The legalization of recreational marijuana in Canada will provide more opportunities for financial institutions to sell their services to industry participants the fast growing cannabis sector, suggests a report published Tuesday from Toronto-based DBRS Ltd.
Financing activity had previously been limited to the medical cannabis sector, but is now likely to expand as the demand for recreational grows.
“With the legalization of cannabis, the industry expansion will require more extensive financial services: Not only will the scale increase, but the nature and extent of production and distribution will also expand,” DBRS says in the report. “This suggests additional needs for investment, working capital, payments processing and other services.”
To date, the appetite for lending to the cannabis sector has been “very limited,” DBRS says, with only a small number of firms providing limited services. Most producers have relied on private capital to launch their operations.
“With the legalization of cannabis for recreational use expanding demand, new participants will enter the industry at different stages of the supply chain. New participants may include wholesale distributors, transportation companies, packaging and marketing companies, retail stores, cafes and cosmetics companies,” the report says. “Thus, there will be an increased need for financial services as the distribution chain expands.”
Overall, the report concludes: “… financial institutions should experience a healthy expansion of funding for the different players in the distribution chain.”