Is a 2023 cannabis recession inevitable? While an economic downturn is inevitable, how the cannabis industry weathers the storm remains to be seen.
For sure, saturated retail markets will feel the hit as consumers cut back or make more discerning purchases. And large-scale industrial grows that have been more about selling equity than weed will feel the impact.
But why? Why has the value of cannabis stocks been removed from fundamentals? Why are small cannabis business owners – through no fault of their own – at the mercy of global economic forces beyond their control?
And what role can cannabis play in reviving the economy?
Cannabis Recession 2023
A cannabis recession in 2023 may be inevitable, but understanding why is a challenge in itself. Look at, for example, the massive money printing that occurred during COVID.
It even sparked a new meme – money printer go brrrr
So, as the new money entered the economy, the currency’s value dropped, and everything rose in price. That’s inflation.
But thanks to propaganda from politicians and the corporate press, the real cause of inflation is “corporate greed.” And, of course, the solution to “corporate greed” is to increase the scope and power of the centralized state.
Likewise, Larry Summers, an economist who worked in both the Clinton and Obama administrations, recently tweeted – accurately – about the collapse of the Silicon Valley Bank (SVB).
SVB committed one of the most elementary errors in banking: borrowing money in the short term and investing in the long term. When interest rates went up, the assets lost their value and put the institution in a problematic situation.
Sounds reasonable and logical, right? Like a physicist tweeting out that the speed of light is 300,000 kilometres a second.
But the reaction against Summers was swift. In the comments, he “clarified” what he meant by the original tweet. Prompting others, like George Selgin, to reply:
I’m glad to see, upon reading on, that Prof. Summers explains himself in the comments. Still, I was taken aback upon first seeing this tweet by him attributing SVB’s troubles to its having done what all banks always do!
What Have Banks Always Done?
I’m no Larry Summers fan, but it’s clear his original tweet was sound economics. Of course, he retracted and bent to the will of the mob, as is usually the case on Twitter.
But consider, what banks do daily would land you or me in jail. The trouble with the Silicon Valley Bank (SVB) stems from a practice called fractional reserve banking.
Once upon a time, we separated banking into two categories: warehouse banking and investment banking.
With warehouse banking, the bank provides storage services and seamless payment transfers. For this, the client pays a monthly service fee.
Investment banking involves having the bank raise capital by underwriting and selling securities.
Modern banking doesn’t distinguish between the two. Modern banks finance investment banking with money stored in warehouse accounts.
Instead of paying a small fee, the bank pays the warehouse depositor a small return. Of course, the bank’s depositors may want access to all their money simultaneously. This used to cause bank runs and was a powerful tool wielded by the masses.
Nowadays, banks create new money out of thin air.
You can imagine a storage garage working like this. You drop off things like furniture, thinking it’s a warehouse, but behind the scenes, the owner rents your stuff to others. In return, you receive a small nominal payment instead of a monthly fee.
On the surface, there’s nothing wrong with this business model. So long as the customer knows that the storage garage isn’t a warehouse but an investment opportunity. But this isn’t the case with modern banking.
Most depositors don’t realize they’re not depositing anything. They’re loaning money to the bank.
Fractional reserve banking has a scattered history, with the Bank of Sweden (founded in 1668) and the Bank of England (founded in 1694) employing such practices. The first large-scale practice was with the Bank of Amsterdam, established in 1609.
But fractional reserve banking didn’t become widespread until the 19th century. This isn’t something “all banks” have always done.
Banking for the Elite
Canada’s legalization of cannabis is perhaps the clearest example of who governments and banks work for. And it isn’t the average family.
Members of British Columbia‘s cannabis community have been cultivating and perfecting cannabis for decades. Without their civil disobedience, the Liberal Party would have never considered legalizing cannabis.
But were they rewarded with licenses and welcomed into the mainstream economy? No, they were “organized crime” until further notice.
Ottawa established a centralized system where federal bureaucrats determined who would grow cannabis in Canada. Not surprisingly, well-connected former politicians and cops got licences to establish industrial-size warehouses while B.C. Bud struggled for “micro-grow” licenses.
