The economy is at a standstill, the employment rate is at a staggering 15%, and if you’re wondering if you should learn how to invest during a recession, the short answer is yes because this state of the market is most likely here to stay.
In fact, depending on how long it lasts, we could be headed for a depression.
While parts of the country are opening up, the economy at large will take a long time to reset. That sounds scary and these times have been hard on a lot of people, but the market is resilient and over time it will rebound.
In the meantime, there are actions we can take to secure our financial future.
Table of Contents
- Should You Invest During a Recession?
- Will There Be a Recession in 2020?
- How To Invest During A Recession
- Warning Signs to Avoid in a Company During a Recession
- Best Investments During A Recession
- Want to Learn More About How to Invest During a Recession?
Should You Invest During a Recession?
Investing during a recession can seem counter-cultural, but for Rule #1 investors and experts like Warren Buffet and Charlie Munger, there is no better time than an event such as this one to invest.
In this blog, I’ll outline my proven techniques for investing during a recession, so you can take tangible action now to develop an investment portfolio that can not only remain stable during a recession, but also has the potential to grow incrementally over the long term.
It’s worth saying, before we dive in, that you should always apply Rule #1 principles in investing, even with options – because if you wouldn’t want to own a company for 10 years, you shouldn’t own it for 10 minutes.
This blog is meant only for education and entertainment purposes- nothing I discuss is my advice or recommendation.
With that out of the way, let’s get started.
Will There Be a Recession in 2020?
Will there be a recession in 2020? The short answer is yes. In fact, we are already in a stock market recession that, to be frank, was long overdue.
We have been in a bull market for over a decade and the stock market has been extremely overpriced, so a recession has been imminent for years. While stock prices were wildly overvalued for some time, it took the Coronavirus to catalyze the market reset.
The stock market plummeted back in March when COVID hit the U.S. and has been volatile ever since.
While it has begun to climb back up in recent weeks, I don’t think we have seen the bottom of it. In fact, I think this is only the beginning.
As the crisis unfolds, the wear and tear of the Coronavirus and the stock market crash on the system will become more apparent. While we don’t know where we are headed, the impact will be more severe and far-reaching than we are experiencing at this moment.
With all the uncertainty, it can be difficult to know how to invest during a recession. So, I’ve outlined simple steps you can take to learn how to invest, what stocks to buy in a recession, and how to build a recession-proof portfolio for the future.
How To Invest During A Recession
Investing during a recession is not as scary as you may think. In fact, it’s far more manageable for people who have the cash, have done their research, are patient, and are paying attention.
If you follow these steps you can master investing during a recession with ease.
Step 1: Get Into Cash
In order to invest, you first have to have the funds to invest. This is why I highly encourage you to have cash on hand during a recession (or more ideally before the recession) so you can be ready to invest it when the time is right.
It’s more important now than ever to save and spend your money wisely. The more you save and the less you spend on luxury or non-essential items, the more cash you will have to invest.
Recessionary times and unemployment go hand-in-hand, as we have seen already in the short few months since this recession began. As companies experience the long-term effects of the pandemic and the resulting recession, it’s likely that the unemployment rate will continue to rise.
This is even more reason to have cash on hand and be frugal with your spending. If you can live on less, you will have more to invest.
Step 2: Find Recession-Proof Rule #1 Companies
Once you’ve established some cash, you can start to consider what to invest it in. To make safe investments during a recession, you’ll want to find “Rule #1 Companies”.
What is a Rule #1 company? It is a company that meets the 4 M’s of Rule #1 Investing:
- Meaning: The business has meaning to you and you understand the value it offers.
- Moat: The business has an impenetrable advantage over the competition that keeps them from having to compete on pricing.
- Management: The business is led by people with competence and integrity who have the capacity to lead the business through a recession.
- Margin of Safety: You can buy the business at a “sale” price that all but guarantees a 15% annual return over the next ten year period.
