SVB doesn't appear to be a major account holder for cannabis companies.
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The surprise failure on Friday of Silicon Valley Bank – the biggest U.S. bank to fail since 2008 has some marijuana finance experts warning that there are almost certain to be ripple effects for cannabis companies, even if the cannabis sector doesn’t take a direct hit from SVB going under.
Although SVB doesn’t appear to be a major repository of cannabis industry funds, it did bank at least some ancillary marijuana companies, said Morgan Paxhia, principal at San Francisco-based Poseidon.
And, Paxhia said, he believes the SVB failure is the tip of a financial iceberg, but the real bottom line for cannabis executives still isn’t clear yet. “My takeaway is there are macro issues here. We’ve been dealing with a two-year bear market, recessionary kind of situation in our industry, but it feels like the rest of the world is starting to wake up,” Paxhia said.
“Think about what’s happened over the last few weeks: We’ve seen personal credit card balances hit new all-time highs, we’ve seen auto loan defaults picking up, we’ve seen commercial loans defaulting. You’re starting to see weakness in the system.” Paxhia pointed to the failure Friday of Signature Bank, which followed SVB’s demise. Then on Monday, news broke that California bank First Republic appears to be on the brink of following Signature and SVB.
In addition, banking firm Charles Schwab took a major stock hit Monday due to investor fears over SVB and Signature.
“It’s already far beyond (SVB), and I think it’s too cute to say it’s contained,” Paxhia said. “I don’t think we’re done. We’re not going to know for a while.”
But it’s quite possible the situation could worsen and result in some mid-level banks also failing, he said. From what he’s seen so far, Paxhia thinks small credit unions are still on solid footing, which to him is a relief because that’s a source of financial services for a lot of the marijuana sector.
The real concern is the big picture uncertainty about the economy and the hea