Voice of the Modern Manufacturing Economy Since 2013

Service companies contemplate a cannabis future as Farm Bill falls flat

By Bart Taylor April 22, 2019, 07:50 am MDT

Many thought the national legalization of hemp cannabis in the 2018 Farm Bill would usher in a new era of collaboration and industry development. Since then, the news has been confusing to say the least, and for services providers, downright disappointing:

  • States were asked to submit follow-up plans to the federal government, with approval providing a final free-and-clear signal for the hemp cannabis industry and businesses that support them to operate legally and without fear of retribution or jeopardy. But the USDA, the federal agency responsible for managing the process, has since let states know that they're unprepared to accept the plans or provide guidance as to what should even be in the plans.
  • The Trump administration is ignoring the Farm Bill altogether, announcing last week that employment in the sector may be a sign that even legal immigrants "'may lack good moral character if found to have violated federal law, even if such activity has been decriminalized under applicable state laws,' the [U.S. Citizenship and Immigration Services] guidance states." The guidance makes no distinction between hemp or marijuana, or provisions in the Farm Bill that profoundly change the sector.
  • Service providers continue to cancel cannabis business associated with hemp-derived CBD companies. Nor has the the Farm Bill led a parade of name service brands into the market with new programs to support cannabis companies or others that operate legally in market but don't touch plant or product.

That's not to say service brands aren't watching cannabis closely. Each brand will likely have a different path depending on their operational footprint, how they're structured or aligned culturally with cannabis. But it's a safe bet most every brand is formulating a plan that will lead, eventually, to a cannabis strategy.

How can they not? Hemp CBD companies are thriving, driven by strong consumer demand. The realities of the market may force their hand.

Consider banking in Denver.

If Denver isn't the most over-banked city in the nation, it's close. It's a growth market regardless of the cannabis opportunity and today, the quality and quantity of the banking teams serving Denver and Front Range businesses is extraordinary. Twenty-five years ago a small number of brands like Wells Fargo and Chase (formerly Bank One) rode herd over business banking here. Ten years later, CoBiz Bank, upstart brands like UMB and Citywide, and regional stalwarts like Alpine and FirstBank had carved out significant commercial portfolios.

Today, top to bottom, the sector is home to a world-class array of banking brands targeting the commercial sector. Bank of America and PNC are among recent entrants to business banking along with BOK Financial (formerly CoBiz Bank). Regional players like MidFirst have strengthened through acquisition, and credit unions now dot the landscape. Loan options, including those from Colorado Lending Source that target certain types of borrowers, are multiplying.

How, then, to grow in a market saturated with great people and more banking options than ever?

Developing targeted strategies and service offerings for vertical markets or sectors, for one. Manufacturing, across the multiple industry palette that we report on, is an example. Cannabis is part of that mix, and it's becoming too large -- and, with passage of the Farm Bill, too legal -- to ignore. Hemp-derived CBD companies are operating legal businesses and selling products across state lines. CBD demand is creating cannabis unicorns by the dozens. Banks measure success by deposits and loans. In a competitive market, with little or penetration into the cannabis sector, banks not participating in the rush may fall behind, especially when the economy cools.

Given that most brands are not banking cannabis, it's still a relatively even playing field, not only for banks but insurers, accounting firms, and other service providers. No one, really, has lost by being last.

What happens next seems straightforward enough. Service companies are bound to invest in due diligence to identify the most risk-averse cannabis companies to sell and support. The less risky the client, the less chance for a public setback that compromises decades of sector leadership, of community involvement, of brand equity. As other market signals flash green, service companies will only be more emboldened.

It's a dance that in so many ways is as interesting, if not as existential, as the two-step that cannabis companies themselves have had to perfect on the way to becoming mainstream businesses in states that support cannabis.

And the music is just starting.

Bart Taylor is publisher of CompanyWeek. Contact him at btaylor@companyweek.com.

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