It is always important to purchase stocks that follow these Rule #1 principles, but especially when you are considering the best stocks to buy in a recession. Companies that do well in a recession will meet all of these criteria.
If a business checks off these 4 M’s for you, add it to your “watch list”. This is the list that you will refer to when you are ready to invest and when the price is right.
For more tips on how to pick companies for your watch list, check out this complete guide for finding stocks in 2020.
Step 3: Research, Research, Research
It is always important to research any company you plan to invest in, but especially important when investing during a recession.
So, what looks different during a recession? A company’s response to recessionary times is telling as to their success thereafter.
Here are a few things to focus on:
- Any news around the company to see how it plans to stay profitable during the recession.
- The recession’s impact on the company’s industry as a whole.
- The areas you’re interested in, passion about and spend money on, which we refer to as your 3 Circles of Competence.
Being able to understand the business you want to buy, how it is affected by the recession, and how it is responding is key to smart investing during a recession.
How will the business and industry be affected by a long-term economic downturn? As companies continue to experience the effects of closures, the significant decrease in household spending, and the reallocation of resources, we expect to see greater losses.
Profit losses affect us as investors and how we determine which businesses we want to own long-term—or not. This information helps us discover which companies will survive not only this recession, but potential future economic downturns as well and which will not.
Step 4: Invest in Your Education
If you are feeling in over your head, don’t worry. As I said, we haven’t seen the bottom of the stock market crash yet, so there is plenty of time to do your research before you get in the game.
But, put the pedal to the metal and educate yourself on investing now so you’re ready when the next dip hits.
And if you’re reading this, you’re already doing great. Continue to prepare yourself by monitoring the activities expert Investors, researching companies in your circle of competence, and participating in investment trainings – such as our Live 3-Day Virtual Investing Workshop. I’d love to see you there!
Step 5: Get Your Watch List of Companies Ready
Once you have educated yourself and done extensive research to discover the companies that are Rule #1 businesses, you can create your watch list. This is the exciting part!
Your watch list is a list of recession-proof companies you are confident in that you are ready to pull the trigger on when the price is right.
Step 6: Be Patient
Once you have your watchlist ready, it’s understandable that you will be eager to invest right away. But patience is a virtue and one of the best virtues you can have when you are investing during a recession.
You’ve got the cash, you’ve done your research, you have a watchlist of companies, and now you wait until you have the right margin of safety price. If you’re following the Rule #1 principles it should be like buying a 10 dollar bill for $5.
So, that’s the first part – wait for the right price. But you may also wait to put all your money in.
Start by investing 25% of what you intend to invest and see what happens. There is nothing wrong with dipping your toe in the market to ensure you are making the right move. When the stock of a business on your watch list hits your “buy” price, it’s time to buy.
Step 7: Monitor The Action of Experts
The actions of experienced Rule #1 Investors can help signal when to buy, sell, or what to look out for. These people have been at this a long time, so you can learn a lot from the decisions they have made and are currently making.
For example, as of the end of May 2020, Warren Buffett is holding cash and didn’t purchase any stocks during the month of April. What does this tell us?
It says that he expects the market to go down even further so he is waiting to buy. Pay attention to investment gurus you trust and watch how they are buying stocks during a recession—or not buying.
For a few of my favorite gurus to follow, watch this video below.
Warning Signs to Avoid in a Company During a Recession
We have talked about what to look for to find recession-proof rule #1 companies, but there are a few red flags we need to talk about as well.
While a lot of companies are on sale during a recession, that doesn’t necessarily mean they are a good investment.
Here are a few things to look out for before you invest in a company during a recession.
Beware of Companies with Debt
Companies with debt are in dangerous territory when a recession hits and bankruptcy is a very real possibility.
It is important to research how much debt the company has and how it compares to the company’s earnings. Free cash flow is a great indicator of a company’s health when it comes to debt.
