Cannabis associations look set to face uphill battle for local banking

Malta’s newly regulated cannabis associations look set to struggle to fulfill their local banking needs, as the country’s notoriously brittle banks may refuse to engage with organisations in the sector.

The issue was raised by disgraced former Prime Minister Joseph Muscat over the weekend, in an interview with LovinMalta.

Dr Muscat praised the island’s cannabis regulation, but warned that a sticking point remains, in the form of a lack of consideration for local banks, that “will still not back anyone that touches the industry, so [cannabis] will continue to be mostly a cash -based industry, and that will impinge on its legitimacy”

This, he said, is the only “real sore point” in the new liberalisation.

Over the past years, the risk appetite of Malta’s banks has been a major source of contention, with gaming company bank accounts being closed and a refusal to accept crypto clients due to a de-risking exercise at BOV. Malta’s banks have also turned down local medical cannabis companies, so, it seems, especially in this grey listed environment, that cannabis associations have a steep, uphill battle to receive local banking services.  

BOV and HSBC on Cannabis Associations 

In accordance with the new law, only cannabis associations can legally sell the product to a limited number of consumers, and such associations must be formed on a non-profit basis. 

Asked whether non-profit cannabis associations could fit the bank’s risk appetite and therefore onboard them as clients, BOV was evasive. A spokesperson told BusinessNow.mt: 

“The bank will evaluate each potential customer and requests to open accounts in line with the Bank’s Customer Acceptance Policy and Risk Appetite Framework prevalent at the time.”

It did not respond to a follow up question confirming whether the associations will be permitted to open bank accounts.

BOV is by no means alone, and another large local bank, HSBC Malta, provided a similar response when asked the same questions:

“HSBC Malta has a set risk appetite for the diverse sectors of the economy; these guidelines and criteria are taken into consideration when evaluating new customer relationships on a case by case basis,” a bank spokesperson said.

Medical cannabis companies face similar woes 

The local medical cannabis company is well versed in the problems of banking in Malta. Former BOV CEO Mario Mallia, in 2019, detailed that in line with regulators’ demands and a lack of expertise within the banks, it would not be accepting servicing medical cannabis companies as the industry falls outside of its risk appetite.

The former CEO added that the bank did not have the necessary skills to understand the business, and that as such the bank could not take the risk of facilitating it.

“If the Government is promoting it, it does not mean that the banks have the risk appetite to accommodate the industry,” he said.

Malta’s recreational cannabis law was introduced last year

Last December, Malta agreed to a bill that would see the possession of up to seven grams of cannabis decriminalised, amongst other measures.

While cultivation was also permitted under the new rules, for those unwilling or unable to grow their own plants, the establishment of so-called cannabis associations to provide the substance to a limited number of members, was also provided for.

These associations will be rather tightly restricted, only able to accept a certain number of members, and will need to operate on a non-profit basis.

The Government body regulating them, the Authority on the Responsible Use of Cannabis, was set up in January, and has not yet begun to issue permits for cannabis associations to act, meaning that cannabis associations have not yet been forced to begin the process of establishing a bank account.

Should they face any problems, they are likely to face them without the support of the Government.

Not up to Government to dictate practices of commercial banks 

Speaking to BusinessNow.mt, Minister for Reforms, Owen Bonnici, whose department shepherded the rule through the consultation process into implementation, said:

“Other than the requirements in the law, which include a non-profit operation, the financial model for collective cultivation is left to the organisations themselves.”

He also insisted that it is not the function of the new drugs law to encroach upon the commercial decisions of banks.

Should associations fail to set up local bank accounts, they will be forced, like many of the country’s medical cannabis companies, to bank with foreign institutions – somewhat anachronistically for non-profits.