© Financial Times

This is an audio transcript of the FT News Briefing podcast episode: Banking on cannabis

Marc Filippino
Good morning from the Financial Times. Today is Thursday, September 2nd, and this is your FT News Briefing.

[MUSIC PLAYING]

YouTube’s music streaming services hits a milestone and the trucking industry is pulling out all the stops to plug its driver shortage. Plus, we’ll talk to our US banking editor, Josh Franklin, about a growing but underbanked industry.

Joshua Franklin
A lot of companies in cannabis businesses really only took money in cash, were unable to process electronic payments. So they stored the cash in-house and that elevated the risk of theft and burglaries.

Marc Filippino
I’m Marc Filippino and here’s the news you need to start your day.

[MUSIC PLAYING]

The music streaming industry has been dominated by a few big names. Apple, Spotify, maybe even Amazon. Now there’s another name muscling in — YouTube. YouTube has announced that its music streaming services reached 50 million paid subscribers, the sharp jump from last year and also a milestone for YouTube’s owner, Google. These latest subscriber numbers come after failed attempts to get a footing in the market, attempts like YouTube Red. Experts say YouTube Music is attracting users in emerging markets and also younger audiences. They say it’s becoming to Gen Z what Spotify was to millennials half a decade ago.

[MUSIC PLAYING]

The FT has been reporting on a shortage of truckers in the UK because of Covid. Well, in the US, the number of truckers has been declining for years and Covid just made that pre-existing shortage all the more excruciating.

Steff Chavez
But now the truck companies are scrambling for new drivers and undertaking recruiting efforts that they’ve never undertaken before and they’re struggling to get people to bite.

Marc Filippino
That’s the FT’s Steff Chavez. She says some US trucking companies are now turning to the government for help bringing in more foreign drivers.

Steff Chavez
There seems to be the small and potentially growing group of truck driving companies that wants the government to expedite the issuance of EB3 and H2B visas, which are employment-based visas. American trucking companies have been sourcing foreign drivers using those visas for a long time. But the pandemic kind of froze or slowed down that process for a lot of these companies. So, yeah, I was talking to the chair of the board of the Oregon Trucking Associations and he said he’s trying to round up a group of about, you know, a dozen companies or so to go to Washington, DC and try to meet with lawmakers to try to advocate for getting some help expediting these visas. And they also wanna add truck drivers to the Department of Labor’s Schedule A list which is basically a list of jobs that the government has deemed there are not enough qualified individuals in the US to complete the job.

Marc Filippino
Steff, what have government officials said to this?

Steff Chavez
Yeah, so one one executive of a truck driving company told me that he’s been meeting really, or trying to meet, you know, pretty aggressively with lawmakers at local, state and federal levels, and that at one meeting, a government official asked him basically like, do you really want me to try and help bring foreign workers into the US faster when there are still so many people unemployed here in the US because of the pandemic? And the executive told me that, yes, that’s absolutely what I want because you know I’m not getting any bites here. And so he suspects that there’s a bit of a an optics problem, right? That it’s just he was he kept saying nobody wants to talk about this.

Marc Filippino
That’s Steff Chavez. She’s a reporter for the FT and FT Specialist.

[MUSIC PLAYING]

The cannabis industry in the US is flourishing, 18 states have now legalised weed. More than half allow it for medical use. The industry is now worth about 20 billion dollars by one estimate, and that’s without having access to conventional banking. The FT’s Josh Franklin joins me to talk more about how cannabis suppliers have been managing their money. Hey, Josh.

Joshua Franklin
Hey.

Marc Filippino
Josh. Why can’t cannabis companies use regular banks?

Joshua Franklin
So cannabis companies are caught in a gap between state and federal law. So despite it being legal at the state level and in a number of states now, over the last 10 years, most US banks operate under federal law. So they deem the compliance risk of banking these cannabis companies and local markets as just too great for them to step into the space. So this means cannabis companies, by and large, struggle to have access to basic financial services like making deposits, opening bank accounts, processing electronic payments and taking out loans.

Marc Filippino
Then how have cannabis companies been doing business and how have they financed their growth without banks?

Joshua Franklin
It’s been a bit of a journey for a lot of these companies. So initially we saw the first wave of legal recreational cannabis markets come online starting in 2012. And really those companies were either self-funded, took money from friends and family, or there was a kind of niche group of investors that were willing to to get into the space. That’s kind of what they did for funding. But a lot of companies and cannabis businesses really only took money in cash, were unable to process electronic payments, couldn’t store the money. So they they stored the cash themselves in-house and that elevated the risk of theft and burglaries. So really wasn’t a great situation for them. Given the size of the market and this untapped need for banking services, there has been a number of companies that have seen the opportunity here to serve an underbanked market. So we have seen gradual progress. Now there are kind of these niche companies that have sprouted up to lend to cannabis companies, to facilitate local banks that want to try to bank cannabis companies by offering compliance services, offering companies armoured car cash pick-ups. So if you’re taking, you know, 95 per cent of your takings in cash, then that kind of gives them some certainty to transport it.

Marc Filippino
Is this working for companies? Are there disadvantages to having to use these specialised finance groups?

Joshua Franklin
So there’s been a ton of progress in terms of cannabis companies’ ability to get banked. But all of this comes at a price. You know, cannabis companies pay a lot more to borrow. They pay a lot more to to make deposits than a normal company in an industry where compliance issues aren’t quite as severe. And this is at a time of very low interest rates in the United States when a lot of companies have access to cheap money. Cannabis is one of the only industries where you have double digit borrowing costs and depending on the size, borrowing costs can be even in excess of 20 per cent per year interest payments.

Marc Filippino
You know, Josh, given the size of the industry, do banks see an opportunity here? Do they, do they want to get involved?

Joshua Franklin
Given the size of opportunity I think it’s an industry that banks would would love to serve. So US banks don’t want to be left behind there. But I think it’s still too small to take the risk now for a lot of banks to to step into the space. They are looking for any progress or new guidance at the federal level in the United States to give them comfort to go in. There are a couple of initiatives. There’s the so-called Safe Banking Act, which has been around in the House of Representatives for around about three years. It’s passed a couple of times with bipartisan support, but it’s kind of path in the Senate is, is unclear. Chuck Schumer, the Democratic Senate majority leader, has also proposed legalising cannabis at the federal level. Both of those initiatives would give banks greater comfort to bank the space. But also both of them it’s unclear when they’ll they’ll actually would be could enter into law.

Marc Filippino
Joshua Franklin is the FT’s US banking editor. Thanks, Josh.

Joshua Franklin
Thanks very much.

[MUSIC PLAYING]

Marc Filippino
And before we go, we have a correction to make. Yesterday, we reported on the fraud trial of Elizabeth Holmes. She’s the founder of the blood-testing company, Theranos. We implied that Theranos was a public company and in fact, Theranos was a private company. We regret the error.

You can read more on all of these stories on FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.

Copyright The Financial Times Limited 2024. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Follow the topics in this article

Comments