You can calculate its free cash flow like this: First, find the company’s operating cash on its cash flow statement. Then, subtract “Purchase of Property & Equipment” from operating cash flow. This number equals the company’s free cash flow.
Next, divide the free cash flow by the total long term debt (found on the balance sheet) to determine how long it will take the company to pay off its debt.
If a company cannot pay off its debt in a short number of years, we’re talking two-three, it is a bad sign.
Ideally, you would only invest in a company that has zero debt, but if it has enough free cash flow to pay off its long-term debt in a few years, it can still be considered a Rule #1 business.
Avoid Management that Poorly Allocates Capital
A recession-proof business needs to have a team of leaders who are invested in the company and will lead it through uncertain times.
One indicator of good leadership is how they allocate capital. In order to judge whether the management allocates capital properly, you have to look at when they are buying back stock.
Are they buying back stock at its highest price? Steer clear of these companies.
This is a sure sign that the leadership is more interested in protecting themselves individually than the company as a whole.
Don’t Invest if You Can’t Determine Long-Term Value
With any investment, you need to know the long-term value of that company, but this can be difficult to determine during a recession.
We are going to assume that every company we are looking at will experience some sort of negative impact because of the recession.
But if it has a big moat, no debt, and allocates capital well, it should be able to come out on the other side.
We only want to invest in recession-proof companies that meet these criteria.
If a company meets these criteria, we can determine its long-term value like this: First, we assume the business will experience hard times over the next few years, but that it will stabilize with the economy in approximately 5 years. After 5 years, we can expect the company to continue at a decent growth rate and calculate its long-term value based on that.
If you can’t determine the long-term value of a business, you should be patient, continue to do your research, and watch the stock market and how businesses respond.
Don’t be in a rush to jump in, but instead focus on understanding everything you can about the businesses on your watch list.
Best Investments During A Recession
Now that we have covered how to invest during a recession, we can dive into what to invest in.
To recap, the best stocks to buy in a recession fall into your circle of competence, have a big moat, have a great long-term value, and are on sale.
While we have discussed examples of industries that have been negatively impacted by the Coronavirus, such as the airline industry that we spent a whole episode talking about on my podcast InvestED, there are also industries that have been positively impacted by the virus.
Investing in these stocks will help you build a recession-proof portfolio. Here are a few categories to look into.
1. Essential Goods
Goods that will remain valuable both during and long after the recession. Think of tangible items such as energy, food, and household products that we will always need.
2. The Big Players
Companies with a big edge on the competition that will be able to raise prices with inflation. Think of businesses such as Costco and Amazon.
These companies have a big moat that will sustain them throughout recessionary times and after.
3. Small Luxuries
Consider small luxuries that people will still hang on to even when times are tough.
When we look back on The Great Depression, we see how people still attended movies for a semblance of normalcy.
What are those little luxuries nowadays that society will cling to?
4. Proven Recession-Proof Companies
Look at companies that have strong histories of thriving after past market declines. Look for companies that were around during the great market decline in 2007 and check out how they performed during and after 2008.
Did they come out ahead when the recession was over? Or were they really weak when it was over? If they did great, that’s a good sign they might be able to come out on top again this time.
Where Is The Market Going?
We saw the market tumble down in March and have seen it bounce back up in recent weeks.
But what does that mean for the future of the stock market and how long will this recession last?
Seeing the future is impossible, but it is clear that the effects of the Coronavirus will be felt long term. As businesses continue to struggle, report losses, and go bankrupt, we will begin to see investors bail out of the market and fear grow, which in turn will cause the market to drop once again, and even more than before.
On a positive note, we will come back from this and there are companies that will come away from the recession better and stronger than before.
If you follow these tips on how to invest during a recession, you will be able to pinpoint those wonderful businesses, buy them when prices fall, and set yourself up for success. This could be the opportunity of a lifetime.
Want to Learn More About How to Invest During a Recession?
