The collapse of Silicon Valley Bank (SVB) has sent shockwaves throughout the tech industry. Bank collapses typically signify broader threats to the economy. More than 50% of venture-backed companies reportedly used SVB as their depository and financing institution, making the bank’s collapse a major blow to the tech start-up industry.
The federal government’s intervention in the form of covering all deposits should help. However, the impact of SVB’s demise on the cannabis industry is relatively small. First, SVB primarily focused on the tech industry and did not explicitly offer banking services to the cannabis industry. Second, due to regulatory restrictions, cannabis companies are limited to conducting business within state boundaries. This decentralization of the industry makes it less susceptible to the impact of individual bank failures.
In contrast, the compliant cannabis industry relies on state-chartered financial institutions and non-bank lenders to meet its banking needs. These institutions are subject to heightened due diligence and reporting requirements and are regulated beyond reason. However, the regulatory environment may be a good thing in a volatile banking environment.
Many banks that service cannabis companies are smaller with smaller capital bases, making them susceptible to financial imbalances similar to those faced by SVB. However, as these “marijuana-friendly” banks are not in the top tier of banks, the impact of their potential collapse on the industry as a whole would be less catastrophic.
While any disruption to the economy can have negative impacts, cannabis is a survivor. Its decentralized nature and cash-based business model make it less vulnerable to traditional banking services. Additionally, there is no VC industry built up around cannabis, meaning there are no large sums of deposited investors’ money waiting to pounce on the next big thing.
SVB’s demise may have some negative impacts on the cannabis industry, but it is unlikely to set it on fire and burn it down. The global economy has not yet fully recovered from the impact of the coronavirus, making consumers jittery and sensitive to any sign of trouble. Nonetheless, cannabis can grow in the cracks and take over a field, and it is unlikely that any one bank’s collapse will be able to stop it.
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