Members of Ontario’s emerging marijuana industry have been left wondering why two of Canada’s biggest banks, RBC and Scotiabank, are no longer offering bank accounts to firms associated with the legal pharmaceutical weed industry.

“It’s a bit of a surprise,” said Jordan Sinclair, director of communications for Smiths Falls Ont.-based Tweed Inc., the largest producer of medical marijuana in Canada. “As we’re making these steps to become more credible as a business, it doesn’t make sense to have their reaction to you move in the other direction.”

In a recent press release, RBC stated that it reviews client relationships on the basis of several factors to balance risks and benefits in offering them banking services. “For business banking clients, including those engaged in the production and distribution of medical marijuana, these factors include the nature of their business, their financial position and creditworthiness as well as other factors relevant to their specific business.”

Scotiabank spokesperson Rick Roth said in an email that the bank manages risk on a case-to-case basis with its business clients and “should there be significant change to (marijuana) industry legislation or regulation, we will revisit our risk assessment and make risk policy adjustments if warranted.”

“It’s stigma and it’s prejudice,” said Paul Lewin, a Toronto-based lawyer who works with the National Organization for the Reform of Marijuana Laws in Canada. “If their lawyers can’t figure it out that these (businesses) are legal it’s absolutely baffling.”

According to a report released in April by Toronto-based investment firm Mackie Research Capital Corporation, it’s estimated that the Canadian marijuana market could exceed $2.5 billion in 2020 provided full legalization. If marijuana is not fully legalized, the report predicts the market could still exceed $1.1 billion.

Tweed Inc. banked with RBC until about six months ago, when company managers received a letter from the bank saying the company’s account would be cancelled. The cancellation notice was issued even though Tweed had complied with all the federal regulations to be considered a legal business.

“We listed on the TSX Venture Exchange for two years,” says Sinclair. “Then we were on the big board, the same stock exchange that RBC is on.” Tweed had no choice but to find an alternative banking solution and now does its banking with Alterna Savings, headquartered in Ottawa.

Another medical marijuana producer in Ontario, who spoke on condition of anonymity to keep his business dealings with vendors and suppliers private, says he has had similar difficulties while banking with TD. His company, according to him, had no serious problems with a TD small business account set up three years ago, other than not being granted a line of credit despite having sufficient funds.

About a year ago, things began to change. TD told the producer that all of TD’s small to medium-sized business accounts from the marijuana industry were being shut down as a result of a blanket policy from corporate headquarters.

According to the source, his company was told that despite the hostile move by TD, there was still a chance to apply for a corporate account. But after a complicated process to get that set up, cheques were soon bouncing. The bank then informed the company that its accounts had been closed and that “there’s a cashier’s cheque waiting at a till for you to pick up,” according to the source.

The source said his company moved its account to another credit union where managers were “very happy to take our money and work with us on all things from credit facilities to you name it.”

Throughout this experience with TD, the source said, his company never got a clear rationale from TD about why it stopped banking with him. He suspects that TD “couldn’t dig into the constantly changing regulations — between MMAR (Marihuana Medical Access Regulations), MMPR (Marihuana for Medical Purposes Regulations) to ACMPR (Access to Cannabis for Medical Purposes Regulations) to what Vancouver was doing licensing municipally, and if that was legal.”

He believes that because these banks are confused about the various regulations and the differences between legal medical marijuana companies and illegal dispensaries they’ve decided to back out all together so they won’t become embroiled in legal troubles.

When asked about its position on banking with legitimate players in the marijuana industry, TD declined to comment.

For Lewin, it’s shocking for large banks to turn down business from large medical marijuana companies like Tweed.

“Canopy (Tweed’s parent company) is complying with an untold number of regulations,” he said. “They’re doing everything legal; they’re doing everything that they’re supposed to. To have a big company like this told that the bank won’t deal with them is ridiculous.”

P.M. Vasudev, a law professor at the University of Ottawa, says that there are three different factors that the banks would look at when assessing the risks of doing business with companies in the marijuana industry. The first is the protection of claims against them in the future by being associated with any illegal marijuana businesses.

The second is reputation, which he says could be seen equally as important as the risk of future claims because a bank’s reputation can be damaged by working with illegal businesses like dispensaries.

The third factor is the risk of unwittingly becoming involved in international money laundering because “drug trafficking is a huge part of money laundering.”

However Vasudev points out that there are still risks that a bank deals with for other industries. “There’s risk in financing automobiles,” he explains. “People can bash their cars and get into accidents.”

Ronan Levy, chief corporate officer of Ottawa-based Canadian Cannabis Clinics, says he knows of a number of legitimate marijuana businesses in the country that are having problems with banking.

He says his company, which focuses on determining if a patient is suitable to take medical marijuana for treatment, banks with TD. He believes Canadian Cannabis Clinics is in a safe zone with banks because they don’t directly provide marijuana to their patients at any of their 19 clinics in Ontario and Alberta. Patients who are qualified for medical marijuana must order from a licensed producer.

Lewin says he’s confident the problems banks are having with some companies won’t affect the Trudeau government’s plan to introduce legislation legalizing marijuana in Canada.

“The banks are just firmly at the very back of the pack,” he says. “They are behind everybody in terms of catching up with the law and society.”

This article appears thanks to a partnership between iPolitics and Carleton University’s Centretown News program. Through the partnership, the best in Carleton’s journalism programs get the opportunity to work in a Parliament Hill bureau while iPolitics readers receive local news stories important to Ottawa’s politicos.