If you want to learn more about investing during a recession and how to build a recession investment strategy to set you up for success, join me for a Live Virtual Workshop.
I’ll focus especially on the timely topic of the stock market recession, where the economy is going, and the best investments you can make now. Hope to see you there!
By: Phil Town
Title: How to Invest During a Recession
Sourced From: www.ruleoneinvesting.com/blog/how-to-invest/how-to-invest-during-a-recession/
Published Date: Fri, 12 Jun 2020 14:56:14 +0000
Are These Marijuana Stocks Built For Long Or Short Term Success?
Would You Invest In These Marijuana Stocks In 2021?
For the last several month’s investors have found a renewed interest in marijuana stocks. From mid-2020 to currently in 2021 cannabis stocks have been on the move. Many pot stocks from various niches have been rising in the market. Some marijuana stocks have not only reported record earnings but some have seen back-to-back all-time highs. With the amount of money being invested with the hopes of federal cannabis reform, people are trying to jump on board before the boat leaves the dock.
The cannabis sector as a whole has been on fire. Many companies in the cannabis industry have been preparing for what’s next to come. Meaning most cannabis companies are making operational adjustments to be able to adapt to the future of the cannabis industry. For example, 2 big-time cannabis companies both teamed up to make the biggest cannabis company on earth. Tilray Inc. and Aphria Inc. joined forces which have helped both companies market performance to a degree.
As well other companies have taken notice and may follow the same path. A lot is changing for the cannabis industry between legislation, more states going legal, and new regulations. All these variables play a factor in how this sentiment impacts the market. With more positive sentiment taking hold of the market is reflects in how well some marijuana stocks trade.
So far in 2021 cannabis stocks are moving up and seeing overall bigger gains. For this reason, many new and seasoned investors are looking to get involved and make some money. The cannabis industry is one of the fastest-growing markets in the world that is continuously expanding. The 2 cannabis stocks below are examples of when the sector is trending it resonates well with how marijuana stocks can or will trade.
Pot Stock Watch List This Month
Green Lane Holdigns Inc.
Green Lane Holdigns Inc. has been of the many marijuana stocks trying to climb higher in a volatile market. Back in 202 GNLN stock saw its price fluctuate quite often. This price fluctuation allowed for good entry points before GNLN stock had a spike in trading. Like many marijuana stocks, 2021 gave the cannabis market a nice push to start the new year. With Green Lane 2021 was no different.
In the first 2 weeks of the new year, GNLN stock shot up 25 percent in trading as it was starting to dip from this point. Even though Green Lane closed out the first month of the new year with a drop from previous highs in January the following month was a different story. Currently GNLN stock in February has been able to recover from January’s dip.
The company has been able to even reach higher highs than last month. Within the first trading week of February, GNLN stock saw gains of 27 percent. This was a much-needed momentum booster to help the company recover from its trading at the close of January. So far for in February GNLN stock has had a nice upward push in the market showing over 60 percent gains in trading. This current momentum has signaled to investors that Green Lane may be a marijuana stock to watch in 2021.
- 3 Top Marijuana Stocks To Watch This Year
- Will Cannabis Stocks See A Rise In Trading With Chuck Schumer Push For Federal Cannabis Legislation?
Liberty Health Sciences Inc.
Liberty Health Sciences Inc. has been an interesting cannabis stock to watch. Like many other cannabis businesses, it’s going to take more than a pandemic to stop the company from expanding. Back in January, the company announced that it will be opening a new location adding to its current portfolio of dispensaries. The Company plans to open two more dispensaries by the end of February 2021 with much more in the works.
Although in 2020 LHSIF stock traded mostly sideways with subtle spikes in trading the new year has provided a strong push in trading. Starting from December 21st LHSIF stock started to bounce and began to climb in the market. From the 21st to the 31st of December LHSIF stock shot up 90 percent. For those who held their position until this point, they made a healthy return on their investment. Pushing into the new year the company was able to sustain its market momentum and keep pushing up in the market.
