Experts Warn of Ripple Effects for Cannabis Industry Following Silicon Valley Bank’s Failure
LOS ANGELES- Silicon Valley Bank’s unexpected collapse last Friday is sending ripples of concern through the cannabis finance industry, as experts warn that even if the cannabis sector itself remains untouched, there will still be repercussions. Despite not being a primary player in the cannabis industry, the bank had banked some ancillary marijuana companies, according to Morgan Paxhia, principal at San Francisco-based Poseidon. He believes that the bank’s failure is just the tip of the financial iceberg, and while the bottom line for cannabis executives is still unclear, there are macroeconomic issues at play. Paxhia cites the fact that the global economy is starting to weaken, pointing to a two-year bear market and a recessionary environment in the industry, and notes that weakness in the system is starting to show.
Last Friday’s failure of Signature Bank was followed by news on Monday that California bank First Republic appears to be on the brink of collapsing, while Charles Schwab took a major stock hit due to investor fears over the failure of Silicon Valley Bank and Signature. While Paxhia thinks small credit unions are still on solid footing, he believes it’s possible that mid-level banks may also fail. There’s a real concern about the health of financial institutions and the uncertainty in the economy as a whole. The situation is likely to cause investors and financial institutions to clamp down in the near-term, making fundraising even more challenging.
Bryan Miller, executive investment director at Florida-based Rair Capital, believes the situation will make life tougher for smaller operators, while bigger companies are more likely to weather the storm. The companies at the top of the venture-backed ecosystem will probably be okay, but the ones near the bottom may struggle more. Miller emphasizes that capital has not been choked off completely, as his firm works with non-bank lenders with a cannabis focus. The real question remains whether the US financial system will experience more pain, or if the problem can be contained. In any case, cannabis executives should keep a close eye on the larger situation to adapt accordingly.
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