed to Canada, and how medical usage shouldn’t be debanked just because some pot from a grower makes its way to a dude smoking a joint.
He compares the debanking of Pot Inc. to what happened with crypto before Trump began to deregulate that business, and how big banks debanked conservative-leaning businesses like guns — and even Trump himself, whose businesses were denied banking services after he left office following his first term.
‘Huge market’
“Medical is a huge market and recreation is approved in 41 states,” Cohodes tells me.
“Canadian stocks can trade in the US, but the fact that US cannabis companies can only trade in Canada drives the Trump people crazy.”
The banks, meanwhile, say they’re not trying to deny Pot Inc. anything; they’re just looking to avoid getting caught in a regulatory quagmire.
What they’re hoping for is more clarity, like federal legislation that specifically allows banking services to the weed business.
“Without that, every time we make a loan to a pot grower, we will have to file a suspicious activity report,” the banking executive said.