In the first 14 days of trading of the new year LHSIF stock has a 13 percent increase in trading. The remainder of January’s trading resulted in a small dip. Yet overall gains for the first month of 2021 for LHSIF stock was an increase of 8 percent. This was a subtle push that helped the company sustain its current market position. Now that we have entered February LHSIF has continued to trade up in the market. Currently for the month of February LHSIF stock is up over 25 percent. If the company can continue this momentum it would intrigue more people to keep an eye on this marijuana stock.
By: Daniel Chase
Title: Are These Marijuana Stocks Built For Long Or Short Term Success?
Sourced From: marijuanastocks.com/are-these-marijuana-stocks-built-for-long-or-short-term-success/
Published Date: Thu, 11 Feb 2021 13:30:07 +0000
Did you miss our previous article…
Price to Earnings Ratio Defined (P/E Ratio Formula)
Trying your hand at the stock market? Chances are, you’ve come across the term “P/E ratio”. If you’re like many who are new to the stock market, you’ve looked at this phrase and asked yourself, “What in the world is that?”
P/E ratio, otherwise known as the price-to-earnings ratio, is a formula that investors use to determine the value of a company’s share. It is one of the most common formulas used to determine the value of a stock. The formula compares the price of a company’s share to the earnings per share (EPS) of the company in order to determine how much an investor is paying for $1 of the company’s earnings. Let’s take a deeper dive into the P/E formula. Use the links below to jump ahead to a section of your choosing.
P/E Formula and Calculation
First thing’s first: let’s learn the price to earnings ratio formula and how to calculate it. The price-to-earnings ratio formula is as follows: the price of a single share of a company’s stock (What is a stock?), divided by the company’s earnings per share (EPS). The ratio of these two variables will tell you exactly how much an investor is spending for a single dollar of the company’s earnings.
Finding the cost of a company’s stock is extremely simple. In order to find the price of a single share of a company’s stock, all you need to do is enter the company’s stock ticker symbol (the series of characters that represents that company on the stock market) into a finance website, such as investor.gov. You’ll quickly find the current cost for a single share of that company’s stock. Google also keeps an up-to-date Market Summary for the prior day’s stock market, so a quick Google search will often bring exactly the answer you’re looking for.
Determining a company’s earnings per share (EPS) can be a bit trickier. Earnings per share are broken down into 2 categories: trailing earnings and forward earnings. Trailing earnings, often shortened to TTM, are the company’s core earnings over the trailing, or prior, 12 months. This number is the profit that the company has generated over the past 12 months of business. Remember that we’re talking about the net income of a business, rather than the gross income (Need a refresher? Learn more about gross income vs net income.). P/E ratios calculated with trailing earnings are known as the trailing P/E (P/E TTM). Forward earnings, on the other hand, are the predicted earnings that the company will generate over the next 12 months. P/E ratios calculated using forward earnings are known as the forward P/E. Both types of earnings are divided by the total number of public shares on the market in order to generate their EPS. More on this later.
Let’s try out an example. Say you’re looking to determine the trailing P/E of a fictional company AlphaBet Corporation, known on the stock market as ABC. Their share price is currently at $50 per share. Their trailing earnings per share is $5. Divide the $50 per share by the $5 EPS, and you’re left with a P/E of 10. This means that investors are paying $10 for every $1 in earnings per share.
Understanding P/E Ratio
So, ABC has a P/E of 10. What does that mean for you?
In the most general sense, the lower a P/E ratio, the less an investor is paying for each dollar of a company’s earnings per share. A higher P/E ratio means that an investor is paying more per EPS. But, unfortunately, determining which stock to buy isn’t as simple as “look for the lowest P/E ratio”.
