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Cannabis Investors and the Federal Reserve

Is the Fed Getting into the Pot Business?

Written by Jeff Siegel
Posted September 12, 2016 at 8:00PM

John Williams...

You may not know his name, but this San Francisco Fed president is the weak link in a chain of very dangerous people who toy with our economic freedom like a bunch of drunken kittens fighting over a ball of yarn.

While Fed Chair Janet Yellen continues to beat the drum of “no strategy shifts,” Williams has been very vocal about his displeasure with the Fed’s current approach to monetary policy.

Following a speech delivered to the Hayek Group in Nevada, Williams said:

Targeting low inflation, as the Fed and many other central banks currently do, simply will not work well in a world where economic growth and interest rates are likely to be persistently lower than they were in the era before the Great Recession.

Williams’ comments were welcomed by those who embrace fiscal responsibility, but pretty much ignored by Fed apologists.

Interestingly, however, Williams’ comments regarding monetary policy took a backseat to his comments on cannabis.

Is the Fed Smoking Weed?

The central bank of the United States, which controls the nation’s money supply, is involved in the cannabis business, but not in a good way.

As my colleague Geoffrey Pike wrote earlier this year, the Fed’s control can be illustrated in a case in the U.S. District Court in Colorado that heard arguments debating the precedent of state versus federal laws.

You see, earlier this year, Fourth Corner Credit Union sued the Federal Reserve Bank of Kansas City because the Fed denied Fourth Corner’s application for a master account, which would be used for the banking needs of businesses in the cannabis industry.

A master account provides banks and financial institutions with a nine-digit routing number that enables the institution to participate in the Fed’s check clearing system. Without it, businesses are essentially forced to do much or all of their business in cash.

But the central bank will not approve a master account due to federal laws against cannabis in commerce. This, despite state laws that have legalized cannabis for both medical and recreational purposes.

The central bank actually argued that allowing a master account for the cannabis industry would be similar in nature to approving a master account for a credit union handling the finances for companies involved in illegal trading with North Korea.

Are these guys smoking weed?

Yeah, these are the folks that control the nation’s money supply.

Fortunately, clearer heads will soon prevail.

Unsustainable Tension

While attending that meeting with the Hayek Group, Williams made a comment that I believe indicates the first crack in the dam that’s holding back cannabis companies from using banking services used by nearly every other business today.

This is a big issue for this country. Pot-related businesses don’t have access to the same bank-run electronic payment systems that are increasingly making transactions safer for most other U.S. businesses.

Williams also added that as more and more states legalize cannabis, banks are facing unsustainable tension that needs to be resolved by Congress.

Whether or not that will happen in the near term remains to be seen.

But the mere fact that a high-ranking Fed official even commented on this issue shows that it’s on their radar. And how could it not be?

In 2015, legal cannabis sales in the U.S. soared to $5.7 billion. This year, that number is expected to reach $7.1 billion.

Now consider what’s going to happen if when California voters approve the legalization of recreational cannabis this year.

The Golden State alone, according to ArcView Market Research, could generate $6.6 billion from cannabis sales by 2018.

Folks, by 2020, legal cannabis sales in the U.S. could actually reach in excess of $44 billion.

Don’t think for a second that the Fed wants $44 billion in loose cash being exchanged throughout the entire country. And rest assured, whether it’s in the media or behind closed doors, the Fed is giving a few winks and nods to Washington.

The genie is out of the bottle. Legalization is well underway, and nothing’s going to stop it.

We’re NOT Going Back

The federal government is not going to intervene the way it used to.

State governments are making too much money, and more than half of the voting public is in favor of full legalization.

And although just a couple of years ago, cannabis was still considered a “risky” investment because of federal laws, today it’s no more risky than investing in retail, energy, or finance.

And mark my words...

While John Williams’ words regarding cannabis and banking went largely unnoticed, it was absolutely an early indicator that it won’t be much longer before cannabis businesses start getting access to regular banking services. And when that happens, the growth we’ve already seen in the cannabis space will look like amateur hour.

To a new way of life and a new generation of wealth...

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Jeff Siegel

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Jeff is the founder and managing editor of Green Chip Stocks, a private investment community that capitalizes on opportunities in alternative energy, organic food markets, legal cannabis, and socially-responsible investing. He has been a featured guest on Fox, CNBC, and Bloomberg Asia, and is the author of the best-selling book, Investing in Renewable Energy: Making Money on Green Chip Stocks. For more on Jeff, go to his editor's page.

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