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Another weekend another bank implodes
Is it all happening again? What impact is there for the cannabis industry?
Over the weekend Credit Suisse was acquired by UBS in a shotgun marriage run by the Swiss central bank and national banking regulator (very likely with significant assistance and pressure from other US and EU central banks). The details are all readily available so I wont waste time summarizing them here. What’s nerve wracking for me is it feels an awful lot like the Bear Stearns and Lehman collapses at the start of the Great Recession.
I don’t know what comes next but I don’t see how Cannabis can benefit from it either. Some folks are saying that enabling banking reform and getting cannabis deposits into banks will help provide liquidity. But the truth is banking does exist for the cannabis industry, can I deposit money with JPM or Citi, no, but I can with smaller regional banks which are also chasing deposits. So the flight to quality, folks pulling large savings balances out of smaller banks and putting them into the largest banks (the SIBs) actually puts more pressure on the smaller banks which are banking our industry. Plus there’s the unfortunate fact that currently the industry is so small and short of cash that the balances aren’t really going to move the needle. This is a from the gut number but the top 10 MSOs probably have combined cash balances of $500-600M, these are spread out over potentially hundreds of accounts given the state level regulations and dozens of corporate entities most of these companies operate through. The Swiss Government lent CS $50B overnight on Thursday and then another $150B over friday/the weekend. While at the micro level, or within the industry half a billion dollars is a hell of a lot of cash, it’s a rounding error for the largest banks and comes with way more risk, regulation and complexity.
My take is that the banking implosions are not going to lead to any opening up or any avenue for safe banking passage. Don’t get your hopes up.
Long term, it’s possible that something like what happens over the next few months could have an impact but this is very arm-chair psychology-y and fortune telling. The Great Recession had a massive psychological impact on Gen-X and Gen-Z, basically my age folks and those younger than us. That pushed some to protest and live on the streets of NY, and others to leave the finance industry for the tech industry. The tech industry is also on the edge with all the biggest tech companies announcing layoffs, so it is possible that folks graduating from HS or college now or over the next few years will be so pissed off with these industries that they look for something else. That could be Cannabis and those folks could help to push forward real reform. Or they’ll all work on micro startups with ChatGPT and its other AI breathers. I guess we’ll see.