It is imperative to remember that everything on the stock market is relative. “Good” and “bad” numbers are different for each and every industry. An electronics company and an automotive company are functioning in two vastly different landscapes. Therefore, in order to determine what is a good price to earnings ratio, you’ll need to understand the landscape of P/E ratios in the industry. Look at similar companies’ P/E ratios to better understand the relative value of your company’s P/E ratio. If ABC’s price-to-earnings ratio seems extremely high as compared to other companies in the industry, it may be an overvalued stock. On the other hand, if it seems extremely low as compared to other companies in the industry, it may be a very valuable stock.
Let’s try another example. We’ve already determined that ABC’s price is $50 per share, earnings are $5 per share, and P/E is 10. A competitor, DOG, also has stock for $50 per share. Their earnings, on the other hand, are $2 per share, making their PE 25 (50/2=25). An investor would pay $10 for every $1 of ABC’s earnings per share, but they’d have to pay $25 for every $1 of DOG’s earnings per share. With a better understanding of the landscape, we can see how ABC sits relative to its competitors.
A company’s price to earnings ratio may also be looked at relative to itself. Remember those two types of earnings we reviewed earlier? We can compare a company’s trailing P/E to their forward P/E to better understand the value of a stock. A company with a high trailing P/E ratio may have been rather unprofitable the prior 12 months because theywere preparing to ramp up business substantially, and took on a number of upfront costs. They may be expecting a boom of profits over the forward 12 months, leaving them with a substantially lower forward P/E. By reviewing these numbers in comparison to each other, we may see an opportunity for a long-term investment.
Limitations of the P/E Ratio
While the price to earnings ratio is certainly one of the most widely used calculations among stock market investors and analysts, it’s not a cut and dry way to determine a good or bad stock. It gives investors a good understanding of the value of stock in a particular moment, but it certainly has its short-comings.
Just as the stock market is relative, it’s also in a constant state of fluctuation. It is re-evaluated and recalculated constantly. Why does this matter when it comes to the price to earnings ratio? Well, just look at the variables we use to determine the P/E ratio.
First, we have the “price” of the price-to-earnings ratio: the cost of a single share of a company’s stock. Stock prices fluctuate every single day based on supply, demand, current events, and more. Typically, the cost of a company’s stock will be reported as the cost that it was when the stock market closed the prior day. Each time a company’s stock price changes, their P/E ratio will change. Certain companies may tend to have a greater fundamental volatility than others, leaving their stock price changing substantially each and every day. Even those with low fundamental volatility experience routine fluctuation.
Next, we have the “earnings” in the price-to-earnings ratio. Both trailing and forward P/E ratios have their limitations. Trailing P/E can feel like the more reliable of the two numbers because it’s based on facts. We take their actual earnings over the prior 12 months into account. But, in many situations, a company’s prior 12 months may have little to do with their next 12 months. As mentioned earlier, a company may have spent heavy the prior 12 months in preparation to ramp up the next 12 months. The trailing P/E won’t show us any of that. The forward P/E, on the other hand, is based on predictions. And predictions are quite educated guesses, but at the end of the day predictions are still guesses. A company may fall short of their predicted earnings or blow completely past them.
Looking to try your hand at the stock market? Don’t go at it alone. Consider opening an investment account with Mint. We believe that there’s no “one-size-fits-all” approach to investment. That’s why we offer a variety of investment partners, suited to each particular need. Let’s find the best to suit yours.
The post Price to Earnings Ratio Defined (P/E Ratio Formula) appeared first on MintLife Blog.
Title: Price to Earnings Ratio Defined (P/E Ratio Formula)
Sourced From: mint.intuit.com/blog/investing/price-earnings-ratio/
Published Date: Tue, 25 Aug 2020 19:37:02 +0000
Did you miss our previous article…
Will Marijuana Banking Be Apart Of Federal Cannabis Reform?