To be part of Canada’s legal cannabis regime, you need cash. You need tens of thousands in start-up capital and a willingness to place all your hopes, dreams, and aspirations in the hands of Health Canada.
The game was rigged from the beginning.
Who is likely to survive Canada’s cannabis regime in the long run? Large corporate actors or small business owners?
Both groups deal with excessive excise taxes, thousands of pages of regulations written in legalese, sometimes forgoing production to wait on the decisions of some Health Canada bureaucrat, rules against marketing, and government monopoly distributors.
But some have the capital, and others do not.
Anyone over 19 in Canada can buy cannabis just as easily as you would alcohol or cigarettes. But to produce and sell cannabis? You need deep pockets.
The entire industry is struggling. But who is likely to survive the 2023 cannabis recession? Those who have capital. Who has capital? Your local Mom and Pop pot shop or the corporation connected to Laurentian elites?
Cannabis Recession 2023
This “microeconomic” policy permitting fractional reserve banking has “macroeconomic” consequences. If you ever wondered how cannabis producers like Aurora or Canopy made so much money before producing any cannabis or why their stock value was higher than you could ever get from their weed, look no further.
New money gets shovelled into projects and into investments that otherwise wouldn’t have been made. Resources get misdirected. During the downtime it takes to move these resources into new, sounder capital structures, the economy experiences a recession.
Of course, governments and banks interfere with this restructuring process instead of liquidating bad debts and allowing the market to set interest rates.
Banks are supposed to make capital available for businesses through investment banking. They also provide a payment-and-exchange system through warehouse banking.
When a bank fails, like Silicon Valley Bank, it is in a “liquidity crisis.” SVB did not have 100 percent of their warehouse accounts available for their customers.
The United States hasn’t had a market interest rate in nearly 100 years. The U.S. central bank (the Fed) has been dictating interest rates like they were just another government policy.
After ultra-low rates for two decades, the Fed has begun raising rates. SVB has extensive holdings of older U.S. government bonds which lost value when the Fed raised rates.
As the losses mounted and SVB failed to secure money to cover the shortfall, customers realized what was happening and rushed to withdraw their deposits.
This situation is not unique to SVB. They are merely the canary in the coal mine.
Cannabis Recession 2023: The Solution
SVB is liquidating assets to cover deposits, so this may not signal a nationwide failure of banks like in 2008. But if not now, then later. And if not SVB, then another bank.
The banks have gotten the world economy highly leveraged. No one has resolved the issues that created the 08/09 financial crisis. In fact, the fundamentals are even worse than before.
So what’s the solution? Raise interest rates, bankrupt everyone, and start over? Or lower interest rates and hope this party continues indefinitely?
Of course, a third option, however unlikely, remains the best long-term decision. And that is: stop using fiat currency.
Money backed by a commodity – gold, silver or rare shells – is superior to paper money printed by governments and banks.
And this isn’t an opinion – it’s a historical fact.
Avoid a Recession by using Hashcoin?
Commodity-backed money provides greater stability and predictability in its value. It protects against inflation by limiting the money supply and maintaining the purchasing power over time.
Commodity-backed money inspires greater confidence and trust in the banking system since people know the banks can’t destroy its value by creating more out of thin air.
Commodity-backed money is more difficult for governments, banks, and Wall Street to manipulate. They can’t print more money at will and, therefore, can’t easily repackage bad assets into Grade A investments.
Alongside a blockchain, commodity-backed money becomes a powerful tool in preventing counterfeiting, including official counterfeiting done by the banks. Commodity-backed money protects against corporate and government overreach and abuse of money.
Overall, commodity-backed money limits the power of governments and banks. It creates investment potential for small-to-medium investors that Wall Street have locked out of their casino.
Commodity-backed money – like hashcoin – restores the wealth and prosperity of the middle class.
Any politician that claims to want to help the middle class (as Justin Trudeau does) but doesn’t address monetary policy (Justin says he doesn’t think about it) is a fraud and a stooge for the elites.
Cannabis has the potential to create a green,sustainableworld. But first, we need to get politicians and corporate bankers out of the way.