On the cusp of receiving a coveted new licence to grow medical marijuana, Dan LaFlamme went looking for a bank to represent his family-owned business and encountered the kind of rejection those in the burgeoning industry have gotten used to.
Two of them turned Canna Farms away before a third finally agreed. It was early 2014 and the company, based in Hope, B.C., had secured the fifth licence from Health Canada to produce medical cannabis for its new commercial mail-order system.
"I think it was just so new, [the banks] didn't know [it was legal]," Mr. LaFlamme said.
For those seeking lawful ways to profit from marijuana, it only takes one uncomfortable bank employee to quash access to the financial tools essential to running a successful business, such as a chequing account for payroll and e-transfers for online ordering, according to James Poelzer, chief operating officer of aspiring licensee Agrima Botanicals.
"Legalization is on the horizon and the ultimate goal of that is to dry up the black market," Mr. Poelzer said. "And the only way we're going to be able to do that is by having these infrastructures in place that other businesses are allowed to use."
Canadian pot entrepreneurs got a boost last month with the election of Justin Trudeau. The Liberals promise to legalize marijuana, and one analyst expects that momentum behind the policy will take some of the starch out of the big banks' conservative approach to such businesses.
Predictions are difficult because so much of the current cannabis trade is underground, but Simon Fraser University economics professor Stephen Easton has estimated legalization could bring in $3-billion a year in tax revenue alone. In contrast, alcohol sales generated about $7.7-billion in total for both provincial and federal governments in 2004, according to a University of Victoria study. A 2013 study by Physicians for a Smoke-Free Canada estimated that annual tobacco sales bring about $7-billion into provincial and federal coffers.
When the Conservative federal government launched the current medical system last year, it projected annual sales of $1.3-billion to 450,000 patients within a decade. This past August, Health Canada recorded fewer than 18,000 patients buying 600 kilograms of medical marijuana. At the average price of $7.95 per gram, only $4.8-million worth of pot was sold legally in Canada during that month.
None of Canada's largest banks would tell The Globe and Mail whether they serve the two dozen commercial pot growers licensed under the federal medical marijuana regulations or the hundreds of aspiring growers, such as Agrima, awaiting final security clearances and site inspections from Health Canada.
The Globe has confirmed through talking to various licensed growers that at least three of the big five banks do business with the new industry, which was created when the Tories outlawed home growing in favour of industrial-scale producers that are strictly regulated.
Khurram Malik, an analyst with Toronto-based Jacob Securities, an investment bank that services the sector, says bankers still view cannabis with caution. But that will change as legislation appears and the challenges facing their resource-industry clients continue to nudge the banks toward accepting new business, Mr. Malik said.
"You would think with the oil and gas falling off the rails and mining falling off the rails, they would be looking at new places to go," Mr. Malik said. "A lot of institutional investors will not touch it because it makes them nervous from an optics standpoint."
Still, in terms of financial services, these licensed growers are better off than their American counterparts operating in jurisdictions that have legalized all pot sales. Companies in places such as Colorado must handle millions of dollars in cash because, though legal in that state, federal drug laws prohibit them from using banks.
Canadian producers have received cease-and-desist letters from financial transaction processor PayPal, because it is U.S.-based and subject to those same laws. But they are allowed to process credit card transactions from patients using Moneris, which is a joint investment between BMO and RBC.
If the larger banks are reluctant to embrace the industry, many credit unions have stepped in to help finance and service the legal marijuana sector, as well as the scores of illegal dispensaries that bloomed first in B.C. and now dot the country. On the more permissive West Coast, at least two credit unions say they have served a handful of Vancouver's more than 100 pot shops for a number of years and have received no flak from any government agency.
"The game is an awkward one insofar as the province and some health authorities have intervened and said 'this is a health-related issue,'" said Ross Gentleman, general manager of Vancouver's single-branch CCEC Credit Union. "It seems that, inevitably, be it bankers; or medicinal resource suppliers; or landlords; or any number of other players who are involved are going to be called upon to step and say 'yes, we do business in this context.' "
CCEC serves half a dozen dispensaries that are run by "people that are of good character" who were turned away from larger banks, Mr. Gentleman said. He added "there have been no issues" and said every transaction is reported to Canada's financial intelligence agency, as required under federal banking rules. Vancity, Canada's biggest credit union, confirmed that it has accounts with three dispensaries, noting there is "considerable public support" for stores that offer a "safe healing environment for those in need."
The Conservative federal government vehemently opposed the medical and recreational use of pot. But the Office of the Superintendent of Financial Institutions, the independent agency that regulates Canada's banks, said before the October federal election that it had not issued any directives or guidance related to marijuana dispensaries.
Christine Duhaime, a lawyer and anti-money-laundering expert, said Canadian financial institutions are well within their right to "debank" any client they deem too risky, as repeated court cases have affirmed.
"In some way it's proceeds of crime," she said of financial institutions serving the dispensaries, which are violating federal drug laws by both illegally procuring cannabis products and then selling them to consumers. "The bank, if they accept the money, is going to be viewed as having participated in laundering it."
Ms. Duhaime said it was hypocritical for banks to accept bags of cash from clients such as strip clubs and escort agencies, which are continually linked to prostitution by law enforcement.
Editor's note: An earlier version of this story incorrectly said the Office of the Superintendent of Financial Institutions regulates credit unions. This has been corrected.