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How Banks Are Transforming Canada's Cannabis Industry

DAVID GREENE, HOST:

Marijuana is now legal in one form or another in 23 U.S. states. But possessing and selling it is still a federal crime. That's one big reason the banking industry has largely ignored this emerging market. Steve Henn from NPR's Planet Money team wanted to explore what the business would look like without a banking boycott.

STEVE HENN, BYLINE: A couple of weeks ago, I found myself in this tiny, little airplane. It was so small, my head hit the ceiling.

UNIDENTIFIED MAN: Good morning, folks. Welcome aboard. Sorry about the delay today. We're going to try to get deiced here just as quick as we can and get out of here.

HENN: I was on this plane because I was headed north to Canada. I was flying with Brendan Kennedy. Now, imagine if Alex P. Keaton woke up one morning and decided that he was going to devote the rest of his life to creating a marijuana industry. That is Kennedy. He's a Yale School of Management grad who runs a private equity company that's devoted to buying and building marijuana businesses. And together we were headed north to see his latest project in Nanaimo, British Columbia. He says Nanaimo is a pot producer's paradise.

BRENDAN KENNEDY: Amazing. You know, one of the reasons we picked it was because of the support of the local community, the local city council, the local mayor and the local chamber of commerce. They have a group here called the Nanaimo Economic Development Corporation.

HENN: Nanaimo has just about 80,000 people. Its economy was dominated by lumber and fishing, but recently it created a special zoned area for marijuana businesses. The biggest draw, though, is that medical marijuana is completely legal here in Canada, and Kennedy is building his business with the help of the banking industry.

KENNEDY: I've been to cannabis grows around the world, and most of them have a safe in their building. And if you go to, you know - I've been to the dispensaries in California where there is a million dollars in a room, and that's really uncomfortable. You know, we don't have any of those problems in Canada.

HENN: Unlike marijuana businesses in the U.S., Kennedy has a bank account and he can accept credit cards. But that is just the beginning of how banking has transformed this industry here. Kennedy and his competitors can also borrow millions. And as we pull up to his project, you can see what that means.

KENNEDY: This is the main production facility here. Canadian flag - there's a 10-foot barbed wire fence.

HENN: To me, Kennedy's $25 million grow house looks a lot like a Silicon Valley server farm. It's this huge, nondescript building, basically a warehouse, that's sucking down enormous amounts of electricity.

KENNEDY: This is a transformer that, you know, could power a small neighborhood.

HENN: Inside there are more than a hundred workers. Most of them are wearing color-coded, sterile bunny suits, and they're scurrying from room to room. The smell is intense.

Holy cow. Wow.

KENNEDY: So this is...

HENN: (Laughter).

KENNEDY: ...This is a room that's about a week away from harvest.

HENN: This room is, like, 50-feet deep and 40-feet long. The light is just - it's really pretty blinding.

KENNEDY: You're right. It's bright. Our lighting engineers will tell you that this room is about 15 percent brighter than the equator at noon.

HENN: The value of the cannabis crop in this room alone is probably worth more than $100,000. And there are dozens of other rooms like this. With the help of banks and lending companies, Kennedy was able to build all of this in less than a year.

Now, to see what the marijuana industry looks like without modern banking, all you have to do is travel a couple dozen miles south, back into the U.S. Nate Loving sells weed in a legal retail shop in Washington. He says doing business without a bank is a hassle.

NATE LOVING: I've got to go get a money order for $130 for papers.

HENN: Buying inventory is an all-cash deal.

LOVING: A producer-processor brings an order. We're going to count the cash out, and then they got to leave here with a bunch of 20s. I'd like to be able to cut them a check.

HENN: And forget about small business loans. Loving raised the cash for his shop by scraping together $90,000 from friends and family. Just to the north, Kennedy's negotiating a $100,000 million loan with investment banks. He's planning to open another grow house next to his first. This one will be five to six times larger than the one he has now. Steve Henn, NPR News. Transcript provided by NPR, Copyright NPR.