The Cannabis Industry VS Financial Institutions
As marijuana stocks and the cannabis industry as a whole awaits federal cannabis reform the sector keeps trending. Now if the U.S. can federally decriminalize cannabis some analysts feel it may cause some cannabis stocks to rally. As well as many new doors will that can open. For one many new markets will look to join the U.S. cannabis industry. Furthermore, with federal cannabis reform, it could be the start of initiating a banking system for the industry.
Currently due to cannabis still being federally illegal banks can not take money from a cannabis-related business. From the time states started going legal, it has been an issue that has yet to be resolved. The cannabis industry is one of the fastest-growing industries in the world, especially in the United States. Politicians have been working to pass various pieces of cannabis legislation.
The one bill that would be beneficial to the industry is known as the SAFE Banking Act. This bill would allow banks to accept money from cannabis-related businesses. On March 7, 2019, the bill was introduced to the U.S. House of Representatives by Ed Perlmutter and was introduced to the Judiciary and Financial Services Committees. Back in 2019, the Financial Services Committee voted 45 to 15 to advance the bill to the full House.
The SAFE Banking Act provisions were included in the HEROES Act COVID-19 relief bill passed in the U.S. House in May 2020. They were again included in a bill approved by the house 214–207 in October. A push to include the SAFE Banking Act provisions in the end-of-year COVID-19 stimulus failed, though hope remained it could pass in 2021 if reintroduced.
How Will The Cannabis Industry Work With Banks
When it comes to any business you can think having startup capital is important. Now not every person with money is willing to invest in a new venture which makes finding that more of a task. Especially with cannabis-related business and right now banks are no help. For a business to acquire a line of credit or some type of lending your business must be able to have some type of financial record.
This usually tells banks and lenders how good you are at paying things back and how reliable you are to do so. The bigger obstacle for cannabis businesses is how do you show you are trustworthy with no credit history. Once again this due to financial institutions not working with cannabis businesses. Let’s look at a few steps to help jump over some red tape.
First, you should start a new business that is a separate company from your personal credit. This will help when it comes time to do your taxes. The second step to take is you need to register for your EIN number. Next thing to do is open a new bank account and make sure you can show that you have continuous income which shows financial stability. Again with banks not accepting cannabis money the last step may be next to impossible to do.
- Are You Up To Date On The Cannabis Industry In 2021?
- Are These The Best Marijuana Stocks To Buy For Long Term Cannabis Investments?
Will Cannabis Banking Actually Happen?
The way financial institutions offer other industries various banking options is not the same for the cannabis industry. Although there is some grey area with cannabis and banks yet most banks won’t offer services for how high risk the industry is. This leaves many cannabis businesses left out from what other traditional retail businesses would have. Look past the risk banks also look at taking cannabis money as to much work. This would result in following regulations and keeping data on all money. This process has been established by the Bank Secrecy Act of 1970. Also, working with the large amounts of cash cannabis businesses generate may affect how a bank can operate.
With this roadblock between banks and cannabis money, it shuns cannabis businesses from establishing a form of credit. This issue alone is why the industry operates only in cash with very few places to keep it. Also, this issue can do much harm to future relationships with other companies and businesses. If a cannabis business can not establish a credit history no lender or bank can help. That’s why it’s important to have an industry as big as cannabis have some form of credit being reported to credit companies. This will tell other lenders and banks that a particular business is profitable enough to pay back any loans.
What Will The Future Of Cannabis Banking Become
It’s wild to think that an industry that is generating a high volume of cash is being blocked from showing the reliability needed to secure lending. Some feel if the cannabis business can earn the trust of financial institutions by being transparent with its earnings. This may be a step to banks feeling more comfortable with working with a cash-intensive business. Hopefully, with federal cannabis reform, it will help push cannabis banking in the direction needed to help out the industry.
By: J. Phillip
Title: Will Marijuana Banking Be Apart Of Federal Cannabis Reform?
Sourced From: marijuanastocks.com/will-marijuana-banking-be-apart-of-federal-cannabis-reform/
Published Date: Tue, 09 Feb 2021 18:34:56 +0000
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