This morning, Representative Troy A. Carter, Sr. (D-LA) and Representative Guy Reschenthaler (R-PA) introduced a bipartisan bill called The Capital Lending and Investment for Marijuana Businesses (CLIMB) Act which, if passed and signed into law, could give a significant boost to the struggling cannabis industry. Cannabis stocks, which increased significantly after the 2020 election and peaked in February 2021, have lately been trading at or near all-time lows as the industry struggles with growing pains, a lack of access to institutional capital, difficulty in obtaining banking and other standard business services, stubbornly high taxes due to 280E and state and local cannabis taxes, and surging inflation. The Cannabis industry could use some encouraging news, and it could come in the form of the CLIMB Act.
What is the CLIMB Act?
The CLIMB Act has as its purpose “to permit access to community development, small business, minority development and any other public or private financial capital sources for investment in and financing of cannabis-related legitimate businesses,” and the first substantive portion of the bill prohibits federal agencies from taking action against a list of service providers to the industry, including financial service providers. The purpose of this provision is to encourage service providers, including financial services companies, insurance companies, law and accounting firms and consulting companies, to welcome clients from the industry. In the press release accompanying the bill, Saphira Galoob, Executive Director of the National Cannabis Roundtable, said “the CLIMB Act is critical because it provides state legal American businesses with traditional funding and support mechanisms for this emerging industry, which other domestic industries currently enjoy. The more financing sources available to cannabis businesses the better, particularly for entrepreneurs, small and minority-owned businesses that may otherwise face challenges in obtaining access to capital.”
In the second substantive section, the CLIMB Act provides a safe harbor for national securities exchanges like the New York Stock Exchange and Nasdaq and other securities market participants to list state legal cannabis operators that currently cannot list in the United States. This would be a significant development for the industry. Because cannabis companies cannot list on US exchanges, they generally list on the Canadian Securities Exchange and trade only on the OTC markets in the US if at all, which significantly limits institutional support and contributes to increased volatility. The CLIMB Act, if passed, would provide access to U.S. exchanges for qualifying companies, would significantly increase liquidity from institutional investors providing market support and decreased volatility, and would likely provide buoyancy to the entire industry, even smaller operators. Smaller operators all seek either to grow with investment capital to become larger operators or to sell themselves to established larger operators. With cannabis equities trading at or near all-time lows, stronger players have been able to turn to debt for their capital needs while smaller players have had to struggle. Supporting the equity capital markets in such a significant way will inevitably provide a significant boost to the entire industry, including the smaller companies that have been struggling as of late.